Meituan Earnings: Strong Recovery Prospects Offset by Margin Decline and Intensifying Competition

We maintain our fair value estimate for Meituan at HKD 145 after the company reported first-quarter revenue of CNY 58.6 billion that was 2% better than our CNY 57.5 billion estimate. However, the company provided mixed guidance. While management expects strong recovery in its food delivery business in second quarter 2023, expecting a 30% increase in orders year on year, it also anticipates a significant decline in operating margin to about 30%-35% for its hotel and local services unit. Meituan previously guided for a gradual margin decline to 35% over the next two years, but now expects competition to intensify earlier than expected. Company guidance for the hotel and in-store segment to increase more than 100% in gross transactional volume, or GTV, and 57% in revenue year over year next quarter was very encouraging. However, the lower operating margin should cause operating profit to decline sequentially to CNY 3.5 billion in our estimate. We also believe that user growth has stalled; however, the company no longer gives out user metrics given declines over the past four quarters and once Meituan started to increase monetization to focus on profitability.