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Meituan makes a double bottom

December 14, 2022
Golden cross for Meituan

Like other Chinese technology stocks Meituan’s business looks healthy with strong growth.

During the third quarter, our total revenue increased by 28.2pc year-over-year to RMB62.6bn (US$9bn). And this quarter, we stick to our Retail + Technology strategy, continue to leverage our advantages in connecting consumers with local merchants and provide better services to a broader range of consumers and merchants.

As a result, annual transacting users on our platform increased to 687m, while the number of annual active merchants increased to 9.3m. The average number of transactions a transacting user increased to 39.5 for the trailing 12 months of the third quarter compared to 34.4 for the trailing 12 months of the third quarter last year.

We achieved an important milestone with food delivery orders surpassing a daily record of 60m, despite the resurgence of Omicron. 

During this quarter, Meituan Instashopping maintained high growth momentum. The growth rate of the user base, the frequency and retention rate all accelerated year-over-year. Notably, daily order volumes spiked at 9.7m in August, with electronics products growing 11-fold and beauty, pet care, flowers also realizing rapid year-over-year growth during the peak day.

On the one hand, the strong growth was due to rising consumer demand for on-demand retail services. And on the other hand, it benefits from our continuous focus and optimization on the supply side. As a result, both the number of active merchants and the number of newly onboarded merchants grew by 30pc year-over-year in the third quarter for Meituan Instashopping.

Despite the short-term challenges from the pandemic. We have improved confidence in the long-term development of our businesses. We firmly believe that consumer confidence will eventually recover as the businesses that were largely impacted due to the pandemic will gradually return to their normal growth.

It was evident that during the summer where the COVID situation improved, core local commerce growth showed strong recovery. It should be clear that our business is resilient and still has high potential once the control measure is released.

Q3 2022, 25 November 2022

Meituan has a growing distribution infrastructure in China for the delivery of meals, food, supermarket goods, Apple smart phones and much else besides. It is also mulling over plans to take the business global. Meanwhile results are sensitive to the intensity of lockdowns in China so recent news of easing lockdown has been a positive for the shares.

It is like Amazon but coming at it from a different direction. Whereas Amazon started by selling stuff online (initially books) Meituan started by building a distribution infrastructure and is now moving from a focus on food and meals distribution to distributing other goods such as electronics where business has grown 11-fold, beauty products, pet care, flowers and other items.

All you have to do is take their word for it that the business has great long-term potential, which I do, and the chart picture supports this analysis of a share that wants to go higher.

We don’t even need to add in volume to see that there is a double bottom on the chart. Add in volume, which was lower on the second low, and the second bottom is even more noticeably higher than the first. The next hurdle is a close significantly above $200. This may take a while or happen quickly but as long as it happens eventually the shares will be in a confirmed uptrend on the Eustace Storey rules. On my rules we have a golden cross, we are close to a decisive break of the downtrend in force since the peak and the Coppock indicator is nudging higher from a negative position.

Strategy

KWEB is an ETF which holds Chinese technology shares. Its third largest holding is Meituan which is six per cent of the fund. This is a good looking chart with a golden cross buy signal. The Coppock indicator is rising from a negative position. This makes KWEB a buy and means that Meituan, which just, has a rising Coppock, scores 6/9 on my system so worth a nibble.

There are a number of Chinese shares now which score six, which adds to the feeling that this whole sector may be changing direction from down to up. They will start to score nine when the major indices change direction.

Incidentally the picture of a man on a scooter making a delivery may seriously underestimate the technology involved in running Meituan’s army (600,000 bikes in 2019), let alone its amazing growth.

Meituan’s global leading on-demand delivery platform is serving more than 3.6 million merchants and 400 million consumers nationwide, covering more than 2,800 cities and counties with nearly 10,000 delivery stations and warehouses and more than 600,000 daily active riders. Meituan’s daily food delivery orders exceeded 25 million on April 20, 2019.

Meituan started to build its own delivery network in 2015 and launched its Premium Delivery service to meet the surging needs for efficient on-demand food delivery. In 2016, Speedy Delivery service was introduced to diversify its delivery services. Meituan launched its first autonomous delivery vehicle “Xiaodai” in 2018

Meituan’s delivery platform relies on its “Super Brain” – the real-time intelligent dispatch system, which enables Meituan to complete a delivery within 30 minutes on average. The dispatch system can perform about 2.9 billion route planning algorithm operations per hour during daily peak times, and calculate the optimized delivery routes in an average of 0.55 milliseconds, according to Sun Zhizhao, CTO of Meituan Delivery.

In addition, Meituan has developed four delivery models — point-to-point shuttle delivery, galaxy network delivery, integrated warehouse inventory delivery, and smart terminal delivery — to serve convenience stores, super markets, retail stores, and office buildings, which can meet the different needs of merchants, improve delivery efficiency and reduce logistics costs.

With the open delivery platform, Meituan will develop a powerful and comprehensive delivery ecosystem by attracting more partners from the upstream and downstream industry chain, leveraging resources from difference parties, sharing delivery orders with third-party logistics companies and collaborating with more merchants.

Meituan website, 6 May 2019

Meituan is a hugely impressive, fast-growing and technology focused business.

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