Daily Brief China: Li Auto , Meituan and more

In today’s briefing:

[Li Auto (LI US, BUY, TP US$22) TP Change]: Expanding Outside of SUV Is Still the US$mn Question
LiAuto (LI US, BUY, TP:USD25.0): Good 2Q-2024 Results, on Track to Match Consensus
[Meituan (3690 HK, BUY, TP HK$165) TP Change]: Better Margin Outlook from Rider Cost and Execution

[Li Auto (LI US, BUY, TP US$22) TP Change]: Expanding Outside of SUV Is Still the US$mn Question

LI Auto (LI) reported C2Q24 top line, non-GAAP operating profit and GAAP net income 5.0%, (5.2%) and (20%) vs. our estimates, and in-line, 53% and 6.8% vs. consensus.
We believe the market has oversold the company.But in our view,the key question is LI’s next product entry under the backdrop of Xiaomi consolidating its position in the EV sector.
We believe LI should continue to explore its “family car” brand niche in entering the sedan market. If so, volume and margin can co-exist.

2Q-2024 results is within ours and consensus expectations. Competition is tough, but LiAuto managed to remain profitable
Management is boosting R&D expenditure and boost spending on expanding number of charging stations, all for the benefit of its customers.
Our fair value of USD25 implies 16x FY25 PE – average for auto growth stock. A bargain with 3-year CAGR of 38%, net cash, and churns high free cash flow.

Meituan reported C2Q24 revenue 1.4%/2.3% higher than our estimate/consensus and adjusted net income 17%/28% higher than our estimate/consensus, thanks to lower rider cost and less subsidies to users;
Although poor economy has plunged Meituan’s merchant base to the loss-making zone, we expect Meituan’s take rate to persist as take-out order represents incremental revenue to offset merchants’ fixed cost.
We reiterate BUY rating and raise TP to HK$165/share. Catalysts are reduced competition, expansion of Pinhaofan, and overseas expansion.

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