Keeta Launch And AI Focus Will Open New Markets

Key Takeaways

• International expansion and new market entry, such as Saudi Arabia, could drive future revenue growth and broaden the customer base.
  
• Focus on tech and AI innovations may improve operational efficiency, reducing costs and enhancing service, potentially increasing net margins.
  
• Challenges in food delivery market limit growth, while investments in new technologies and overseas expansion risk financial strain and pressure profit margins.

Catalysts

Operates as a technology retail company in the People’s Republic of China.

• Meituan is actively expanding internationally, with the successful launch of Keeta in Saudi Arabia and plans to enter more markets, which could drive future revenue growth from increased geographical reach and new customer bases.
  
• Continued focus on technology and AI, including the development of a large language model and autonomous delivery systems, is expected to enhance operational efficiency, potentially improving net margins by reducing costs and increasing service capabilities.
  
• New supply chain innovations and business models, such as Pin Hao Fan and Meituan Instamart, aim to attract consumer demand for affordable dining and retail options, suggesting potential growth in customer purchase frequency and revenue.
  
• Investment in worker welfare and merchant support programs, such as social security pilot plans for couriers and expanded resources for merchants, could foster a more sustainable ecosystem, potentially stabilizing or improving profit margins by reducing churn and increasing merchant participation.
  
• The strategic growth of Instashopping and accelerated penetration into lower-tier markets may continue to drive significant increases in transaction volume and user engagement, contributing to both revenue growth and enhanced market share.

Meituan Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Meituan's revenue will grow by 15.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.6% today to 12.9% in 3 years time.
• Analysts expect earnings to reach CN¥66.2 billion (and earnings per share of CN¥10.87) by about March 2028, up from CN¥35.8 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥81.8 billion in earnings, and the most bearish expecting CN¥51.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.4x on those 2028 earnings, down from 25.0x today. This future PE is greater than the current PE for the HK Hospitality industry at 17.3x.
• Analysts expect the number of shares outstanding to decline by 3.86% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.64%, as per the Simply Wall St company report.

Meituan Future Earnings Per Share Growth

Risks

• High competition and market saturation could limit growth potential in the food delivery sector, affecting Meituan's future revenue growth as newer markets become harder to penetrate.
  
• Expanding into overseas markets like Saudi Arabia requires significant investment and carries risks; unexpected costs or failure to gain traction could negatively impact net margins or overall earnings.
  
• Reliance on the development and integration of new technologies, like AI and autonomous vehicles, presents execution risks and requires substantial capital expenditure, which might pressure financials if not effectively monetized in the short to medium term.
  
• The increasing operational costs associated with improving courier welfare and merchant support could weigh on profit margins, particularly if these expenses outpace revenue growth from new customer acquisition or service innovation.
  
• Potential decline in average order value (AOV) and the need for more user incentives could affect the monetization of existing customers, impacting net margins and overall profitability.

Valuation

• The analysts have a consensus price target of HK$200.999 for Meituan based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$299.98, and the most bearish reporting a price target of just HK$124.21.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥512.9 billion, earnings will come to CN¥66.2 billion, and it would be trading on a PE ratio of 19.4x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of HK$159.9, the analyst price target of HK$201.0 is 20.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.