Meituan: Q1 earnings overshadowed by cautious order volume guidance (MPNGF)
Elevator pitch
My investment rating for Meituan The stock (OTCPK:MPNGF) (OTCPK:MPNGY) (3690:HK) is a contract. In my previous article published on January 30, 2024, I touched on company stock buybacks and… Preview the financial results for the fourth quarter of 2023.
In this latest update, I focus on MPNGF’s recently disclosed financial performance for Q1 2024 and the company’s outlook for the rest of the year. On the positive side of things, Meituan’s bottom line and actual result for the first quarter of 2024 were above expectations. On the negative side of things, MPNGF is expected to report a slower pace of year-over-year revenue growth in the remaining quarters of 2024, taking into account the company’s order volume guidance. Meituan’s P/E valuations are also more demanding than those of its peers. As such, my review of Meituan remains a commentary.
Readers should note that they may deal in the Company’s shares on the Hong Kong Stock Exchange or the over-the-counter market. Meituan’s OTC and Hong Kong-listed stocks achieved three-month average daily trading values of $10 million and $500 million, respectively, according to engadget. Standard & Poor’s Capital IQ Data. Investors can trade Meituan shares listed in Hong Kong with US brokerages such as Interactive Brokers or Hong Kong stock brokers such as Monex Boom Securities.
First-quarter revenues and profits exceeded analysts’ expectations
Meituan released its first-quarter 2024 results announcement on June 6 last week, and the company’s key financial metrics for the first quarter came in above consensus estimates.
MPNGF’s top line grew +25% year-on-year to CNY73,276 million in the first quarter of this year. Meituan’s actual sales for Q1 2024 turned out to be +5% better than the sell-side revenue forecast of CNY 69,622 million (Source: Standard & Poor’s Capital IQ).
In its latest quarterly results announcement, Meituan revealed that on-demand delivery order volume rose +28% year-on-year to 5,465 million for Q1 2024. In its Q1 2024 analyst briefing, the MPNGF highlighted its “improved marketing strategy.” and an increase in “frequent transactions for high-frequency users.” This provides an explanation for Meituan’s strong growth in on-demand delivery orders and its above-expected revenue in the first quarter.
The company’s actual 1Q 2024 net normalized income of CNY 7,488 million exceeded final market expectations of CNY 6,052 million by +24% according to Standard & Poor’s Capital IQ Data. This also means that MPNGF’s net profit rose +36% year over year in the latest quarter.
Meituan’s better-than-expected first-quarter earnings were driven by higher gross margin and lower losses for its new initiatives business segment.
The company’s gross margin expanded +130 basis points year-over-year to 35.1% in Q1 2024. MPNGF noted in its Q1 results announcement that it achieved “improved gross margin” for its “commodity retail business” that benefited from “efforts efforts to improve operating efficiency. “.
On the other hand, the operating loss of Meituan’s New Initiatives segment narrowed from -5,029 million CNY for the first quarter of 2023 to -2,757 million CNY in the first quarter of 2024. The company stated in its analyst call for the first quarter that Meituan Select, a group Its community, which buys businesses within the new initiatives sector, has made some moves to enhance profitability such as “raising the price margin ratio, reducing user support and closing underperforming warehouses.” In other words, MPNGF’s New Initiatives segment achieved a narrower operating loss thanks to improved operating profitability of Meituan Select.
Expectations that top-line growth will slow in the future
Hong Kong listed Meituan shares and OTC shares with ticker symbol MPNGF corrected by -2% (Source: Standard & Poor’s Capital IQ) and -9%, respectively on June 7, 2024, the day after the announcement of the first quarter results. It appears that the market has chosen to focus more on the company’s revenue outlook, rather than going beyond its first-quarter earnings.
At the company’s latest Q1 results press conference, MPNGF noted that the order volume growth rate in the second quarter (year-on-year) is expected to trend towards a normal level, which will reflect the current consumption environment. It is worth noting that retail sales growth in China slowed from +3.1% y/y in March to +2.3% y/y in April, based on the latest available economic data.
Meituan also added in its latest quarterly earnings call that it “will no longer benefit from last year’s lower order base” starting in the second quarter. For comparison, the company’s actual on-demand delivery order volume growth rates were +15%, +32%, +23%, and +25% for the first, second, third, and last quarters of last year, respectively. Annual basis.
In specific terms, the sell side is seeing MPNGF’s top line expansion moderate YoY from +25% in Q1 2024 to +18%, +17% and +16% (Source: Standard & Poor’s Capital IQ), for the second quarter of 2024, the third quarter of 2024, and the fourth quarter of 2024, respectively. The consensus revenue growth outlook among analysts is largely in line with Meituan’s order volume guidance.
Peer evaluations in the spotlight
The stock’s relatively more expensive valuations compared to peers may limit capital raising potential, despite better-than-expected first-quarter results. The company’s Hong Kong-listed shares are up +39% in 2024 to date, and Meituan’s current valuations are unattractive on a peer comparison basis.
Compare peer rating for Meituan
stock | Consensus for normalized P/E over the next 12 months |
Meituan | 16.6 times |
Tencent (OTCPK:TCEHY) (OTCPK:TCTZF) (700:HK) | 16.1 times |
BDD (BDD) | 11.8 times |
Alibaba (Baba) | 9.5 times |
JD.com (dinar) | 8.7 times |
source: Standard & Poor’s Capital IQ
According to the peer comparison table shown above, Meituan’s consensus P/E scale for the next twelve months is now higher than its major online listed Chinese peers. Given expectations of slower revenue growth in the future, it would not be realistic to expect a multiple valuation expansion for Meituan and a widening of the valuation gap with the company’s peers.
Final thoughts
I still have a neutral view on Meituan as a potential investment. Taking into account its results, forecasts and ratings, my opinion is that a Hold rating for Meituan is justified.
Editor’s Note: This article discusses one or more securities that are not traded on a major U.S. exchange. Please be aware of the risks associated with these stocks.