Greater China Equity Long/Short Analyst

Eric Chen

Equity Bottom-Up

Meituan is a Chinese technology company that operates a platform for local services, including on-demand food delivery, in-store services, consumer reviews, hotel and travel bookings, and instant retail. The company also offers bike sharing, e-moped sharing, and grocery delivery services. Meituan is headquartered in Beijing, China, and was founded in 2010.

<ul>
<li>Meituan reported strong 3Q results last Friday which were largely expected by the market. Yet downbeat guidance seemed to have disappointed investors and dragged the stock during US trading session.</li>
<li>We believe the stock’s significant re-rating since early 2024 has come to end as earnings growth starts normalizing after being boosted by less competition and narrowing losses from new initiatives.</li>
<li>While the company has strengthened its moat and we expect steady growth ahead, we see near-term price volatility as markets digest the notable slowdown.</li>
</ul>


Meituan reported strong 3Q results last Friday which were largely expected by the market. Yet downbeat guidance seemed to have disappointed investors and dragged the stock during US trading session.
We believe the stock’s significant re-rating since early 2024 has come to end as earnings growth starts normalizing after being boosted by less competition and narrowing losses from new initiatives.
While the company has strengthened its moat and we expect steady growth ahead, we see near-term price volatility as markets digest the notable slowdown.


Meituan (3690 HK): Embracing the Slowdown

PDD Holdings Inc. is a multinational commerce group that owns and operates a portfolio of businesses. The Company focuses on digital economy so that local communities and small businesses can benefit from the increased productivity and new opportunities. PDD Holdings has built a network of sourcing, logistics, and fulfillment capabilities for its underlying businesses.

<ul>
<li>We compared similar growth stage of Alibaba to Pinduoduo, when GMV of both platforms increase from RMB1 trillion to RMB4 trillion, to facilitate better understanding of efficiency edge of Pinduoduo.</li>
<li>Contrary to consensus, Pinduoduo didn’t do better than Alibaba on OPEX (advertising expenditure in particular), but it did extract much greater value from the ecosystem via significantly higher take-rate.</li>
<li>The findings highlight how Pinduoduo aggregate user traffic at surprisingly high cost to beef up merchant competition in terms of cost optimization and user acquisition, with Pinduoduo  reaping greatest value.</li>
</ul>


We compared similar growth stage of Alibaba to Pinduoduo, when GMV of both platforms increase from RMB1 trillion to RMB4 trillion, to facilitate better understanding of efficiency edge of Pinduoduo.
Contrary to consensus, Pinduoduo didn’t do better than Alibaba on OPEX (advertising expenditure in particular), but it did extract much greater value from the ecosystem via significantly higher take-rate.
The findings highlight how Pinduoduo aggregate user traffic at surprisingly high cost to beef up merchant competition in terms of cost optimization and user acquisition, with Pinduoduo  reaping greatest value.


Alibaba Group Holding Limited provides online sales services. The Company provides internet infrastructure, electronic commerce, online financial, and internet content services through its subsidiaries. Alibaba Group Holding offers its products and services worldwide.

<ul>
<li>Consensus underestimates earnings growth potential of Alibaba in coming years given tangible progress in its internal overhaul and improving China macro backdrop.</li>
<li>The September quarter is likely the end of the company’s earnings slowdown tracing back to 1HFY23, and we expect earnings recovery in FY2H25 will trigger major re-rating. </li>
<li>Fundamental turnaround and gradual bottoming-out of China property market going into 2025 will easily lift Alibaba’s valuation to above 15x P/E. </li>
</ul>


Consensus underestimates earnings growth potential of Alibaba in coming years given tangible progress in its internal overhaul and improving China macro backdrop.
The September quarter is likely the end of the company’s earnings slowdown tracing back to 1HFY23, and we expect earnings recovery in FY2H25 will trigger major re-rating. 
Fundamental turnaround and gradual bottoming-out of China property market going into 2025 will easily lift Alibaba’s valuation to above 15x P/E. 


2025 High Conviction Idea: Alibaba On the Cusp of Major Re-Rating

<ul>
<li>We believe that Meituan will exit 2024 on a high note with stronger earnings growth in 2H24.</li>
<li>With moderating rivalry with Douyin and normalizing marketing spending, Meituan’s long-term profitability is on clearer display observed from its 2Q results.</li>
<li>We expect the company to generate ~RMB60 billion adjusted net profit by 2026, implying 25% CAGR and 17x P/E on FY26 earnings.</li>
</ul>


We believe that Meituan will exit 2024 on a high note with stronger earnings growth in 2H24.
With moderating rivalry with Douyin and normalizing marketing spending, Meituan’s long-term profitability is on clearer display observed from its 2Q results.
We expect the company to generate ~RMB60 billion adjusted net profit by 2026, implying 25% CAGR and 17x P/E on FY26 earnings.


Meituan (3690 HK): Assessing Its Long-Term Profitability

Anhui Conch Cement Company Limited primarily manufactures and sells cement, clinker, and aggregates, with products widely used in large-scale infrastructure projects. The company also diversifies into new energy, new materials, environmental protection, digital economy, and international trade. It was founded in 1997 and is headquartered in Wuhu, Anhui Province, China.

<ul>
<li>Recent significant clinker price hikes in Yangtze river region boost our confidence that 4Q will likely see the company’s earnings double Y/Y, ending 14 consecutive quarters of decline since 2Q21.</li>
<li>Beijing’s bazooka stimulus package to lift the property market and revive economy also improve industry outlook in 2025.</li>
<li>Consensus has been slow to adjust for the changes in industry dynamics. Our 2024 earnings is now 15% above consensus. We expect upward earnings revision will support P/B expansion.</li>
</ul>


Recent significant clinker price hikes in Yangtze river region boost our confidence that 4Q will likely see the company’s earnings double Y/Y, ending 14 consecutive quarters of decline since 2Q21.
Beijing’s bazooka stimulus package to lift the property market and revive economy also improve industry outlook in 2025.
Consensus has been slow to adjust for the changes in industry dynamics. Our 2024 earnings is now 15% above consensus. We expect upward earnings revision will support P/B expansion.


Anhui Conch (914 HK): Sharp Price Hikes Boost Our Confidence in 4Q Turnaround

With a blend of sell-side and buy-side perspectives, Eric has covered and researched hundreds of Greater China equities in TMT and consumer spaces - two sectors woven together by the overarching thesis of technology empowering consumption. 

Eric is highly experienced in fundamental equity long short strategy. He seeks to produce differentiated and original research that combines holistic qualitative framework, unique angles and robust modelling. The process helps gain deep insights into critical value drivers misunderstood by the market, which results in mis-priced stocks and hence long/short opportunities.