China Tonghai Securities | Meituan Dianping (3690 HK ...n.sinaimg.cn/finance/20b4c54d/20190319/MeiTuanYanBao.pdf · crucial year for the core food delivery segment on the back of

1

China Tonghai Securities | Meituan Dianping (3690 HK) initiation

19 March 2019

Meituan Dianping Crunch time in 2019; Initiate At Sell Initiation of Coverage

We initiate coverage of Meituan Dianping (MTDP) with a non-consensus Sell rating, as the market does not appear to be fully discounting the negative knock-on effects from the escalating competitive pressures across its segments and dependence on subsidies which result in a longer-than-expected turnaround. Near term competitive pressures for its core food delivery segment, continuing losses of bicycle-sharing through to 2021 and risk of cost overruns compressing margins keep us on the sidelines. Our SOTP-based PT of HK$34.33 implies a 37% downside potential. More losses to come: Fiercer competition, cost inflation and continuing losses for its new initiatives should cause near to medium term earnings to fall short of market expectations and we expect net losses of RMB8.7bn in 2019E. Consensus has revised down 2020E profit forecasts by 60% following its 3Q and 4Q18 results which showed sequentially widening operating losses. Our 2020E operating profit of RMB1.2bn is 45% below consensus, primarily attributable to decelerating growth of China’s on-demand food delivery industry revenue to 35% CAGR (2018-21E) vs. 168% CAGR (2016-18) and continuing losses of bicycle-sharing segment. Fiercer competition between Tencent’s MTDP and Alibaba’s ele.me : 2019 will be a crucial year for the core food delivery segment on the back of ele.me’s plans to increase its market share to over 50% and the need to pay to retain users. A more competitive food delivery sector should limit upside of MTDP’s monetization rate and reduce riders’ cost inflation, which are the biggest swing factors to food delivery segment EBIT according to our sensitivity analysis. 4Q18 results serve as a reminder of the hyper competitive nature of China’s food delivery market, with food delivery revenue -1.5% q/q, monetization rate -0.3ppt and GTV flat q/q. New initiatives to remain in losses through to 2021: The company has yet to conceive a sustainable revenue model for its capital-intensive bicycle sharing and car-hailing operations, in our view. We expect new initiatives should continue to drag on overall profitability and struggle to push our numbers higher than our base case for operating losses of RMB8.3bn in 2020E and losses of RMB5.9bn in 2021E. Initiate at Sell on unattractive risk reward proposition: Shares look unattractive at the current stage, trading at 82.4x 2020E P/E and in the absence of obvious upside catalysts, significant near-term growth prospects and lack of visibility for its new initiatives. Our SOTP-based PT of HK$34.33 implies 51.5x 2020E P/E. Upside risks: 1) Acceleration in food delivery GTV growth and higher monetization rate driving faster-than-expected turnaround; 2) Faster penetration of merchants; 3) Better-than-expected performance of new initiatives.

Meituan Dianping (3690 HK) Key financials

(RMB’mn) FY17 FY18 FY19E FY20E FY21E Revenue 33,928 65,227 91,494 127,756 165,650

Growth 161.2% 92.3% 40.3% 39.6% 29.7% Operating profit (3,826) (11,086) (9,035) 1,228 9,325

Growth (38.8%) 189.7% (18.5%) (113.6%) 659.4% Adjusted net profit (2,853) (8,517) (7,138) 3,414 11,679

Growth (46.7%) 198.6% (16.2%) (147.8%) 242.1% Adjusted EPS (RMB) (1.866) (3.127) (1.191) 0.569 1.948 P/E (x) N/A N/A N/A 82.4 24.1

Source: Company data, China Tonghai estimate

China Internet

Esme Pau, CFA

Deputy Head of Institutional Research

(852) 2971 5417

[email protected]

LI Yiming, Eric

Research Analyst

(852) 2971 5433

[email protected]

Equity Research China Internet

19 March 2019

SELL

Industry View NEUTRAL

Price Target HKD34.33

Initial Coverage

Price (18-Mar-2019)

Potential

Upside/Downside

Ticker

HKD54.90

-37%

3690 HK

Market Cap (USD mn)

Shares Outstanding (mn)

Free Float (%)

3M ADVT (USD mn)

Dividend Yield (%)

39,908

4,924

48.0

51

N/A

52 Week range HKD 40.25-74.00

Source: Bloomberg

Stock Rating

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19 March 2019

INVESTMENT SUMMARY This is not a near-term turnaround story. We initiate on Meituan Dianping (MTDP) with a non-consensus Sell rating. We believe the market has priced in its dominant position in China’s local services market and expectation for the company’s operating losses to narrow sequentially. Instead, we expect intensifying competition faced by its core food delivery business and continuing losses from new initiatives should weigh on profitability. We list the five major reasons underpinning our negative view. More losses to come: Following 4Q18 results which showed greater competitive pressures and widening underlying losses, we expect turnaround will be a 2020 story and forecast underlying losses in 2019 and below-consensus earnings through to 2021. Negative sentiment and lock-up expiry as an overhang: We expect near term consensus EPS cuts/downgrades and expiry of lock-up on 19 Mar 2019 to weigh on share price performance. Consensus has revised down 2020E net profit forecasts by 60% since Nov 2018. Intensifying competition is understated: We expect the company’s market share growth and monetization rate to stall in 2019 due to escalating competition from Alibaba-backed ele.me. Ele.me targets to increase its market share to over 50% from (35% at YE18) through increasing user subsidy and marketing activities. Our sensitivity analysis indicate that the biggest swing factor to food delivery segment EBIT is monetization rate (every 1ppt increase will add 31% to 2020E segment EBIT), followed by riders’ cost inflation (every 1% increase will chip 12% from 2020E segment EBIT). New initiatives result in more losses: We struggle to turn more positive on bicycle-sharing and car-hailing segments and expect underlying losses to continue through to 2021. Initiate at Sell on unattractive risk reward proposition: We expect share price sentiment to remain negative in the near term and see the share’s 82.4x 2020E P/E as expensive in the absence of significant near-term growth and turnaround prospects.

Fig 1. MTDP – Share price performance (HK$)

Fig 2. MTDP – Consensus net profit/loss revision history

Source: Company data, China Tonghai estimates. Source: Bloomberg consensus estimates.

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Our TP of HK$34.33

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Intensifying competition with Ele.me

Restructuring to focus on Food+ Platform

strategy

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4Q18 losses widened

IPO at issue price of HK$69

3Q18 losses

MSCI inclusion

Ofo liquidity issue

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19 March 2019

1. More losses to come We do not share consensus’ positive view and expect MTDP to turnaround to a 2020E operating profit of RMB1.2bn, 45% below consensus estimates. Our forecast for 2020E operating profit of RMB1.2bn (RMB3.6bn for food delivery, RMB5.9bn for in-store dining and OTA, operating loss of RMB8.3bn for new initiatives) factors in cost overruns due to fiercer competition across its segments, and a continuation of underlying losses for its car-hailing and bicycle-sharing operations through to 2021. Our cautious view is underpinned by:

The need to invest for growth: MTDP will need to keep investing in subsidies and customer incentives in order to grow its user base and GTV, on the back of intensifying competition for its core food delivery and other segments. Between 2016 and 2018, food delivery cost of revenues increased at a CAGR of 140%, outpacing segment GTV CAGR of 120%. We expect food delivery cost of revenues to increase at a CAGR of 26.8% in 2018-21E, slightly above segment GTV CAGR of 26.1% over the same period, mainly due to rising user acquisition cost. Management noted that slower growth will be the norm for China’s food delivery industry in the longer term following prior years’ expansion into new cities and onboarding of new users. In 2019, we expect competition from ele.me to intensify, and for GTV growth to moderate to 30.6% y/y from 65.3% y/y in 2018.

New business initiatives will remain loss-making through to 2021: Recent industry events – including the liquidation of ofo, bicycle-sharing segment losses in 2018 and management’s decision to shut international bicycle-sharing operations – indicated that structural headwinds for the segment are materializing faster than expected. We expect its new business initiatives will remain loss-making through to 2021 and struggle to turn more positive as its bicycle-sharing segment has yet to find a sustainable monetization model. We expect car hailing operations to remain challenging given the dominance of Didi, which accounts for 91% market share in Sep 2018.

4Q18 disappointment highlight risks We see increasing risks to earnings power of MTDP following the company’s disappointing 4Q18 earnings. 4Q results serve as a reminder of the hyper competitive nature of China’s food delivery market and the need to pay to expand (and defend) market share. We highlight the following drivers:

Decelerating quarterly growth trend: 4Q overall GTV declined 6% q/q to RMB138bn and 4Q revenue growth slowed to +4% q/q. 4Q18 operating loss of RMB3.7bn widened from -RMB1.5bn In 4Q17 and -RMB3.4bn In 3Q18. 4Q18 net loss of RMB3.4bn widened from a loss of RMB2.2bn in 4Q17, due to bigger losses from new initiatives.

We view consensus earnings forecast as overly optimistic and expect near-term cuts Our 2020E operating profit of RMB1.2bn is 45% below consensus

The company’s 2018 results fall short of market expectations, with losses widening.

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19 March 2019

Structurally slower growth trend for food delivery: Food delivery operating and financial metrics all signaled decelerating growth in 4Q. 4Q food delivery revenue of RMB11.0bn declined by 1.5% q/q and GTV of RMB80.2bn was flat q/q. 4Q gross margin declined to 13.4% from 16.6% in 3Q18 as the company increased subsidies to retain users. Monetization rate declined to 13.7% from 14.0% in 3Q18.

Bicycle-sharing dragged on performance: Bicycle sharing segment, which the company acquired for RMB18.1 bn (USD2.7bn) in Apr 2018, contributed a loss of RMB4.6bn, over half of 2018 adjusted net losses, excluding changes in fair value. As a result, 2018 operating margin worsened to -17.0% from -11.3% in 2017 (or -10.3% after stripping out bicycle-sharing segment performance).

In-store, hotel and travel booking EBIT also deteriorated. 4Q segment gross margin declined to 86.8% from 90.6% in 3Q18 and 87.7% in 4Q17. 4Q segment GTV of RMB44.1bn was -10.5% q/q. The fall in 4Q GTV was offset by an improvement in monetization rate to 10.4% from 9.0% in 3Q18, resulting in a +4% q/q increase in revenue to RMB4.6bn. We expect the in-store, hotel and travel booking segment to be most profitable and contribute 484% of 2020E operating profit.

Rider delivery cost overrun in 2019-22E We expect labor cost per order to increase to RMB5.1 in 2021E from RMB4.8 in 2018, due to driver cost inflation and higher social insurance contribution, which should more than offset logistics efficiency gains.

Inelastic rider supply: The elasticity of rider supply varies by the

city. In top tier cities such as Beijing where there is a scarcity of riders, the agency fee for rider referral has increased to RMB600-1,000 in 2H18, compared to RMB200-300 previously, according to media reports.

Nonlinear pay structure to incentivize riders: The typical pay

structure rewards the rider for each delivery completed and the payout increases at a nonlinear rate in order to incentivize

riders. For example, a rider is paid RMB8 per order for 500

orders or below, RMB9 per order for 500-900 orders, and RMB10 per order for 900 and above.

Policy change in social insurance: The policy change that came into effect in Jan 2019 will also increase MTDP’s tax bill for social insurance for its full time employees. 65% of MTDP’s 2.7mn

riders are full time in 2018.

Escalating competition will limit pass-through to users: There is minimal switching cost for online food delivery users who are typically price sensitive. (Please see the section titled “Intensifying competition is understated” on p.6 of the report for details.)

The high variable cost nature which consist of 93% riders’ cost suggests that there is very little room to cut expenses. .

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19 March 2019

Fig 3. MTDP – Food delivery cost of revenue, 2018

Fig 4. MTDP – Labour cost per food delivery order, 2017-2021E

Source: Company data Source: Company data, China Tonghai estimates

2. Negative sentiment and lock-up expiry as an overhang

Consensus downgrades and EPS cuts should weigh on the stock’s near term performance, as the market factors in fiercer competition faced by its core food delivery, in-store dining and OTA segments and longer-than-expected time for its new initiatives to breakeven.

Selling pressure is coming The expiry of MTDP’s six-month lock-up period on 19 March 2019 serves as an overhang on the stock. It is estimated that 2.64 bn shares (representing 55% of outstanding class B shares or 48% of total outstanding class A and class B shares) held by pre-IPO and cornerstones investors.

Figure 5. MTDP – share price and ADTV

Source: Bloomberg.

93%

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Riders' costs Others

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Value Traded (RHS) MTDP closing price (LHS)

Delay in breakeven of underlying losses and consensus downgrades should drive multiple de-rating

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19 March 2019

3. Intensifying competition is understated

We expect fierce competition across all of MTDP’s segments and the company’s reliance on marketing and user acquisition spend to drag on top-line growth and weigh on margins. MTDP competes with Alibaba-backed ele.me for its core food delivery segment, with Ctrip and Fliggy for its OTA segment, with Didi for its car-hailing segment.

Food delivery should be hit the hardest We expect MTDP’s competition with ele.me to intensify in 2019 and delay the segment’s operating breakeven to 2020. In July 2018, Ele.me announced the launch of a RMB3bn plan for subsidies and marketing as it targets to increase market share to 50% (from 35% in 2018), which highlights its determination to gain market share. We view ele.me’s determination to gain market share as a threat to MDTP for the following reasons: 1. China on-demand food delivery users are highly price sensitive.

When deciding which food delivery mobile app to use, users consider price as the most important factor, followed by speed, number of merchants and habit, according to a 2018 survey. 85% of food delivery users have a habit of comparing price on different platforms before placing an order.

2. Merchants may choose to leave MTDP platform and turn to their own food-delivery channels such as WeChat public account in the event of commission hikes.

3. MDTP will need to further step up their marketing spend in order to maintain their market share which would erode their food delivery segment profitability.

Fig 6. MTDP – GTV growth and monetization rate, 2017-2021E

Fig 7. Market share trend of China’s food delivery sector. 2015-22E

Source: Company data, China Tonghai estimates. Source: analysys, China Tonghai estimates.

0%

50%

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350%

2017 2018 2019E 2020E 2021E

Food delivery GTV growth Food delivery revenue growth

29%

47%57% 60% 60% 60% 61% 62%

37%

35%

36% 35% 35% 35% 35% 34%34%

18%7% 5% 5% 5% 5% 4%

0%

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2015 2016 2017 2018 2019E 2020E 2021E 2022E

Meituan Ele.me Other's

Head on competition across all segments point to margin erosion and slower GTV growth

Ele.me’s determination to gain market share poses a real threat to MDTP, in our view

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19 March 2019

Operating results are most sensitive to monetization rate and inflation of riders’ cost We present a sensitivity analysis to show that a marginal change in food delivery segment monetization rate, followed by riders cost inflation, has the largest impact on MTDP’s food delivery operating results among other key inputs. Relative to our base case for a 2020E operating profit of RMB1.2bn, our sensitivity analysis shows that: Every 1ppt increase in monetization rate results in a 31% increase in 2020E food delivery segment operating profit. Fiercer competition would likely drives down monetization rate and result in lower food delivery segment operating results. Every 1% increase in riders’ cost inflation results in a 12% decrease in 2020E food delivery segment operating profit. Riders’ cost inflation has the second largest impact on food delivery segment operating profits. Intensifying competitive pressure likely drives up riders’ cost and is detrimental to food delivery segment operating profit.

Figure 8. MTDP – Sensitivity of changes of key inputs to 2020E operating profit

Sensitivity Tests Operating Metrics

Food delivery GTV growth 1% slower Base case (25.5%) 1% faster

Food delivery operating income 3,450 3,587 3,724 % change -3.8%

3.8%

Food delivery monetization rate

1ppt lower Base case (15.5%) 1ppt higher Food delivery operating income 2,475 3,587 4,699

% change -31.0%

31.0%

In-store dining/OTA GTV growth

1% slower Base case (36.0%) 1% faster

In-store dining/OTA operating income 5,747 5,944 6,141 % change -3.3%

3.3%

In-store dining/OTA monetization rate 1ppt lower Base case (9.1%) 1ppt higher

In-store dining/OTA operating income 2,996 5,944 8,892 % change -49.6%

49.6%

Riders' costs of inflation

1% slower Base case (25.7%) 1% faster Food delivery operating income 4,021 3,587 3,153

% change 12.1%

-12.1%

Source: China Tonghai estimates.

Head-on competition with Alibaba on all fronts We expect competition for market share between MTDP and Alibaba to intensify in 2019 on the back of Alibaba’s commitment to compete in China’s local services segment as part of its New Retail strategy. Based on its successful execution track record in the past, we expect Alibaba to follow through its commitment into competition for market share. Food delivery: Alibaba is unequivocal about its determination to compete for higher share in the food delivery segment, as demonstrated by (1) its

Our sensitivity analysis indicates that segment monetization rate is the largest swing factor to MTDP’s food delivery operating results, followed by riders’ cost inflation.

2019 marks the year of fiercer competition between MTDP and Alibaba across its core segments

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19 March 2019

acquisition of full control of Ele.me in April 2018; (2) the launch of a RMB3bn user subsidy and marketing plan in July 2018; (3) its restructure of ele.me and Koubei in Aug 2018; and (4) its target to increase its market share to 50%. MTDP was able to overtake ele.me in 2016 to claim a market leading position in China’s online food delivery market. However, after Alibaba’s acquisition of full ownership of ele.me in April 2018, we expect intensifying competition on price as ele.me would likely step up marketing and promotional initiatives to compete for users.

Fig 9. Overlapping segments between MTDP and Alibaba

MTDP Alibaba

Vertical Presence Market share % (2018) Presence Market share % (2018)

Food delivery Meituan Waimai 61.3% Ele.me 28.6%

In-store dining Meituan, Dianping 35.9% (2017) Koubei 55.5% (2017)

Travel Meituan travel 12% (2017) Fliggy 8% (2017)

Grocery delivery Meituan Paotui N/A

N/A

O2O grocery Ella Supermarket 2.7% Hema 42%

Car hailing Meituan Dache ~2% Didi* 90%

Bicycle sharing Meituan Danche (formerly mobike)

49.1% Hellobike* 5.6%

Online movie ticketing Maoyan* 60.9%(1H18) Taopiaopiao, Damai

33.9%(1H18, Taopiaopiao)

Payments Meituan N/A Alipay 52%

2C lending Meituan Jieqian N/A Huabei, Jiebei N/A

2B lending Meituan Xiaodai N/A Xiaodai N/A

Cloud Cloud-based ERP N/A AliCloud 43% (1H18)

Source: Analysys, BDR, CHNIC, IDC, iResearch, Tencent news, Trustdata, Winshang, China Tonghai estimates

Note: Entities marked with asterisk denotes investment backing or affiliation from MTDP or Alibaba.

Online hotel and travel: MTDP will see near term earnings erosion for its profitable online hotel and travel booking business due to the company’s pursh into higher-end hotels and international travel in 2019 which will drive expenses higher, in our view. MTDP leads with 33.6% share of domestic room nights booked, ahead of 33% for Ctrip in 1Q18 , primarily driven by volume as the majority of its hotel room inventories are in lower star hotels. However, MTDP’s international exposure share share of 4 to 5 star hotels pales in comparison relative to Ctrip and Alibaba-backed Fliggy. Car-hailing: MTDP has 2% of China’s car-hailing industry, below Didi’s 91% market share (Sept 2018). Alibaba owns 5% stake in Didi as of 2018.

We expect MTDP to maintain its industry leading position with 61% market share in 2021E, though at the expense of margin compression.

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19 March 2019

Fig 10. China food delivery market share by GTV

Fig 11. China online hotel booking by share of domestic room nights

Source: iResearch Source: iResearch

Fig 12. China food delivery – strategy and milestones of MTDP and ele.me

Source: Company data, media

32%47%

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2015 2016 2017 1Q18

Meituan Ele.me Baidu Delivery Others

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Meituan Ctrip Tongcheng eLong Fliggy Others

MTDP launched a merchant subsidy plan and will invest RMB11bn to support merchants in areas of marketing, digitalization, supply chain enhancement and incentives in

2019. It would also increase its focus on 2B solutions in 2019.

Ele.me and Koubei targets to hire over 800k riders and 5k new employees in 2019.

Ele.me announced it would launch a merchant support plan in 2019, focusing on digitalization and reducing commission rate.

Meituan gains an entry point in WeChat Wallet.

MTDP increased commission rate charged to certain merchants from 18% to 20%.

Alibaba announced the establishment of a local service company and merge its food delivery platform Ele.me with its food & lifestyle service platform Koubei. Ele.me will invest RMB3bn on subsidy and marketing in the coming quarter to capture at least 50% of China food delivery market.

MTDP announced a restructuring to focus on Food + Platform strategy.

MTDP opened its first offline supermarket Ella Supermarket, which is similar to Hema, offering 30 min delivery within a

radius of 3km. Alibaba acquired the remaining stake in Ele.me that it and Ant Financial did not already own, at an enterprise valuation of

US$9.5bn.

Alibaba invested US$1bn in Ele.me, bringing its combined stake with Ant Financial to ~44%.

Ele.me merged with Baidu Deliveries (#3 player, with a focus on Beijing and tier-1cities) for US$0.8bn, with Ele.me paying US$0.2bn in cash and US$0.3bn in shares, while Baidu will contribute US$0.3bn worth of traffic and resources.

Alibaba and Ant Financial invested US$0.9bn and US$0.35bn respectively in Ele.me for a combined 27.7% stake.

Establishment of Koubei, a 50/50 joint venture between Alibaba and Ant Financial, with a combined initial investment of US$1bn.

Meituan provided subsidies for riders during Chinese New Year and stepped up hiring after the holiday to maintain delivery capacity.

Meituan merged with Dianping to form an O2O giant.

Food delivery market share of Meituan reached 41% in 1H15, surpassing Ele.me and ranking first.

1Q19

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19 March 2019

4. New initiatives result in more losses We struggle to turn more positive on new initiatives and would need to see more evidence of narrowing underlying losses despite encouraging comments from management that it would pare back on loss-making bicycle-sharing and ride-hailing operations.

We remain cautious on bicycle sharing and ride hailing Management commented at 4Q18 results that it would significantly narrow the operating losses of both the car-hailing and bike-sharing businesses. MTDP also confirmed that it is shutting down its international bicycle-sharing operations. However, we struggle to push our numbers higher than our base case for segment operating loss of RMB8.3bn in 2020E and loss of RMB5.9bn in 2021E, as we expect MTDP will struggle to find a sustainable monetization model and synergies for its bicycle-sharing and its core food delivery segment.

5. Unattractive risk reward proposition Following YTD share price appreciation by 26% (outperforming the HSI which was up 14% over the same period), MTDP’s shares currently trades at 82.4x on our 2020E EPS estimates and is the most expensive stock in the China internet space. The shares are trading close to the historical peak forward P/E of 90x. The market does not appear to have fully priced in the investment negatives of MTDP, namely the escalating competition in food delivery that will erode profitability, and the continued losses of its bicycle-sharing and ride-hailing segments.

Fig 13. MTDP – Share price performance and key events (HK$)

Source: Bloomberg, company data, China Tonghai estimates.

Overall, we expect MTDP to have to defer to a subsidy model to build

scale for its new business initiatives.

We expect multiples to come down as we see increasing risk in higher competition compressing margins of its food delivery segment and continuing losses of new initiatives.

Our TP of HK$34.33

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Sep-18 Nov-18 Jan-19 Mar-19

Intensifying competition with Ele.me

Restructuring to focus on Food+ Platform strategy

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4Q18 losses widened

IPO at issue price of HK$69

3Q18 losses

MSCI inclusion

ofo liquidity issue

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19 March 2019

Sell rating with a TP of HK$34.33 We arrive at a 12-month TP of HK$34.33 based on SOTP valuation, which we believe best reflects the intrinsic value of its multiple business segments. Our SOTP valuation of RMB176bn is based on following 2020E target multiples applied to the respective financial metrics: 1) 30.0x EV/EBIT for food delivery; 2) 9.0x EV/EBIT for in-store/OTA; and 3) net cash. We ascribe no value to its bike sharing and other new business initiatives as we expect these segments to remain loss-making through to 2021. We believe it is challenging for MTDP to turnaround its new business initiatives and thus take a conservative view on the valuation of this segment. MTDP’s core food delivery accounted for 61% of the total valuation and in-store/OTA accounted for 30%. We value MTDP’s food delivery services at 30.0x 2020E EV/EBIT multiple, in line with the global food delivery peers that are generating positive operating profit with average ROE of c5% in 2020E. We value the in-store/OTA segment at 9.0x 2020E target EV/EBIT, the lower end of the range for its global peers, as it is facing strong competition from Ctrip and Fliggy in China OTA market.

Fig 14. Meituan’s SOTP valuation

RMB'mn Valuation basis Metrics Assigned multiple

Segment as % of total

Valuation

Food delivery 2020E EV/EBIT 2020E EBIT RMB 3,587mn 30.0 61% 107,615

In-store/OTA 2020E EV/EBIT 2020E EBIT RMB 5,944mn 9.0 30% 53,495

New initiatives

Bike sharing 2020E EBIT -RMB 1,028mn 0.0 0% 0

Other new business initiatives

2020E EBIT -RMB 7,275mn 0.0 0% 0

Net cash 8% 14,774

Total valuation

175,883

2020E adjusted net profit

3,414

2020E implied P/E multiple

51.5

Total diluted shares (mn)

5,995

2020E adjusted diluted EPS (RMB)

0.57

Target price (HKD)

34.33

Source: Company data, China Tonghai estimates

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19 March 2019

Potential catalyst and risks

To the upside:

- Increasing market share and higher monetization rate of food delivery driving faster-than-expected turnaround;

- Better-than-expected performance of new initiatives such as 2B merchant services;

- Faster penetration of merchants for hotel booking segment driving margins higher;

-

To the downside:

- Heightened competition eroding market share and profitability; - Tightened regulations on food delivery leading to higher

compliance costs; - Worsening performance on new initiatives continue to weigh

on margins.

13 19 March 2019


Fig 15. Peer comparison table

MktCap 3m Vol EPS Growth (%) P/E (x) P/S (x) PEG (x) ROE (%) Ev/Ebit (x) Net D/E

(%)

Company Name Ticker Lcy Price US$bn US$m 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 18

MEITUAN DIANPING 3690 HK HKD 54.90 39.9 51 - 242.1 82.4 24.1 2.2 1.7 - 0.3 1.2 6.8 52.9 17.0 (17)

Global food delivery

DELIVERY HERO SE DHER GR EUR 35.54 7.6 13 61.6 219.0 - 45.1 4.3 3.2 - - (11.9) 13.7 - 48.6 (36)

JUST EAT PLC JE/ LN GBp 748.60 6.8 23 84.9 56.6 38.2 24.4 3.9 3.3 0.8 0.7 12.5 18.7 28.8 21.6 (10)

GRUBHUB INC GRUB US USD 74.98 6.8 205 54.9 36.3 34.1 25.0 3.9 3.3 1.0 0.9 11.7 17.9 31.4 16.5 8

TAKEAWAY.COM TKWY NA EUR 67.20 3.9 7 659.1 96.2 80.7 41.1 7.0 5.7 - 0.8 9.2 19.0 58.6 31.3 43

Average 215.1 102.0 44.2 31.4 4.5 3.6 0.9 0.8 5.4 17.3 35.8 25.1 1

Global In-store dining

YELP INC YELP US USD 35.10 2.9 99 22.1 17.6 16.6 14.1 2.5 2.2 0.9 0.9 11.8 13.7 25.9 - (70)

GROUPON INC GRPN US USD 3.53 2.0 24 18.9 13.0 14.8 13.1 0.8 0.8 0.9 1.1 25.6 19.4 8.9 6.8 (159)

Average 20.5 15.3 15.6 13.6 1.2 1.2 0.9 1.0 18.7 16.6 13.3 6.8 (115)

China related peers

ALIBABA GRP-ADR BABA US USD 180.97 469.1 2,483 23.8 29.2 27.3 21.2 6.1 4.7 1.4 0.9 17.0 17.9 34.1 27.3 (28)

58.COM-ADR WUBA US USD 61.76 9.2 60 29.9 15.8 16.0 13.8 3.4 2.9 0.7 1.0 12.7 14.7 14.3 11.7 (25)

CTRIP.COM-ADR CTRP US USD 41.67 23.1 182 37.6 30.4 23.9 18.3 3.6 3.0 0.9 0.8 6.6 8.3 25.2 20.3 2

Average 30.4 25.2 21.3 17.2 4.0 3.4 0.9 0.9 12.1 13.6 21.6 17.5 (17)

OTA

BOOKING HOLDINGS BKNG US USD 1,752 78.9 870 12.0 10.8 15.5 14.0 4.6 4.1 1.5 1.4 52.3 45.9 12.0 11.8 (69)

CTRIP.COM-ADR CTRP US USD 41.67 23.1 182 37.6 30.4 23.9 18.3 3.6 3.0 0.9 0.8 6.6 8.3 25.2 20.3 2

EXPEDIA GROUP IN EXPE US USD 121.56 17.9 192 15.8 16.4 15.0 12.9 1.3 1.2 1.1 0.9 23.2 26.7 13.5 11.2 22

TRIPADVISOR INC TRIP US USD 51.59 7.1 143 13.7 16.2 23.5 20.2 3.8 3.4 2.0 1.5 14.3 12.5 17.4 17.5 (46)

Average 19.8 18.5 18.6 15.8 2.6 2.3 1.2 1.1 24.1 23.3 15.7 14.3 (23)

Global Average 82.5 45.2 21.7 18.5 2.7 2.4 1.0 0.9 14.7 18.2 19.1 15.8 (28)

Source: Bloomberg consensus estimates, company data, China Tonghai estimates.

Note: Priced as of 18 Mar 2019 close.

14 19 March 2019


APPENDIX 1

Company background

MTDP is China’s leading online platform for local services and on-demand food delivery market. The company also expanded its service coverage to various local services including in-store dining, online hotel and travel booking, car hailing and bicycle-sharing services. The company was founded by Wang Xing and Mu Rongjin as a group-purchase platform in 2010 and acquired Dianping in 2015. The company was listed on the HKSE in Sep 2018.

Use of IPO proceeds MTDP will apply the net proceeds of HK$31.1bn from its 20 Sept 2018 IPO on the following:

- 35% (HK$10.9 bn) to upgrade technology and enhance R&D; - 35% (HK$10.9 bn) to develop new services and products (such

as merchant enabling solutions, cloud-based ERP systems;

restaurant supply chain);

- 20% (HK$6.2 bn) to pursue investments;

- 10% (HK$3.1 bn) for working capital and general corporate purposes.

Fig 16. MTDP – Key milestones

Source: Company data.

Year Event

2003 Dianping.com founded

2010 Meituan.com founded

2011 Launched Meituan App

2012 Launched movie-ticketing services

2013 Launched hotel booking and food delivery service

2014 Launched travel booking service

2015 Merger of Meituan and Dianping

2016 Spin-off of Maoyan

Acquired Qiandai and launch merchant payment services

2017 Launched grocery delivery services

Launched Zhenguo Homes, a home-sharing platform

Launched Xiaoxiang Shengxian (Ella Supermarket), an O2O grocery store

2018 Launched car-hailing service

Acquired Mobike

Listing on HKSE

15 19 March 2019


Key shareholders

Fig 17. MTDP – Shareholding structure

Fig 18. MTDP – Percentage of voting rights

Source: Company data, Bloomberg, China Tonghai estimates. Source: Company data, Bloomberg, China Tonghai estimates.

Financial performance and forecasts

Overall Financial forecasts

Revenue: We expect MTDP’s revenue to increase to RMB165.7bn in 2021E, implying a CAGR of 36.4% (2019E-21E), driven by revenue contribution from the core food delivery services and new business initiatives.

User base: Total annual transacting user base will reach 879mn

in 2021E, from 400mn in 2018on our estimates. Operating profit: We expect to the company to breakeven on an

operating level to RMB 1.2bn in 2020. Monetization rate: We expect monetization rate to increase

from 9.5% in 2017 to 14.8% in 2021. GTV: Total GTV will reach RMB 1,119bn by 2021, from RMB

515bn in 2018. GTV mix in 2021E will comprise 51% core food delivery, 38% in-store, hotel & travel, 12% new initiatives (from 55%: 34%: 11% in 2018).

Tencent 18%

Other pre-IPO investors 17%

WANG Xing10%

Sequoia 10%

MU Rongjun2%

WANG Huiwen1%

Public float42% WANG Xing

47%

MU Rongjun

10%

Tencent8%

WANG Huiwen 3%

Other pre-IPO investors 8%

Sequoia 5%

Public float 19%

16 19 March 2019


Fig 19. MDTP – Segment GTV, 2015-2022E (RMB bn)

Fig 20. MDTP – Segment monetization rate, 2015-2022E (%)

Source: Company data, China Tonghai estimates Source: Company data, China Tonghai estimates

Food delivery (56% of 2019E revenue) Financial forecasts

Revenue: Food delivery will remain the largest revenue contributor, accounting for 56% of 2021E revenue. We expect food delivery revenue to grow at 34.8% CAGR (2018-21E) to RMB93.5bn in 2021E.

Operating profit: We expect food delivery segment to turnaround to an operating profit of RMB3.6bn in 2020E, from segment operating loss of RMB3.9bn in 2019E.

Monetization rate: We expect monetization rate to increase from 12.3% in 2017 to 16.5% in 2021.

GTV: We expect food delivery GTV to grow at 26.1% CAGR (2018-21E) to reach RMB567bn in 2021E, driven by increasing number of transacting users and transacting frequency.

In-store dining, online hotel & travel booking (23% of 2019E revenue) Financial forecasts

Revenue: In-store dining, online hotel & travel booking will account for 23% of 2021E revenue (same as 2019E). We expect segment revenue to grow at 34.6% CAGR (2018-21E), driven by an increase in merchant base and market share in domestic hotels.

Operating profit: We expect segment operating profit to increase to RMB5.9bn in 2020E from RMB5.3bn in 2019E.

Monetization rate: We expect monetization rate to increase to 9.2 % in 2021E from 6.9% in 2017.

GTV: We expect In-store dining, online hotel & travel booking GTV to grow at 33.7% CAGR (2018-21E) to reach RMB421bn in 2021E, driven by the increasing number of transacting users with traffic directed from its food delivery services.

New initiatives (20% of 2019E revenue)

16 59 171

283 369

463 567

127 158

158

176

241

328

421

18 20

28

56

84

109

131

0

200

400

600

800

1,000

1,200

2015 2016 2017 2018 2019E 2020E 2021E

RM

B'b

n

Food delivery In-store/hotel New Initiatives

0%

5%

10%

15%

20%

25%

30%

2015 2016 2017 2018 2019E 2020E 2021E

Food delivery In-store/hotel

New Initiatives Total

17 19 March 2019


We expect revenue contribution from new initiatives (which comprise bicycle-sharing, car-hailing, 2B merchant services and others) will increase to RMB33.5bn in 2021E from RMB11.2bn in 2018. We estimate new initiatives will continue to incur substantial losses through to 2021 of RMB5.9bn. .

18 19 March 2019


Sensitivity analysis

Food delivery operating results

For every 1% increase in food delivery GTV growth to our base assumption of 25.5% for 2020E, food delivery operating income increases 3.8%.

For every 1ppt increase in food delivery monetization rate to our base assumption of 15.5% for 2020E, food delivery operating income increases 31.0%.

Fig 21. MTDP – Sensitivity of food delivery operating profit/loss to food delivery GTV growth and monetization rate

Foo

d d

eliv

ery

mo

net

iza

tio

n r

ate

Food delivery GTV growth

20.5% 21.5% 22.5% 23.5% 24.5% 25.5% 26.5% 27.5% 28.5% 29.5% 30.5%

3,587 445 448 452 456 460 463 467 471 474 478 482

+5ppt 20.5% 8,238 8,420 8,601 8,783 8,964 9,146 9,327 9,509 9,691 9,872 10,054

+4ppt 19.5% 7,171 7,343 7,516 7,689 7,861 8,034 8,207 8,380 8,552 8,725 8,898

+3ppt 18.5% 6,103 6,267 6,431 6,595 6,759 6,922 7,086 7,250 7,414 7,578 7,742

+2ppt 17.5% 5,036 5,191 5,346 5,501 5,656 5,811 5,966 6,121 6,276 6,431 6,585

+1ppt 16.5% 3,968 4,114 4,261 4,407 4,553 4,699 4,845 4,991 5,137 5,283 5,429

Base 15.5% 2,901 3,038 3,175 3,313 3,450 3,587 3,724 3,862 3,999 4,136 4,273

-1ppt 14.5% 1,834 1,962 2,090 2,219 2,347 2,475 2,604 2,732 2,861 2,989 3,117

-2ppt 13.5% 766 886 1,005 1,125 1,244 1,364 1,483 1,603 1,722 1,842 1,961

-3ppt 12.5% (301) (191) (80) 31 141 252 363 473 584 695 805

-4ppt 11.5% (1,369) (1,267) (1,165) (1,063) (962) (860) (758) (656) (554) (453) (351)

-5ppt 10.5% (2,436) (2,343) (2,250) (2,157) (2,065) (1,972) (1,879) (1,786) (1,693) (1,600) (1,507)


19 19 March 2019


In-store dining/OTA operating results

For every 1% increase in in-store dining/OTA GTV growth to our base assumption of 36.0% for 2020E, food delivery operating income increases 3.3%.

For every 1ppt increase in in-store dining/OTA monetization rate to our base assumption of 9.1% for 2020E, food delivery operating income increases 49.6%.

Fig 22. MTDP – Sensitivity of in-store dining/OTA operating profit/loss to segment GTV growth and monetization rate

In-s

tore

din

ing

/OTA

mo

net

iza

tio

n r

ate

In-store dining/OTA GTV growth

31.0% 32.0% 33.0% 34.0% 35.0% 36.0% 37.0% 38.0% 39.0% 40.0% 41.0%

8,916

316 318 320 323 325 328 330 332 335 337 340

+5ppt 14.1% 19,159 19,464 19,769 20,074 20,379 20,684 20,990 21,295 21,600 21,905 22,210

+4ppt 13.1% 16,319 16,602 16,886 17,169 17,453 17,736 18,020 18,303 18,587 18,870 19,154

+3ppt 12.1% 13,479 13,741 14,003 14,265 14,526 14,788 15,050 15,312 15,574 15,835 16,097

+2ppt 11.1% 10,640 10,880 11,120 11,360 11,600 11,840 12,080 12,320 12,560 12,800 13,041

+1ppt 10.1% 7,800 8,018 8,237 8,455 8,674 8,892 9,110 9,329 9,547 9,766 9,984

Base 9.1% 4,960 5,157 5,354 5,550 5,747 5,944 6,141 6,337 6,534 6,731 6,927

-1ppt 8.1% 2,121 2,296 2,471 2,646 2,821 2,996 3,171 3,346 3,521 3,696 3,871

-2ppt 7.1% (719) (566) (412) (259) (106) 48 201 354 508 661 814

-3ppt 6.1% (3,559) (3,427) (3,296) (3,164) (3,032) (2,901) (2,769) (2,637) (2,505) (2,374) (2,242)

-4ppt 5.1% (6,399) (6,289) (6,179) (6,069) (5,959) (5,849) (5,739) (5,629) (5,519) (5,409) (5,299)

-5ppt 4.1% (9,238) (9,150) (9,062) (8,973) (8,885) (8,797) (8,708) (8,620) (8,532) (8,443) (8,355)


20 19 March 2019


APPENDIX 2

Scenario analysis

Base case Key drivers: Intensifying competition between MTDP and its peers eroding profitability; cost inflation (in particular for riders’ cost); turnaround in 2020; new initiatives weighing on operating results and segment losses to sustain through to 2020. Valuation methodology: Our 12-month PT of HK$34.33 is based on SOTP valuation. Our SOTP valuation of RMB176bn is based on following 2020E target multiples applied to the respective financial metrics: 1) 30.0x EV/EBIT for food delivery; 2) 9.0x EV/EBIT for in-store/OTA; and 3) net cash.

Bull case Key drivers: Higher-than-expected monetization, better cost control across the board, faster-than-expected turnaround of food delivery segment, success in new initiatives Valuation methodology: Our upside case of HK$66.60 is based on SOTP valuation, cross checked with target P/E valuation. The target P/E of 100x FY2020 P/E, defined by the peak P/E multiple plus 10% premium since the company’s IPO. Faster-than-expected turnaround should drive multiples higher, in our view.

Bear case Key drivers: Deteriorating competitive landscape leading to larger-than-expected food delivery segment losses; new initiatives such as bicycle-sharing and car-hailing sinking into larger losses; cost overrun due to driver cost inflation; negative sentiment on the back of consensus EPS cuts and downgrades driving share price lower. Valuation methodology: Our bear case of HK$13.30 is based on SOTP valuation, cross checked with target P/E valuation. The target P/E of 20x FY 2020E P/E is in line with the average forward P/E of its China internet peer group.

21 19 March 2019


Fig 23. MDTP – share price performance, bull and bear case (HK$)

Source: Bloomberg, China Tonghai estimates.

0

10

20

30

40

50

60

70

80

Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19

HK$34.33 (-37%)

HK$13.30 (-76%)

HK$66.60 (+21%)

22 19 March 2019


APPENDIX 3

Fig 24. China food delivery – industry forecasts

RMB mn 2015 2016 2017 2018 2019E 2020E 2021E 2022E

Food delivery

Number of users (mn) 209 256 305 355 391 430 464 496

YoY 29% 22% 19% 16% 10% 10% 8% 7%

Meituan's users

229 256 282 313 344 375

YoY

12% 10% 11% 10% 9%

Eleme's user

137 164 178 194 209 224

YoY

20% 8% 9% 8% 7%

Annual transactions per user 10.4 12.9 18.8 22.9 25.2 27.2 29.2 30.9

YoY

24% 46% 22% 10% 8% 7% 6%

ASP (RMB) 25 38 52 58 62 66 69 72

YoY

51% 39% 10% 8% 6% 5% 4%

Industry GTV (RMB'bn) 54 124 300 469 612 771 936 1,104

YoY

130% 142% 56% 31% 26% 21% 18%

Meituan's GTV 16 59 171 283 369 463 567 680

YoY

277% 191% 65% 31% 25% 22% 20%

Ele.me's GTV 20 43 108 162 214 267 326 375

YoY

115% 151% 50% 32% 25% 22% 15%

Market share

Meituan 29% 47% 57% 60% 60% 60% 61% 62%

Ele.me 37% 35% 36% 35% 35% 35% 35% 34%

Source: iReserach, Trustdata, Company data, China Tonghai estimates.

23 19 March 2019


COMPANY CHARTS

Fig 25. MTDP – Revenue by segment, 2016-2021E

Fig 26. MTDP – Revenue by segment, 2019E

Source: Company data, China Tonghai estimates. Source: Company data, China Tonghai estimates.

Fig 27. MTDP – Cost of revenue, 2016-2021E

Fig 28. MTDP – Cost of revenue, 2019E


Fig 29. MTDP – R&D and Marketing as % of revenue, 2015-2021E

Fig 30. MTDP – Food delivery GTV and revenue growth rate, 2017-2021E


5 21

38 52

72 93

7 11

16

21

30

39

1 2

11

19

26

34

0

20

40

60

80

100

120

140

160

180

2016 2017 2018 2019E 2020E 2021E

RM

B'b

n

Food delivery Instore dining, hotel and travel New initiatives and others

57%23%

20%


6 19 33

43 55

67

11

2

2

3

4

1

16

19

25

25

0

20

40

60

80

100

120

2016 2017 2018 2019E 2020E 2021E

RM

B'b

n


0%

40%

80%

120%

160%

200%

2015 2016 2017 2018 2019E 2020E 2021E

Marketing expenses R&D expenses

0%

50%

100%

150%

200%

250%

300%

350%

2017 2018 2019E 2020E 2021E

Food delivery GTV growth Food delivery revenue growth

67%4%

29%


24 19 March 2019


Fig 31. MTDP – Revenue breakdown by segment, 2015-2021E

Fig 32. MTDP – Revenue breakdown of in-store & travel and hotel, 2015-2021E


Fig 33. MTDP – Revenue breakdown of New initiatives, 2017-2021E

Fig 34. MTDP – Gross, operating and net margin, 2015-2021E


4%

41%

62% 58% 56% 56% 56%

94%

54%

32%

24%23% 23% 23%

2%5% 6%

17% 20% 21% 20%

0%

20%

40%

60%

80%

100%

2015 2016 2017 2018 2019E 2020E 2021E

New initiatives and others Instore dining, hotel and travel

Food delivery

80%80%

75%72%

73%

74%

76%

20%

20% 25%

28%

27%

26%

24%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2015 2016 2017 2018 2019E 2020E 2021E

RM

B'm

n

In-store and travel revenue Hotel booking revenue

0% 13% 9% 8% 7%100%

87%

91%

92%

93%

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2017 2018 2019E 2020E 2021E

RM

B'm

n

Mobike Others

-180%

-130%

-80%

-30%

20%

70%

2015 2016 2017 2018 2019E 2020E 2021E

Gross margin Adjusted EBIT margin

Adjusted net margin

25 19 March 2019


Meituan Dianping (3690 HK) Stock Rating: SELL

Income statement (RMB'mn)

2017 2018 2019E 2020E 2021E Per Share Items (RMB) 2017 2018 2019E 2020E 2021E

Revenue 33,928 65,227 91,494 127,756 165,650 Adjusted diluted EPS (1.87) (3.13) (1.19) 0.57 1.95

Food delivery 21,032 38,143 51,646 71,743 93,484 DPS 0.00 0.00 0.00 0.00 0.00

In-store, hotel and travel 10,853 15,840 21,302 29,719 38,648 BVPS (26.49) 31.76 12.99 13.25 14.75

New initiatives 2,043 11,244 18,546 26,293 33,518

Cost of revenue (21,708) (50,122) (64,457) (82,213) (96,366) Ratio Analysis 2017 2018 2019E 2020E 2021E

Gross profit 12,220 15,105 27,037 45,543 69,284 Growth (YoY%)

Operating expenses (16,727) (28,775) (37,238) (45,481) (61,125) Revenue 161.2% 92.3% 40.3% 39.6% 29.7%

Other income, net 681 2,585 1,166 1,166 1,166 Gross profit 105.7% 23.6% 79.0% 68.4% 52.1%

EBIT (3,826) (11,086) (9,035) 1,228 9,325 Adjusted net profit (46.7%) 198.6% (16.2%) (147.8%) 242.1%

Finance costs (19) (45) (45) (56) (17) Adjusted diluted EPS (49.4%) 67.6% (61.9%) (147.8%) 242.1%

Pre-tax profit (18,934) (115,491) (8,762) 1,440 9,476 Margins

Tax (54) (2) 0 0 (758) Gross profit margin 36.0% 23.2% 29.6% 35.6% 41.8%

Minority Interest (71) (16) (35) 6 35 EBIT margin (11.3%) (17.0%) (9.9%) 1.0% 5.6%

Attributable profits (18,917) (115,477) (8,727) 1,434 8,683 Adjusted net margin (8.4%) (13.1%) (7.8%) 2.7% 7.1%

Adjusted EBIT (3,536) (10,101) (7,511) 3,052 12,035 Other ratios

Adjusted net profit/loss (2,853) (8,517) (7,138) 3,414 11,679 Return on assets (36.6%) (138.1%) (7.2%) 1.2% 6.8%

Return on equity N/A N/A (10.1%) 1.8% 10.9%

Balance sheet (RMB'mn) 2017 2018 2019E 2020E 2021E ROIC N/A N/A (9.8%) 1.8% 10.5%

PPE 916 3,979 4,195 5,849 8,047 Dividend payout ratio 0.0% 0.0% 0.0% 0.0% 0.0%

Intangible assets 19,853 33,876 34,552 35,120 36,754 Net debt to equity N/A (17.1%) (11.0%) (14.1%) (21.0%)

Other non-current assets 8,427 9,657 9,657 9,657 9,657 Interest coverage (X) N/A N/A N/A 54.5 729.4

Inventories 88 400 824 1,060 1,351 Valuation measures

ratios

Trade receivables 432 466 894 1,253 1,750 PER (X) N/A N/A N/A 82.4 24.1

Cash and equivalents 19,409 17,044 11,394 14,527 22,390 PBR (x) N/A 1.5 3.6 3.5 3.2

Other current assets 34,508 55,239 57,915 59,898 61,505 FCF yield (%) (1.3%) (7.6%) (2.0%) 0.7% 2.1%

Total assets 83,634 120,662 119,430 127,364 141,454 Dividend yield (%) 0.0% 0.0% 0.0% 0.0% 0.0%

Long-term Borrowings 0 470 1,000 1,500 2,000

Other non-current liabilities 103,618 1,857 1,857 1,857 1,857 Key Operating Metrics 2017 2018 2019E 2020E 2021E

Accounts payable 2,667 5,341 6,866 7,947 9,010 Revenue mix (%)

Short-term borrowings 162 1,800 1,800 1,800 1,800 Food delivery 62.0% 58.5% 56.4% 56.2% 56.4%

Other current liabilities 17,689 24,684 30,060 34,823 38,382 In-store dining / OTA 32.0% 24.3% 23.3% 23.3% 23.3%

Total liabilities 124,136 34,152 41,583 47,927 53,048 New initiatives 6.0% 17.2% 20.3% 20.6% 20.2%

Total shareholders’ Equity (40,559) 86,504 77,837 79,412 88,366 Gross margin (%)

Minority interests 58 5 10 25 40 Food delivery 8.1% 13.8% 16.0% 24.0% 28.3%

Total equity (40,501) 86,510 77,847 79,437 88,406 In-store dining / OTA 88.3% 89.0% 89.0% 90.0% 90.0%

New initiatives 46.0% (37.9%) (1.0%) 6.0% 24.0%

Cash flow statement (RMB'mn)

2017 2018 2019E 2020E 2021E Non-IFRS EBIT margin (%)

EBITDA (2,982) (5,719) (5,035) 5,410 14,180 Food delivery (21.0%) (7.0%) (7.5%) 5.0% 8.0%

Other gains, net 178 4,141 0 0 0 In-store dining / OTA 15.0% 28.0% 25.0% 20.0% 20.0%

Change in working capital 2,512 (7,600) 3,374 3,265 2,227 New initiatives (50.8%) (114.3%) (56.5%) (31.6%) (17.6%)

Tax Paid (19) (2) 0 0 (758) Food delivery

Operating cash flow (310) (9,180) (1,661) 8,676 15,648 GTV (RMB'bn) 171 283 369 463 567

Capex (742) (2,200) (4,892) (6,405) (8,687) Monetization rate (%) 12.3% 13.5% 14.0% 15.5% 16.5%

Others (14,415) (21,239) 418 418 418 In-store dining / OTA

Investing cash flow (15,157) (23,439) (4,474) (5,986) (8,269) GTV (RMB'bn) 158 176 241 328 421

Change in borrowings 161 2,108 530 500 500 Monetization rate (%) 6.9% 9.0% 8.8% 9.1% 9.2%

Interest paid (10) (45) (45) (56) (17) New initiatives

Others 25,357 27,232 0 0 0 GTV (RMB'bn) 28 56 84 109 131

Financing cash flow 25,508 29,295 485 444 484 Monetization rate (%) 7.3% 20.1% 22.1% 24.1% 25.6%

Net change in cash 10,040 (3,323) (5,650) 3,133 7,863

Free cash flow (1,052) (11,380) (6,553) 2,271 6,961

Source: Company data, China Tonghai estimates Note: FY End Dec

26 19 March 2019


Rating Definitions Disclaimer and Risk Statement BUY We expect the stock to have a total return of > 15% over the

next 12 months This document is published by China Tonghai Securities Limited (“Tonghai Securities”), a licensed corporation (central entity number AAC577) regulated by the Securities and Futures Commission in Hong Kong. This document is for distribution in Hong Kong only to persons who are “Professional Investors” as defined in Part 1 of Schedule 1 of Securities and Futures Ordinance (Cap 571) of Hong Kong and any rules made thereunder. This document is not intended for distribution to or use by, any person or entity who is a citizen or resident of any jurisdiction where such distribution or use would be contrary to applicable law or regulation within such jurisdiction. This document does not constitute an offer or a solicitation of an offer to buy or sell any securities. This document is circulated to addresses solely and may not be reproduced or redistributed to any other person or published, in whole or in part, for any purpose. The research is based on information obtained from sources believed to be reliable, but Tonghai Securities does not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without prior notice. Any recommendation does not have regard to specific investment objectives, financial situation and particular needs of any specific addressee. Tonghai Securities accepts no liability whatsoever for any direct or consequential loss arising from any use of this document. Tonghai Securities and its affiliates as well as persons associated with any of them from time to time may or may not have interests in the securities mentioned in this document. The prices of securities may move up or down, and past performance is not an indication of future performance. Investors shall consider seeking separate legal or financial advice before making investment decisions.

HOLD We expect the stock to have a total return of < 15% and >-15% over the next 12 months

SELL We expect the stock to have a total return of < -15% over the next 12 months

Disclosures Analyst Certification: The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Esme Pau (CE No. ATP176), Li Yiming (CE No. BIE646), the authors of this document and their associates declare that as of the date of the publication of this report, they do not hold any financial interest in the company.

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China Tonghai Securities | Meituan Dianping (3690 HK ...n.sinaimg.cn/finance/20b4c54d/20190319/MeiTuanYanBao.pdf · crucial year for the core food delivery segment on the back of