Shulou(Shulou.com)11/24 Report--

According to the news on the evening of November 25, Meituan today released its financial results for the third quarter of 2022, which showed that the company's revenue in the third quarter was 62.62 billion yuan, up 28.2% from the same period last year. The net profit was 1.22 billion yuan, turning losses into profits compared with the same period last year, with an estimated loss of 986.8 million yuan; the adjusted net profit was 3.53 billion yuan.

After the release of the results, Wang Xinghe, founder, chairman and CEO of Meituan, and Chen Shaohui, CFO of the company, participated in the analyst conference call to interpret the results.

The following is a transcript of the question and answer session of the teleconference:

Jeffery analyst Thomas Chung: compared with July and August, the company's core local business business slowed down in September. Could you please tell us about the recovery in the last two months? In particular, the resumption of growth in takeout, arrival, hotel and tourism business. How did the recent repeated outbreaks affect the company's fourth-quarter results?

Chen Shaohui: the epidemic has caused income fluctuations in various businesses in recent months. Generally speaking, the impact of the epidemic control measures received in the second quarter was relatively great, and it recovered somewhat in the third quarter. At the end of August, the number of medium-and high-risk areas began to increase significantly, and reached a peak in early September, and there was a resurgence of the epidemic in the fourth quarter. The takeout business benefits from the impact of epidemic control, showing an increase in unit volume, and the summer vacation is also conducive to pushing up single volume, but the impact of the epidemic is also different in different regions, and began to decline in September. The epidemic also had an impact on our arrival business. Year-on-year sales in September dropped sharply compared with August. First-tier cities accounted for a relatively large proportion of overall sales of arrival business. Sales of arrival business in small and medium-sized cities increased sharply in August, but fell sharply in September due to epidemic control measures. Part of the hotel and tourism business is mainly from intra-city travel revenue, showing a year-on-year decline. Meituan flash purchase is less affected, we have also further enriched the goods on the shelves, and the number of orders continued to increase significantly in September. The epidemic was severe again during October and November, and the number of medium-and high-risk areas increased significantly again, driving the business volume of flash purchases, and we expect the current control measures to continue until at least the end of the year. Next month's situation is likely to be more serious than this month. Despite recently updated controls, the outbreak had a greater impact on core local business in the fourth quarter than in the third quarter. Nevertheless, we believe that the current fluctuations are short-term, and the situation will gradually improve with the continuous adjustment and relaxation of control measures. Taking into account the rebound in the core local business during the summer, we can see the resilience of Meituan's business to adapt to the environment, and we also look forward to rapid growth in the future after the relaxation of controls. The peak daily orders of takeout and flash buying business were more than 6000 million and 9.7 million important nodes in August. Sales of arrival business also reached new highs for two consecutive months in areas less affected by the epidemic and normal prevention and control. Local consumer demand has been there all the time. We are confident in long-term growth.

Morgan Stanley analyst Gary Yu: what are the driving factors behind the month-on-month increase in operating margins in the core local business business in the third quarter? How was the fourth quarter?

Chen Shaohui: we are very pleased to see the core local business operating profit growth in the third quarter compared with the previous quarter. Look at each business separately. In the takeout business, distribution costs have increased due to seasonal factors and subsidies provided by us, as well as the improvement in the epidemic in the second quarter of July and August, and the investment in market activities has also increased, resulting in a slight drop in profits compared with the previous quarter. The operating profit of Meituan's flash purchase business also declined slightly month-on-month, because we increased the discounts for consumers to place orders and increased spending on brand marketing. There has been a significant increase in operating profits in the hotel and tourism business, which has also increased profit margins, mainly due to the improvement of the epidemic in the quarter, and we have also reduced market resources to avoid unnecessary costs. Compared with the same period last year, the operating profit of the core local business business has increased significantly, although there are more areas affected by the epidemic in the third quarter than last year, we have actively adjusted our operating strategy to maintain high-quality and efficient growth. Looking ahead, the epidemic will continue to affect core local business, and revenue changes will be affected accordingly, and we are expected to be more affected in the fourth quarter than in the third quarter. We will also continue to cut costs and improve efficiency, and we expect profits and profit margins to continue to improve in the fourth quarter. The consumption discount offered by the company in the takeout business will continue to be maintained at a reasonable level; we will continue to invest in the flash purchase business to promote the growth of the business at this special stage of development and to increase the mental share of users. our unit economic benefits will also continue to improve with the expansion of the scale. Hotel and tourism business will be more affected than takeout business, we will continue to improve efficiency, reduce costs, increase online channel marketing, optimize offline marketing resources to achieve sustainable growth; continue to increase investment in arrival business, increase users' mental share, introduce more quality merchants and create more quality orders. Overall, the core local business has entered a stage of balanced development and profitability, and we will continue to adjust our strategies to achieve high-quality growth and are confident that we will perform well in the future.

Goldman Sachs analyst Ronald Keung: apart from the epidemic, is there any other reason for the slowdown in the arrival business? We know that some other companies are starting to do local business. What action does the company plan to take in response to this competitive situation? What measures will be taken to ensure the company's competitive advantage in terms of products, content and merchants?

Wang Xing: over the past quarter, the sales and revenue growth of the company's inbound, hotel and tourism businesses have been more affected by the macro situation and the epidemic, and it will take longer for business operations, business confidence and advertising revenue to return to normal. As long as there is an improvement in the epidemic, as it did in July and August, the consumer demand of the arrival business will rebound sharply, and our business is very resilient and flexible. therefore, we have confidence in the medium-and long-term development of the store business.

With regard to the competitive situation you mentioned, short video platforms have achieved rapid growth in local services, but their sales are not comparable to those of Meituan. Our arrival business and advertising platform can provide different value for consumers and merchants. Our services are based on stores and search results, and can meet the most direct needs of consumers as well as the stable daily operation needs of stores. On the other hand, the short video platform mainly meets the needs of preferential consumption and promotion, including the opening of new stores and sales during the promotion period. Both ways can meet the digital needs and consumer needs of businesses. Repeated outbreaks in the past quarter have provided opportunities for businesses to use short video platforms to sell products. The digital degree of the arrival business is still in the early stage of development, the rapid development will continue, the market penetration is still relatively low, the penetration of food and beverage to the store is less than 10%, and the penetration of other services to the store is even lower. There have been other competitors in the market, but with our strategy and efficiency, the company has always been the fastest growing in the industry. We also welcome other companies to work with us to improve the digital level of businesses and promote the recovery of consumption growth. In the past few years, we have accumulated a large number of high-quality users, more than 15 billion original reviews, a large number of merchants, as well as a wide range of goods and services, as well as a location-based service ecosystem. It can recommend and provide the most suitable goods and services for consumers, ensure consumers' retention and revenue conversion rates, and meet a variety of marketing needs. Meituan will continue to be the best choice for businesses to operate online. In the future, we will continue to optimize products and services, provide differentiated value for merchants, diversify content formats, and constantly upgrade recommendation effectiveness to meet user needs. We will also expand traffic channels and use offline and online activities to increase user coverage and increase users' mental share. We are full of confidence in the medium-and long-term development of the company's store-to-store business. We are also trying to increase the order quantity.

Ya Jiang, analyst at Citic Securities: the company broke even in the second and third quarters, but the new businesses are still losing money. Can the management talk about the current cost reduction plan? When is it expected to break even?

Chen Shaohui: the company's cash flow in the third quarter is still very strong, the growth momentum is also good, all businesses have achieved high-quality growth, operating profits increased month-on-month. The loss of the new business narrowed sharply compared with the same period last year, narrowing slightly from the previous quarter. The epidemic in the second quarter was positive for the growth of some new businesses, including Meituan buying vegetables, and the loss rate of new business also improved in the third quarter compared with the previous quarter. Meituan Buy vegetables, Meituan Optimization and B2B distribution business have all made remarkable progress in the third quarter. Meituan's order volume for shopping has increased steadily, which has further consolidated the company's market leading position and made the market competition more rational. Meituan's preferred supply chain and performance capability have also been further improved. we have also gradually reduced preferential discounts and marketing costs to improve operational efficiency; B2B distribution business, we have further consolidated the company's market leading position and enhanced the profitability of business in various cities. In other new businesses, we continue to improve operations and reduce operating losses. Our work in operational optimization and high quality will continue to achieve good results and optimize the allocation of resources in new businesses.

As to when the new business can break even, we think the key is to optimize the business model and improve the core competitiveness. We will also continue to reduce costs and expenses and improve operational efficiency. However, short-term cost optimization should not be at the cost of destroying the long-term development of the business. We will balance long-term development and short-term cost reduction, and allocate resources on the basis of return on investment. Cash flow to adjust new business accordingly. Even if the macro environment is not good, we will continue to achieve positive cash flow in the future.

Yang Bai, CICC analyst: I have read some news about the company's entry into the Hong Kong market, and have done some recruitment work. Could you ask the management to introduce the relevant expansion plans? What are the investment plans and what are the estimated losses for Hong Kong and other offshore businesses? Can offshore business become a new growth point for the company?

Wang Xing: over the past decade or so, we have focused on the local service industry in the mainland and have accumulated a lot of operational experience and knowledge. in terms of scale and operational efficiency, we are now the largest real-time retail company in the world. China's market is huge, with a population of 1.4 billion, the development of local services is still in its infancy, and there is great potential for future growth. We may also use our experience in the mainland to provide services to overseas markets and expand our potential market. Hong Kong is a special administrative region of China. In terms of network infrastructure, it is similar to other overseas markets and has a multilingual environment. However, it is similar to mainland residents in terms of culture, language and eating habits, so it is necessary to experiment with expanding the company's global infrastructure services and practices. Hong Kong is a good testing place. At present, we only have some very small test projects in Hong Kong. We understand that in terms of catering services, the distribution model in Hong Kong may be different from that in the mainland, and our team needs more time to learn the local operation model. In view of the current macro environment, our business development will also be quite cautious, through a small amount of investment to continue to grow organizational capacity. Overseas expansion will also help to further improve the company's operational efficiency and understand the local operating model, the business is still in the early stages of development, we will take the initiative to evaluate, and our budget allocation will also be based on the return on investment. it does not have a significant impact on the company's main business.

Bank of America Merrill Lynch analyst Eddie Leung: could you ask management to talk about Tencent's special dividend and what impact it will have on the company's cooperation with Tencent? I have also seen some media reports that some shareholders of Tencent may consider selling Meituan shares after they receive them. Do you have any comments from the management?

Wang Xing: Tencent is a long-term shareholder of Meituan and has provided long-term support for the development of the company. Our cooperation will continue. In terms of collaboration, we will continue to enrich Wechat's consumption scene and promote the growth of payment, advertising and cloud business. Through Wechat, Tencent helps the company serve more users, especially in the early stages of the company's development, and we have entered a stage of self-sufficiency in terms of financing and business growth. however, we will continue to cooperate with Tencent at the strategic and operational levels to provide more products and services for users and merchants. Our existing business cooperation agreement with Tencent will expire at the end of 2023. We will discuss the possibility of contract renewal and believe that continuous cooperation is good for the company's business development. Many investors hold the shares of both Meituan and Tencent, and most of the institutional investors of Tencent are also investors of Meituan. We look forward to and hope that our existing investors can continue to support the long-term development of the company and share the company's future growth. After the distribution of this special dividend, we have also introduced some new investors, and we welcome them to join us. We will continue to have a dialogue with them and share the company's long-term vision and growth potential. At present, we already have the ability of independent financing, and our core commercial business continues to generate operating profits. we continue to improve operational efficiency and reduce costs in new business, and we believe that the future development prospect is good. We also have the corresponding executive power to create long-term value for shareholders and create more social value. I have also heard the news that Naspers is considering selling its shares in the company. We will talk to the company about its performance in the third quarter, share the company's future prospects, and understand the growth value of the company. Meituan's stock is highly liquid and there are many investors. I believe our long-term growth prospects will be understood by more investors. We will continue to focus on strategy implementation to create more value for shareholders and society. (end)

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