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Meituan delivers food slathered in EV spice
[HONG KONG] Meituan's latest earnings report is less electrifying than it looks. The US$220 billion Chinese food delivery group saw earnings rise 374 per cent for the third quarter, mostly thanks to an equity stake in a green-car maker. The blistering portfolio gains only emphasise the bland performance of core business lines - and its expensive share price.
Net profit hit a whopping 6.3 billion yuan (S$1.28 billion) for the three months ending Sept 30, from 1.3 billion yuan a year earlier, while sales grew 29 per cent to 35 billion yuan. Food delivery is still enjoying a surge in pandemic demand, and Meituan's in-store, hotel and travel units, which are far more profitable than its delivery operations, grew revenue for the first time since Covid-19 put China in quarantine. Operating margins rose.
But paper gains from stock investments contributed 5.8 billion yuan to operating profit, thanks in part to Meituan's stake in Chinese new energy automaker Li Auto, which has risen over 200 per cent since listing in New York in July. That's more than twice Meituan's entire annual operating profit in 2019.
Excluding that, adjusted net income was two billion yuan, gaining only 5.8 per cent year on year and down from the second quarter. Some Chinese joke Meituan should deliver EVs (electric vehicles) instead of food.
Higher expenses took a bigger bite of new business lines, as its operational menu expands beyond food delivery into fresh produce, bike-sharing and microfinance. While the unit was Meituan's fastest-growing in revenue terms, its loss deepened to two billion yuan. Worker safety concerns increased staffing costs, and fierce price wars with established competitors like Pinduoduo and JD.com in the community grocery buying space also took a toll. Operating cash flow shrank by 2.3 billion yuan.
Meituan's core food delivery unit - which still comprises the bulk of its business - has been resilient, but not exciting.
Its operating profit margin was slightly better than last year, but it is still thin at around 3.7 per cent.
With shares trading at over 90 times forward earnings for the next 12 months, according to Refinitiv, the stock looks pricey. Li Auto's portfolio gains could prove ephemeral; as Beijing has begun investigating the electric vehicle industry, its shares have fallen sharply. If that continues, Meituan shareholders will be served a less enticing earnings dish next quarter.
Meituan on Nov 30 reported a 374 per cent year-on-year gain in third-quarter net profit, which rose to 6.3 billion yuan from 1.3 billion yuan a year earlier.
Operating profit in the quarter included 5.8 billion yuan from fair value changes in equity investments, the company said in a stock filling.
Meituan's revenue rose 29 per cent to 35 billion yuan in the three months ending Sept 30 versus the same period a year prior.