Greater China Equity Long/Short Analyst

Eric Chen

Equity Bottom-Up

<ul>
<li>Share price of Meituan has fallen by 25% since we flagged the name as high-conviction sell for 2024 last December, due in large to its weakening fundamental and earnings cut.</li>
<li>We believe its competitive positioning in food delivery remains rock solid and estimates Meituan will likely command over 2/3 market share in in-store business, at the expense of margin.</li>
<li>The company trades at 12x/8.6x 2024/25 consensus earnings. Current valuation already priced in rather bearish outlook amidst macro concerns and intensified competition in our view. We see value emerging.</li>
</ul>


Share price of Meituan has fallen by 25% since we flagged the name as high-conviction sell for 2024 last December, due in large to its weakening fundamental and earnings cut.
We believe its competitive positioning in food delivery remains rock solid and estimates Meituan will likely command over 2/3 market share in in-store business, at the expense of margin.
The company trades at 12x/8.6x 2024/25 consensus earnings. Current valuation already priced in rather bearish outlook amidst macro concerns and intensified competition in our view. We see value emerging.


Meituan (3690 HK): Turning Cautiously Positive

Blue Lotus Non US Internet research, Blue Lotus Research Institute

Ying Pan

Blue Lotus Non US Internet research

China growth and global non-US Internet equities

Blue Lotus Research Institute

Blue Lotus Research is a Hong Kong Type 4 Licensed investment advisory firm focusing on Chinese growth equities and global non-US Internet equities

Thematic (Sector/Industry)

<ul>
<li>With consumption in the doldrums, one would expect none growing at double digits. This is actually not the case; </li>
<li>Further, how many Chinese Growth Equity names are accelerating in growth in the second half? Quite a lot;</li>
<li>We reiterate our view that Chinese Internet names are took-all winners with strong pricing power, which are showing when they need to. The weak market sentiment is self-fulfilling.</li>
</ul>


With consumption in the doldrums, one would expect none growing at double digits. This is actually not the case; 
Further, how many Chinese Growth Equity names are accelerating in growth in the second half? Quite a lot;
We reiterate our view that Chinese Internet names are took-all winners with strong pricing power, which are showing when they need to. The weak market sentiment is self-fulfilling.


How Many Chinese Growth Equity Names Are Growing at Double Digits?

<ul>
<li>Local news reported an unnamed expert suggesting ByteDance might be buying Eleme for US$7bn, leading to share of Meituan to fall;</li>
<li>While we believe (1) buying a food delivery business to complement Douyin’s in-store business makes some sense and...</li>
<li>(2) ByteDance has been aggressive in pushing the boundary of its businesses, an entry into domestic food delivery is a daunting challenge that yields very little benefits for ByteDance;</li>
</ul>


Local news reported an unnamed expert suggesting ByteDance might be buying Eleme for US$7bn, leading to share of Meituan to fall;
While we believe (1) buying a food delivery business to complement Douyin’s in-store business makes some sense and...
(2) ByteDance has been aggressive in pushing the boundary of its businesses, an entry into domestic food delivery is a daunting challenge that yields very little benefits for ByteDance;


[Meituan (3690 HK, BUY, TP HK$118) Company Update]: Why ByteDance’s Purchase of Eleme Is a Bad Idea?

<ul>
<li>We don’t consider Douyin an existential threat to Meituan, but we see the company’s growth increasingly be constrained by its business model itself.</li>
<li>We believe Meituan will disappoint the market with regard to its bottom line growth in 2024, barring major overhaul of its new initiative businesses.</li>
<li>Meituan will have to make tough choice between growth and profitability and either scenario won’t bode well for its valuation. We value the company at RMB410 billion, meaning 18% downside.</li>
</ul>


We don’t consider Douyin an existential threat to Meituan, but we see the company’s growth increasingly be constrained by its business model itself.
We believe Meituan will disappoint the market with regard to its bottom line growth in 2024, barring major overhaul of its new initiative businesses.
Meituan will have to make tough choice between growth and profitability and either scenario won’t bode well for its valuation. We value the company at RMB410 billion, meaning 18% downside.


2024 High Conviction Idea: More Downside for Meituan

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>SOUTHBOUND flows the last several weeks clearly indicated a momentum move. The top net sells were all down. The top buys were all up. This week saw reversion.</li>
<li>SOUTHBOUND saw net buys of HK$3.5bn this week, breaking a nascent sell streak. Meituan dip-buying Wednesday to Friday was worth the entire net buy.</li>
<li>High-Div SOEs remain mixed. CNOOC (883) saw decent net buying, and China Mobile saw decent net selling. Again.</li>
</ul>


SOUTHBOUND flows the last several weeks clearly indicated a momentum move. The top net sells were all down. The top buys were all up. This week saw reversion.
SOUTHBOUND saw net buys of HK$3.5bn this week, breaking a nascent sell streak. Meituan dip-buying Wednesday to Friday was worth the entire net buy.
High-Div SOEs remain mixed. CNOOC (883) saw decent net buying, and China Mobile saw decent net selling. Again.


HK Connect SOUTHBOUND Flows (To 1 Dec 23); Meituan Dip-Buyings Leads Inflows; CNOOC Vs 941 on SOEs

China

Meituan operates as a web based shopping platform for locally found consumer products and retail services. The Company offers deals of the day by selling vouchers on local services and entertainment, dining, delivery, and other services. Meituan provides its services throughout China.

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Meituan (3690 HK)

Meituan (3690 HK): Turning Cautiously Positive

Meituan has lost 25% market cap since we flagged it as high conviction sell last December. We consider risks largely priced in due to earnings cut...

Eric Chen

How Many Chinese Growth Equity Names Are Growing at Double Digits?

More Chinese growth equity names growing at double digit than single and more are accelerating in growth in C2H24. Pessimism can turn into self...

Blue Lotus Research Institute

[Meituan (3690 HK, BUY, TP HK$118) Company Update]: Why ByteDance’s Purchase of Eleme Is a Bad Idea?

Local news suggests that ByteDance may acquire Eleme for $7bn, causing Meituan's shares to drop. However, entering the food delivery market may...

Blue Lotus Research Institute

2024 High Conviction Idea: More Downside for Meituan

We believe Meituan will disappoint market in terms of bottom line growth in 2024 due to the constraints of its business model. We valued the...

Eric Chen

HK Connect SOUTHBOUND Flows (To 1 Dec 23); Meituan Dip-Buyings Leads Inflows; CNOOC Vs 941 on SOEs

Quiddity's SOUTHBOUND Connect Monitor: Large net buys on Meituan after the dip make up all of the last week's net buys. Other names see smaller...

Travis Lundy

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Meituan (3690 HK): Turning Cautiously Positive

Meituan has lost 25% market cap since we flagged it as high conviction sell last December. We consider risks largely priced in due to earnings cut...

Eric Chen

How Many Chinese Growth Equity Names Are Growing at Double Digits?

More Chinese growth equity names growing at double digit than single and more are accelerating in growth in C2H24. Pessimism can turn into self...

Blue Lotus Research Institute

[Meituan (3690 HK, BUY, TP HK$118) Company Update]: Why ByteDance’s Purchase of Eleme Is a Bad Idea?

​Local news suggests that ByteDance may acquire Eleme for $7bn, causing Meituan's shares to drop. However, entering the food delivery market may...

Blue Lotus Research Institute

2024 High Conviction Idea: More Downside for Meituan

We believe Meituan will disappoint market in terms of bottom line growth in 2024 due to the constraints of its business model. We valued the...

Eric Chen

HK Connect SOUTHBOUND Flows (To 1 Dec 23); Meituan Dip-Buyings Leads Inflows; CNOOC Vs 941 on SOEs

Quiddity's SOUTHBOUND Connect Monitor: Large net buys on Meituan after the dip make up all of the last week's net buys. Other names see smaller...

Travis Lundy

Local news suggests that ByteDance may acquire Eleme for $7bn, causing Meituan's shares to drop. However, entering the food delivery market may...