China Tonghai Securities | Meituan Dianping (3690 HK) initiation

Equity Research
Meituan Dianping China Internet
19 March 2019
Crunch time in 2019; Initiate At Sell
Initiation of Coverage
Stock Rating SELL
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 Industry View NEUTRAL
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 Price Target HKD34.33
new initiatives should cause near to medium term earnings to fall short of market Initial Coverage
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 Price (18-Mar-2019) HKD54.90
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. Potential -37%
168% CAGR (2016-18) and continuing losses of bicycle-sharing segment. Upside/Downside
Ticker 3690 HK
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 Market Cap (USD mn) 39,908
and reduce riders’ cost inflation, which are the biggest swing factors to food delivery Shares Outstanding (mn) 4,924
segment EBIT according to our sensitivity analysis. 4Q18 results serve as a reminder
Free Float (%) 48.0
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. 3M ADVT (USD mn) 51
Dividend Yield (%) N/A
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
52 Week range HKD 40.25-74.00
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.
Source: Bloomberg

China Internet
Meituan Dianping (3690 HK) Key financials
(RMB’mn) FY17 FY18 FY19E FY20E FY21E Esme Pau, CFA
Revenue 33,928 65,227 91,494 127,756 165,650
Growth 161.2% 92.3% 40.3% 39.6% 29.7% Deputy Head of Institutional Research
Operating profit (3,826) (11,086) (9,035) 1,228 9,325 (852) 2971 5417
Growth (38.8%) 189.7% (18.5%) (113.6%) 659.4% esme.pau@tonghaifinancial.com
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)
LI Yiming, Eric
(1.866) (3.127) (1.191) 0.569 1.948
P/E (x) N/A N/A N/A 82.4 24.1 Research Analyst
(852) 2971 5433
Source: Company data, China Tonghai estimate
eric.li@tonghaifinancial.com

19 March 2019 1
China Tonghai Securities | Meituan Dianping (3690 HK) initiation

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
0 10
$80 2020E net profit
IPO at issue price of HK$69 revised down by 60% 9
MSCI
(1) in the past 5 months
$70 Intensifying competition Expiry of lock-up
with Ele.me inclusion period on Mar 19 8
(2) 4Q18 net loss widened
$60 Ofo liquidity 7
to RMB3.4bn
RMB bn
RMB'bn

issue
$50 (3) 6
Restructuring to focus 4Q18 losses widened
on Food+ Platform
5
$40 (4)
strategy Our TP of HK$34.33
3Q18 losses 4
$30 (5)
3
$20 (6) 2
Sep-18 Nov-18 Jan-19 Mar-19 Nov-2018 Jan-2019 Mar-2019
2019 (LHS) 2020 (RHS)

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

19 March 2019 2
China Tonghai Securities | Meituan Dianping (3690 HK) initiation
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.
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.
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China Tonghai Securities | Meituan Dianping (3690 HK) initiation

 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

The high variable cost nature which We expect labor cost per order to increase to RMB5.1 in 2021E from
consist of 93% riders’ cost suggests RMB4.8 in 2018, due to driver cost inflation and higher social insurance
that there is very little room to cut contribution, which should more than offset logistics efficiency gains.
expenses. .

 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.)

19 March 2019 4
China Tonghai Securities | Meituan Dianping (3690 HK) initiation

Fig 3. MTDP – Food delivery cost of revenue, 2018 Fig 4. MTDP – Labour cost per food delivery order, 2017-2021E

5.2 7% 7%
5.1
5.0
5.0 6%
7% 4.9
4.8 5%
4.8
4%

RMB
4.6 4.5
2% 2% 2% 3%
4.4
2%
93%
4.2 1%

4.0 0%
2017 2018 2019E 2020E 2021E
Riders' costs Others
Riders' costs per order y/y growth

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

2. Negative sentiment and lock-up

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

80 600

70 500

60 400
US$mn
HK$

50 300

40 200

30 100

20 0
Sep-18 Nov-18 Jan-19
Value Traded (RHS) MTDP closing price (LHS)

Source: Bloomberg.

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China Tonghai Securities | Meituan Dianping (3690 HK) initiation

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

Ele.me’s determination to gain
market share poses a real threat to
MDTP, in our view
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
350% 100% 7% 5% 5% 5% 5% 4%
18%
300%
34%
80% 35% 35% 35% 35% 34%
250% 36%
35%
200% 60%

150% 37%
40%
100% 57% 60% 60% 60% 61% 62%
47%
20%
50% 29%

0% 0%
2017 2018 2019E 2020E 2021E
2015 2016 2017 2018 2019E 2020E 2021E 2022E
Food delivery GTV growth Food delivery revenue growth
Meituan Ele.me Other's
Source: Company data, China Tonghai estimates. Source: analysys, China Tonghai estimates.

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China Tonghai Securities | Meituan Dianping (3690 HK) initiation

Operating results are most sensitive to monetization

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.
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

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

19 March 2019 7
China Tonghai Securities | Meituan Dianping (3690 HK) initiation

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%.

We expect MTDP to maintain its
industry leading position with 61%
market share in 2021E, though at
the expense of margin
compression.
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 49.1% Hellobike* 5.6%
(formerly mobike)
Online movie ticketing Maoyan* 60.9%(1H18) Taopiaopiao, 33.9%(1H18, Taopiaopiao)
Damai
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.

19 March 2019 8
China Tonghai Securities | Meituan Dianping (3690 HK) initiation

Fig 10. China food delivery market share by GTV Fig 11. China online hotel booking by share of domestic room nights
100% 3% 1%
4% 100%
8% 5%
15% 17% 16%
10% 25% 21%
80% 80% 6% 6%
17% 36% 6%
36% 4% 12%
11% 12%
35% 12%
60% 60%
37% 33%
34%
40% 38%
40% 40%
56% 59%
20% 47%
32% 20%
31% 34%
20% 25%
0% 0%
2015 2016 2017 1Q18 2015 2016 2017 1Q18
Meituan Ele.me Baidu Delivery Others Meituan Ctrip Tongcheng eLong Fliggy Others

Source: iResearch Source: iResearch

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

Ele.me and Koubei targets to hire over 800k riders and 5k new
MTDP launched a merchant subsidy plan and will invest employees in 2019.
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.
MTDP increased commission rate charged to certain Ele.me announced it would launch a merchant support plan in
merchants from 18% to 20%. 2019, focusing on digitalization and reducing commission rate.
1Q19

MTDP announced a restructuring to focus on Food + Platform

Alibaba announced the establishment of a local service
strategy. 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
MTDP opened its first offline supermarket Ella Supermarket, market.
which is similar to Hema, offering 30 min delivery within a Alibaba acquired the remaining stake in Ele.me that it and Ant
radius of 3km. Financial did not already own, at an enterprise valuation of
2018
US$9.5bn.
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 invested US$1bn in Ele.me, bringing its combined
stake with Ant Financial to ~44%.

2017

Meituan gains an entry point in WeChat Wallet.

Alibaba and Ant Financial invested US$0.9bn and US$0.35bn

respectively in Ele.me for a combined 27.7% stake.
Meituan provided subsidies for riders during Chinese New
Year and stepped up hiring after the holiday to maintain
delivery capacity.
2016

Meituan merged with Dianping to form an O2O giant.

Food delivery market share of Meituan reached 41% in 1H15, Establishment of Koubei, a 50/50 joint venture between
surpassing Ele.me and ranking first. Alibaba and Ant Financial, with a combined initial investment
of US$1bn.

2015

Source: Company data, media

19 March 2019 9
China Tonghai Securities | Meituan Dianping (3690 HK) initiation
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.
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$)
$80
IPO at issue price of HK$69
$70 Intensifying competition with Expiry of lock-up period
Ele.me MSCI inclusion on Mar 19
$60 ofo liquidity issue
$50
Restructuring to focus on 4Q18 losses widened
Food+ Platform strategy
$40
Our TP of HK$34.33
3Q18 losses
$30
$20
Sep-18 Nov-18 Jan-19 Mar-19
Source: Bloomberg, company data, China Tonghai estimates.
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China Tonghai Securities | Meituan Dianping (3690 HK) initiation

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

Assigned Segment as % of
RMB'mn Valuation basis Metrics Valuation
multiple total
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 2020E EBIT -RMB 7,275mn 0.0 0% 0
initiatives
Net cash 8% 14,774
Total valuation 175,883
2020E adjusted net profit 3,414
2020E implied P/E 51.5
multiple
Total diluted shares (mn) 5,995
2020E adjusted diluted 0.57
EPS (RMB)
Target price (HKD) 34.33

Source: Company data, China Tonghai estimates

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China Tonghai Securities | Meituan Dianping (3690 HK) initiation

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.

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China Tonghai Securities | Meituan Dianping (3690 HK) initiation

Fig 15. Peer comparison table

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

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China Tonghai Securities | Meituan Dianping (3690 HK) initiation

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

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

Source: Company data.

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China Tonghai Securities | Meituan Dianping (3690 HK) initiation

Key shareholders

Fig 17. MTDP – Shareholding structure Fig 18. MTDP – Percentage of voting rights

Tencent 18%
Public float 19%

Public float
Sequoia 5% WANG Xing
42%
Other pre-IPO 47%
investors 17%
Other pre-IPO
investors 8%
WANG
WANG Xing Huiwen 3% Tencent
WANG Huiwen MU
1% 10% 8% Rongjun
Sequoia 10% 10%
MU Rongjun
2%

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).

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China Tonghai Securities | Meituan Dianping (3690 HK) initiation

Fig 19. MDTP – Segment GTV, 2015-2022E (RMB bn) Fig 20. MDTP – Segment monetization rate, 2015-2022E (%)
1,200 30%
131
1,000 25%
109
800 421 20%
RMB'bn

84 328 15%
600
56 241
400 10%
28 176
158 567
200 20 463 5%
18 369
158 283
127 171
0 16 59 0%
2015 2016 2017 2018 2019E 2020E 2021E
2015 2016 2017 2018 2019E 2020E 2021E
Food delivery In-store/hotel
Food delivery In-store/hotel New Initiatives
New Initiatives Total

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)

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China Tonghai Securities | Meituan Dianping (3690 HK) initiation

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.
.

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China Tonghai Securities | Meituan Dianping (3690 HK) initiation

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

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
Food delivery monetization rate

+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)

Source: China Tonghai estimates.

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China Tonghai Securities | Meituan Dianping (3690 HK) initiation

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-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%
8,91 316 318 320 323 325 328 330 332 335 337 340
6
In-store dining/OTA monetization rate

+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)

Source: China Tonghai estimates.

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China Tonghai Securities | Meituan Dianping (3690 HK) initiation

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.

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China Tonghai Securities | Meituan Dianping (3690 HK) initiation

Fig 23. MDTP – share price performance, bull and bear case (HK$)
80

70 HK$66.60 (+21%)
60

50

40
HK$34.33 (-37%)
30

20
HK$13.30 (-76%)
10

0
Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19

Source: Bloomberg, China Tonghai estimates.

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China Tonghai Securities | Meituan Dianping (3690 HK) initiation

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.

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China Tonghai Securities | Meituan Dianping (3690 HK) initiation

COMPANY CHARTS
Fig 25. MTDP – Revenue by segment, 2016-2021E Fig 26. MTDP – Revenue by segment, 2019E
180
160
34
140
20%
120 26 39
RMB'bn

100
80 19 30 57%
23%
60 11 21
40 16 93
2 72
20 1 11 52
7 38
21
0 5
2016 2017 2018 2019E 2020E 2021E
Food delivery Instore dining, hotel and travel New initiatives and others Food delivery Instore dining, hotel and travel New initiatives and others

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

120

100
25 29%
80
RMB'bn

25 4
60
19 3
4% 67%
40 16 2
2 67
1 55
20 43
1 33
1
6 19
0
2016 2017 2018 2019E 2020E 2021E
Food delivery Instore dining, hotel and travel New initiatives and others Food delivery Instore dining, hotel and travel New initiatives and others

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

Fig 29. MTDP – R&D and Marketing as % of revenue, 2015-2021E Fig 30. MTDP – Food delivery GTV and revenue growth rate, 2017-
2021E
200%
350%

160% 300%

250%
120%
200%

80% 150%

100%
40%
50%
0% 0%
2015 2016 2017 2018 2019E 2020E 2021E 2017 2018 2019E 2020E 2021E

Marketing expenses R&D expenses Food delivery GTV growth Food delivery revenue growth

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

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China Tonghai Securities | Meituan Dianping (3690 HK) initiation

Fig 31. MTDP – Revenue breakdown by segment, 2015-2021E Fig 32. MTDP – Revenue breakdown of in-store & travel and hotel,
2015-2021E
100% 2%
5% 6%
17% 20% 21% 20%
80% 45,000
32%
24% 40,000
54% 23% 23% 23%
60% 35,000 24%
94% 30,000

RMB'mn
40% 25,000 26%
62% 58% 56% 56% 56% 20,000
27%
20% 41%
15,000
28% 76%
10,000 74%
20% 25%
0% 4% 73%
5,000 20% 72%
2015 2016 2017 2018 2019E 2020E 2021E 75%
80%
80%
0
New initiatives and others Instore dining, hotel and travel
2015 2016 2017 2018 2019E 2020E 2021E
Food delivery
In-store and travel revenue Hotel booking revenue

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

Fig 33. MTDP – Revenue breakdown of New initiatives, 2017- Fig 34. MTDP – Gross, operating and net margin, 2015-2021E
2021E
70%
40,000

35,000 20%
30,000
-30%
25,000
RMB'mn

20,000 -80%
93%
15,000 92%
-130%
10,000 91%
87%
5,000 100% -180%
13% 9% 8% 7% 2015 2016 2017 2018 2019E 2020E 2021E
- 0%
2017 2018 2019E 2020E 2021E Gross margin Adjusted EBIT margin
Mobike Others Adjusted net margin

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

19 March 2019 24
 China Tonghai Securities | Meituan Dianping (3690 HK) initiation

Meituan Dianping (3690 HK) Stock Rating: SELL

Income statement
2017 2018 2019E 2020E 2021E Per Share Items (RMB) 2017 2018 2019E 2020E 2021E
(RMB'mn)
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
88 400 824 1,060 1,351 Valuation measures
Inventories
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 Non-IFRS EBIT margin
2017 2018 2019E 2020E 2021E
(RMB'mn) (%)
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

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China Tonghai Securities | Meituan Dianping (3690 HK) initiation

Rating Definitions Disclaimer and Risk Statement

BUY We expect the stock to have a total return of > 15% over the
next 12 months
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
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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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