【Ｍｅｉｔｕａｎ： Ｌａｒｇｅｓｔ Ｆｏｏｄ Ｄｅｌｉｖｅｒｙ Ｓｅｒｖｉｃｅｓ Ｃｏｍｐａｎｙ Ｉｎ Ｃｈｉｎａ】
⇨ 𝐖𝐡𝐚𝐭 𝐝𝐨𝐞𝐬 $03690.HK (Meituan Class B) 𝐝𝐨 𝐭𝐨 𝐠𝐞𝐧𝐞𝐫𝐚𝐭𝐞 𝐫𝐞𝐯𝐞𝐧𝐮𝐞?
➡ Meituan, an investment holding company, provides an e-commerce platform that uses technology to connect consumers and merchants
➡ It operates through Food Delivery; In-store, Hotel & Travel; and New Initiatives and Others segments
➡The 𝑭𝒐𝒐𝒅 𝑫𝒆𝒍𝒊𝒗𝒆𝒓𝒚 𝒔𝒆𝒈𝒎𝒆𝒏𝒕 offers food ordering and delivery service through its platform
➡The 𝑰𝒏-𝑺𝒕𝒐𝒓𝒆, 𝑯𝒐𝒕𝒆𝒍 & 𝑻𝒓𝒂𝒗𝒆𝒍 𝒔𝒆𝒈𝒎𝒆𝒏𝒕 enables merchants to sell vouchers, coupons, tickets, and reservations through the company’s platform
➡ The 𝑵𝒆𝒘 𝑰𝒏𝒊𝒕𝒊𝒂𝒕𝒊𝒗𝒆𝒔 𝒂𝒏𝒅 𝑶𝒕𝒉𝒆𝒓𝒔 𝒔𝒆𝒈𝒎𝒆𝒏𝒕 offers restaurant management system, supply chain, Meituan Instashopping, integrated payment, micro loan, local transportation, non-food delivery, and other products and services, as well as pilot car-hailing and bike-sharing services
➡ The company also offers multimedia information technology, cloud computing, merchant information advisory, online payment, and marketing services
➡ Earnings are forecast to grow 51.51% per year
➡ Became profitable last year
⇨ 𝐑𝐈𝐒𝐊 𝐀𝐍𝐀𝐋𝐘𝐒𝐈𝐒:
➡High level of non-cash earnings
⇨ 𝐈𝐬 𝐌𝐞𝐢𝐭𝐮𝐚𝐧 𝐮𝐧𝐝𝐞𝐫𝐯𝐚𝐥𝐮𝐞𝐝 𝐜𝐨𝐦𝐩𝐚𝐫𝐞𝐝 𝐭𝐨 𝐢𝐭𝐬 𝐟𝐚𝐢𝐫 𝐯𝐚𝐥𝐮𝐞 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐩𝐫𝐢𝐜𝐞 𝐫𝐞𝐥𝐚𝐭𝐢𝐯𝐞 𝐭𝐨 𝐭𝐡𝐞 𝐦𝐚𝐫𝐤𝐞𝐭?
Current Share Price: HK$375.20
Fair Value of the share: HK$182.82
Therefore, the current price is 105.2% above its fair value. That means stock is heavily overvalued.
⇨ 𝐇𝐨𝐰 𝐚𝐫𝐞 𝐭𝐡𝐞 𝐢𝐦𝐩𝐨𝐫𝐭𝐚𝐧𝐭 𝐫𝐚𝐭𝐢𝐨𝐬 𝐨𝐟 𝐭𝐡𝐞 𝐌𝐞𝐢𝐭𝐮𝐚𝐧?
➡ 𝐏𝐫𝐢𝐜𝐞 𝐓𝐨 𝐄𝐚𝐫𝐧𝐢𝐧𝐠𝐬 𝐑𝐚𝐭𝐢𝐨:
Its PE Ratio of 530.8x is very poor compared to Hong Kong Online Retail industry average of 46.9x
Its PE Ratio of 530.8x is poor compared to the Hong Kong Market average of 11.9x
➡ 𝐏𝐫𝐢𝐜𝐞 𝐭𝐨 𝐄𝐚𝐫𝐧𝐢𝐧𝐠𝐬 𝐆𝐫𝐨𝐰𝐭𝐡 𝐑𝐚𝐭𝐢𝐨:
It has a PEG Ratio of 10.3x which is poor compared to Hong Kong market
➡ 𝐏𝐫𝐢𝐜𝐞 𝐭𝐨 𝐁𝐨𝐨𝐤 𝐑𝐚𝐭𝐢𝐨:
It is overvalued based on its PB Ratio of 19.3x compared to the Hong Kong Online Retail industry average of 1.9x
⇨ 𝐇𝐨𝐰 𝐢𝐬 𝐌𝐞𝐢𝐭𝐮𝐚𝐧 𝐟𝐨𝐫𝐞𝐜𝐚𝐬𝐭 𝐭𝐨 𝐩𝐞𝐫𝐟𝐨𝐫𝐦 𝐢𝐧 𝐭𝐡𝐞 𝐧𝐞𝐱𝐭 𝟏 𝐭𝐨 𝟑 𝐲𝐞𝐚𝐫𝐬 𝐛𝐚𝐬𝐞𝐝 𝐨𝐧 𝐞𝐬𝐭𝐢𝐦𝐚𝐭𝐞𝐬 𝐟𝐫𝐨𝐦 𝐯𝐚𝐫𝐢𝐨𝐮𝐬 𝐚𝐧𝐚𝐥𝐲𝐬𝐭𝐬?
𝑬𝒂𝒓𝒏𝒊𝒏𝒈𝒔 𝒗𝒔 𝑴𝒂𝒓𝒌𝒆𝒕: Its earnings of 51.5% per year are forecast to grow faster than the Hong Kong market whcih is forecasted at 21.3% per year
𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝒗𝒔 𝑴𝒂𝒓𝒌𝒆𝒕: Its revenue of 33% per year is forecast to grow faster than the Hong Kong market which is at 14.2% per year
𝑯𝒊𝒈𝒉 𝑮𝒓𝒐𝒘𝒕𝒉 𝑬𝒂𝒓𝒏𝒊𝒏𝒈𝒔: Its earnings are expected to grow significantly over the next 3 years
𝑭𝒖𝒕𝒖𝒓𝒆 𝑹𝑶𝑬: Its Return on Equity is forecast to be 20.3% high in 3 years
⇨ 𝐇𝐨𝐰 𝐡𝐚𝐬 𝐌𝐞𝐢𝐭𝐮𝐚𝐧 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐞𝐝 𝐨𝐯𝐞𝐫 𝐭𝐡𝐞 𝐩𝐚𝐬𝐭 𝟓 𝐲𝐞𝐚𝐫𝐬?
𝑬𝒂𝒓𝒏𝒊𝒏𝒈𝒔 𝑻𝒓𝒆𝒏𝒅: It has become profitable over the past 5 years, growing earnings by 8.5% per year
𝑬𝒂𝒓𝒏𝒊𝒏𝒈𝒔 𝒗𝒔 𝑰𝒏𝒅𝒖𝒔𝒕𝒓𝒚: It has become profitable in the last year, making it difficult to compare its past year earnings growth to the Online Retail industry earnings which grew at 14.7%
⇨ 𝐇𝐨𝐰 𝐡𝐞𝐚𝐥𝐭𝐡𝐲 𝐢𝐬 𝐌𝐞𝐢𝐭𝐮𝐚𝐧 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥𝐥𝐲?
➡ 𝐅𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐏𝐨𝐬𝐢𝐭𝐢𝐨𝐧 𝐀𝐧𝐚𝐥𝐲𝐬𝐢𝐬:
Its short term assets ((CN¥78.2B) exceed its short term liabilities (CN¥46.1B)
Its short term assets ((CN¥78.2B) exceed its long term liabilities (CN¥3.3B)
➡ 𝐃𝐞𝐛𝐭 𝐭𝐨 𝐄𝐪𝐮𝐢𝐭𝐲 𝐇𝐢𝐬𝐭𝐨𝐫𝐲 𝐚𝐧𝐝 𝐀𝐧𝐚𝐥𝐲𝐬𝐢𝐬:
𝑫𝒆𝒃𝒕 𝑳𝒆𝒗𝒆𝒍 : Its debt to equity ratio of 7.8% is considered satisfactory
𝑹𝒆𝒅𝒖𝒄𝒊𝒏𝒈 𝑫𝒆𝒃𝒕: Insufficient data is available to calculate if Meituan's debt to equity ratio has reduced over the past 5 years
𝑫𝒆𝒃𝒕 𝑪𝒐𝒗𝒆𝒓𝒂𝒈𝒆: Its debt is well covered by operating cash flow of 88.5%
⇨ 𝐓𝐡𝐞 𝐊𝐞𝐲 𝐓𝐚𝐤𝐞𝐚𝐰𝐚𝐲:
The fact that Meituan is now generating some pre-tax profits from its prior investments is very encouraging. Investors are pleased with this because the business was loss-making four years ago but is is now generating 1.3% on its capital. 𝑻𝒉𝒂𝒕' 𝒂 𝒈𝒓𝒆𝒂𝒕 𝒏𝒆𝒘𝒔!
Meituan operates in end-markets in China with strong growth potential in the medium to long term. But Meituan does face intense competition in its various business lines, and its continued investments in new initiatives and new businesses could continue to be a drag on the bottom line in the near-term with no guarantee of success in the future.
But, I am still 𝒃𝒖𝒍𝒍𝒊𝒔𝒉 on Meituan with coming into profitabilty zone and management will need to do a good job managing artificial intelligence and drone delivery to produce even greater results.
𝙒𝙝𝙖𝙩 𝙞𝙨 𝙮𝙤𝙪𝙧 𝙤𝙥𝙞𝙣𝙞𝙤𝙣 𝙤𝙣 𝐌𝐞𝐢𝐭𝐮𝐚𝐧 𝙞𝙣 𝙮𝙚𝙖𝙧𝙨 𝙩𝙤 𝙘𝙤𝙢𝙚?
𝐒𝐨𝐮𝐫𝐜𝐞𝐬: In the first comment!
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