On Monday, Benchmark maintained a Buy rating on Meituan Dianping (3690:HK) (OTC: OTC:MPNGF) with a steady price target of HK$168.00. The endorsement comes even though the company reported mixed results for the fourth quarter of 2023, with revenues slightly exceeding expectations but adjusted EBITDA falling short. The dip in profits was mainly due to increased investment in the in-store, hotel, and travel sectors to counter competitive pressures.
Meituan's fourth-quarter performance reflected a moderate revenue beat paired with a slight miss on the adjusted EBITDA front. The company's profit downturn was largely linked to heightened investments aimed at tackling competition within the in-store, hotel, and travel (IHT) segments. Benchmark anticipates healthy growth for Meituan's food delivery and new initiatives, projecting a mid-teen year-over-year growth driven by the general uptick in food retail consumption.
For the fiscal year 2024, the company is expected to capitalize on the structural shift in consumer spending towards experiential services, which could boost Meituan's local services and hotel and travel growth. However, the competitive landscape is likely to continue impacting near-term margin growth in the IHT sector. Despite these challenges, Meituan has managed to hold on to its market share through effective investment strategies.
"With its recent reorganization, we foresee incremental cost synergies from its core and anticipate substantial loss narrowing y/y on its new initiatives, which should help to offset margin pressure from IHT," said the analysts.
InvestingPro Insights
Amidst the competitive dynamics, Meituan Dianping (OTC: MPNGF) showcases a robust financial standing with a market capitalization of $74.07 billion, indicating investor confidence in its market position and growth potential. The company's strategic focus on the Hotels, Restaurants & Leisure industry is underscored by its status as a prominent player in the sector, an InvestingPro Tip that aligns well with Benchmark's outlook on Meituan's investment in experiential services.
Investors may find Meituan's valuation metrics particularly insightful, with the company trading at a P/E ratio that has adjusted from 63.99 to 53.54 in the last twelve months as of Q4 2023. This suggests a more favorable earnings outlook relative to the company's share price. Additionally, Meituan's PEG ratio of 0.12 in the same period indicates potential undervaluation based on near-term earnings growth expectations, which is another InvestingPro Tip highlighting the company's investment appeal.
Performance-wise, Meituan has demonstrated a strong return over the last three months, with a 21.05% price total return, reflecting positive market sentiment and the effectiveness of its competitive strategies. With InvestingPro, users can access an additional 8 InvestingPro Tips to further inform their investment decisions. To discover these insights and more, visit https://www.investing.com/pro/MPNGF and use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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