We are bullish on Meituan Dianping (“MD”)’s strong topline growth and margin improvement, backed by its sizable users, one-stop lifestyle services, unique UGC and powerful logistic network. We forecast MD to deliver 35% revenue CAGR during FY18-21E. With epidemic impact partly priced in, we think MD’s valuation is not demanding. Initiate with BUY with DCF-based TP HK$126.3.
- A lifestyle one-stop shop surfing on the Super App era. MD is the world’s largest on-demand food delivery provider and China’s largest ecommerce platform for in-store dining services in 2017, according to the iResearch Report. Backed by its sizable users, diversified service offerings, big data and new tech initiatives, we forecast MD to deliver 26%/35% GMV/revenue CAGR during FY18-21E, thanks to strong demand from low-tier cities, user expansion, cross-selling, and enhanced monetization.
- Bearing fruits from effective cross-selling. MD is well-positioned to capture booming demand of food delivery, and we expect it to continuously strengthen its leadership and improve profitability. With right cutting into food delivery and in-store services, we see high visibility for MD to enjoy cross-selling effect, by extending from high-frequency services to low-frequency business with high margin (e.g. hotel reservation). We forecast its food delivery/ in-store, travel, hotel revenue to surge 33%/27% CAGR in FY18-21E. The competition landscape tends to normalize, and we expect MD’s unique UGC comments to build high barrier and one-stop lifestyle services to unlock boundary.
- New initiatives to reshape local service. Powered by huge traffic and data analytics, MD also excels itself with new initiatives expansion, to strengthen merchant stickiness and improve efficiency. We are bullish on MD’s new initiatives potential and forecast 50% revenue CAGR in FY18-21E, supported by: 1) rising adaption and penetration of to-B & to-C services; and 2) Mobike contribution. With enhanced monetization, narrowing loss from new initiatives, and increasing cross-selling effect, we keep positive on MD’s margin outlook.
- Initiate with BUY. We set our DCF-based TP at HK$126.3 (implying 4.6x FY21E P/S, or 53x FY21E P/E), slightly higher than industry average. Key market concerns lie in the epidemic impact, but have been partly priced in, in our view. Waiting for more catalysts from: 1) delivery & hotel recovery after the epidemic; 2) cross-selling effect to unlock revenue; and 3) new initiatives expansion.
