COMPANY OF THE MONTH - JUNE 2020 Dianping

Eat better, live better XING WANG Born in 1979, Xing Wang is the co-founder of Meituan Dianping and its current Chairman and CEO. Born into a business family, Wang received a bachelor’s degree in electronic engineering from Tsinghua University in 2001. Inspired by the success of , he gave up his pursuit of a PhD in computer engineering at the University of Delaware and returned to China to begin his journey as an entrepreneur. After a series of setbacks on different social network projects, Wang co-founded group buying platform Meituan in 2010 amid the success of US-based . Since its IPO in September 2018, Meituan’s share price has increased 220% and the company now boasts a US$210bn market cap. Wang owns a 9.9% stake of the company with 46% voting rights.

Established in 2015 as a result of the strategic merger between Meituan Corporation (a Groupon-like platform for local deals co-founded in 2010 by Xing Wang) and Dianping Holdings (a -like platform for restaurant discovery), Meituan Dianping (Meituan) is China’ largest one-stop e-Commerce platform for services. The company has 450M annual transacting users. 56% of its revenue is generated by the business in which the Revenue mix 2019 China food delivery (volume) company enjoys a dominant position. Meituan is also the domestic leader in in-store, hotel & travel businesses (21%) and has invested in new initiatives such as restaurant management system, bike sharing, grocery retailing and non-food deliveries. Driven by rising disposable income, China’s online food consumption is expected to grow >20% pa and Market data on-demand food delivery being the most attractive Source: Meituan segment as urban consumers seek convenience and Market cap (M$) 124,500 time-efficient meals. Meituan and Ele.me (acquired by Alibaba is 2018) are best Free Cash Flow Yield 2% Source: Bernstein positioned to ride the tide as the they compete in a duopoly. Meituan’s Dividend Yield 0% leading position (65% of MS) has been reinforced thanks to its strong delivery network (4M riders) with a particular advantage in lower-tier cities, intelligent order dispatching system and traffic support from , its strategic Net cash (M$) 7,000 shareholder (20.7%). As such, it has built a solid ecosystem which connects over 6M of merchants to its 450M users. Its food delivery business became profitable in 2Q 2019 thanks to Share price improved economies of scale and growing revenue. Despite MS: Meituan vs. Ele.me temporary disruption (1Q food delivery revenue -11% yoy), the company sees structural improvement post COVID-19 pandemic thanks to increased presence of high-end restaurants. It targets 100M daily orders in food plus grocery delivery by 2025 and reach EBIT of RMB 1 per order ($0.14, 5X vs. 4Q 2019). Meituan also leads in restaurant booking, travel and hotel business. It embraces the tremensous opportunities to cross-sell its low frequency, high margin consumer and merchant service (GPM 89% in 4Q19). It became the largest hotel book platform in China in 2019 (392M room- nights). Although this segment hit by the COVID outbreak, Meituan is relatively better off than its peers and should recover faster thanks to its high exposure to domestic market and lower-tier cities. Source: Bernstein Shareholders As Wang has famously stated, “The second half of the internet-space battle is all about B2B,”Meituan Tencent 20.7% embarked on shifting its business model to gear towards servicing merchants. In 2019, merchant advertising revenue grew 56% yoy. The company also offers technology solutions to merchants including cloud-based ERP, integrated Sequoia Capital 8.3% payment and supply chain solutions. Together with bike/car sharing, these new initiatives bring additional revenue Flottant 71% streams while allowing Meituan to gain more control over the entire value chain, further sustaining and stimulating growth. We expect the company to generate 12% of sales growth this year with lower EPS (-28% yoy) as a result of Key financial data COVID-19 and new investments. However, a strong earning recovery is expected next year (EPS at $0.4 vs. 0.1 in 2019). With $7bn of net cash, Meituan is able to finance itself. The stock trades at EV/Sales of 7x in 2020 and 5x 2021. We 2019 2020e 2021e 2022e find the company highly attractive because of its dominant position as the go-to e-Commerce platform for services. REVENUE (M$) 14,121 15,821 22,647 29,028 GemE (3%)/A(3%)/C(3.5%) have invested in the company. EBITDA (M$) 1,020 895 2,862 4,313 EBITDA MARGIN 7.2% 5.7% 12.6% 14.9% ESG METRICS NP 674 484 2,250 3,602 ESG score : 26.8 / 100*. Medium risk NET MARGIN 4.8% 3.1% 9.9% 12.4% Environmental Indicators Governance Indicators REVENUE YOY 49% 12% 43% 28% Carbon Intensity (T CO2/USD) NA No. of board members 9 NP YOY na -28% 365% 60% CO2 reduction policy YES Board members Independence (%) 37.5% GHG damage cost (% of revenue) NA Female board members (%) 0% ROE 2.5% 2.7% 14.0% 19.0% FCF(M$) 536 408 2,382 3,058

Social Indicators EV / REVENUE (x) 8 7 5 4 Employee costs ( % of revenue) 40% Number of employees 54,580 EV / EBITDA (x) 115 131 41 27

* Low grade reveals a high ESG score Sources : Gemway Assets, Sustainalytics, Trucost Source : Bloomberg as of 12/06/2020