Meituan is China's leading e-commerce platform for services focusing on mass market, essential and high-frequency service categories to connect consumers and merchants. The Company’s mission is to “help people eat better, live better”, and from the strategy perspective, the Company will stay focused on its “Food + platform” strategy.
The Company’s main business segments include i) food delivery, ii) in-store dining, hotel booking and travel booking, iii) new initiatives (eg. community e-commerce and others). Meituan operates several popular mobile apps including Meituan Dianping, Meituan Waimai and Mobike.
As of 2020, Meituan is the world's largest on-demand food delivery service provider with the GTV (Gross Transaction Volume) of its food delivery business approaching RMB 500bn. In the year of 2020, the Company’s food delivery business generated an operating profit of RMB 2.8bn and a ~4% operating margin. Meanwhile, the in-store dining, hotel booking, and travel businesses generated a RMB 8.2bn in 2020 with an impressive ~39% operating margin. The new business initiatives segment is where the Company burnt most of the cash inflow to pursue future growth opportunities such as community e-commerce, online groceries, etc.
Competitive advantage
Food delivery in China is essentially a duopoly business, with Meituan and Ele.me (Alibaba subsidiary) being the number one and number two player respectively. Meituan has a strong execution track record and proven efficiency in this space, and it could be reasonable expected that the Company’s competitive advantage in the food delivery space can be sustained in the long run, capturing the secular growth in this space.
Meanwhile, the Company is also the largest online platform for in-store dining and local discovery in China, with strong growth potential from converting food delivery merchants into in-store dining merchants. The Company’s in-store dining business represents >70% of its segment revenue with a strong profitability, thereby explaining the fat operating margin (~40%) at the in-store, hotel and travel business. On the other hand, the hotel and travel booking business is more competitive, with other scaled players like Ctrip and Tongcheng Elong.
Valuation
Using a conservative set of assumption and a 12% WACC, I still get a HKD 350 fair valuation for the Company’s share.
Investment risks
Rising competition from tech players, rising driver / labor costs, regulatory risks
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