The era of BAT (Baidu, Alibaba and Tencent) may be coming to an end this year with the rise of Meituan Dianping, now China’s third largest technology company with a market capitalization of over US$175 billion.
Despite the recent correction of global tech stocks, the Chinese food delivery leader has seen its share price double year-to-date. With a price to earnings (PE) ratio of over 300 times, Meituan is compared by some analysts to NASDAQ’s Tesla with over 800x PE. Similar to Tesla, the hefty valuation of Meituan is fundamentally underpinned by its market dominance and high growth potential due to its unique business model.
Meituan maintained its dominance of the food delivery market in the first half, at around 65% to 70%, according to QuestMobile estimates. Amid the Covid-19 pandemic, its food delivery revenue and operating profit grew by 13.2% and 66% respectively year-on-year. Its food delivery gross merchants volume (GMV) grew 16.9% year-on-year to 108 billion yuan (US$15.8 billion) in the second quarter.
“Food delivery has become an important real-life demand for many people,” says founder and CEO Xing Wang in a teleconference on the company's interim results. “Food delivery will become an important infrastructure in modern life and it still has big room to grow. We believe that we will reach 100 million-yuan daily GMV in a few years’ time.”
Meituan achieved another milestone in the second quarter when it became the largest online hotel booking platform globally, with total 78 million domestic hotel room nights stayed, almost triple Booking’s results and four times that of Expedia.
As China’s domestic travel restrictions continue to ease, the sector is poised for a recovery in the coming months. UBS expects the sector to deliver over 20% growth over the next several years. According to iiMedia, the current disruption has allowed the Chinese OTAs (online travel agencies) to win market share, especially in the accommodation segment where their penetration rate is expected to rise from 19.6% in 2015 to 35.2% in 2020. Another short-term catalyst to boost Meituan’s valuation is active south-bound trading. According to Hong Kong stock exchange data, Meituan saw in August an inflow of HK$ 20.7 billion across the border through the Stock Connect, just behind Tencent.
Also in August, Hang Seng Indexes Company announced the inclusion of Meituan, along with Alibaba and Xiaomi, in the "H-share" Hang Seng China Enterprises Index. China Renaissance estimates US$300 million of passive fund inflows to Meituan upon index rebalancing.
In addition, since Hang Seng Indexes Company launched the Hang Seng TECH Index on July 27 2020, which also includes Meituan, two exchange-traded funds tracking this index have been launched by CSOP and China AMC(HK). The CSOP Hang Seng Tech Index ETF recorded a trading volume of HK$3 billion (US$387.1 million) on its first trading day.
Asian high net worth individuals are also actively investing in Chinese technology companies. Says an APAC head of a Swiss private bank: “The market is smarter and people are talking about what the future roles are technology companies playing. One of our star recommendation is Meituan Dianping. That kind of business model is not going to stop anytime soon."