The only two growth stocks among Chinese concept stocks, the stock price is about to double, hold firmly!

Regular readers of Brother Cai's articles should know that among Chinese concept stocks, he once mentioned three companies that are still in a phase of rapid growth: Duo, Mei, Kuai

Duo refers to Pinduoduo$PDD(PDD.US) , Mei refers to Meituan$MEITUAN(03690.HK) , and Kuai refers to Kuaishou$KUAISHOU-W(01024.HK) 

However, after the Q4 2023 earnings report, Kuaishou's revenue showed some decline. Currently, Pinduoduo and Meituan are still performing strongly.

Pinduoduo's performance remains outstanding, but unfortunately, when the earnings were announced, it coincided with the U.S. banning TikTok, raising market concerns that Pinduoduo's TEMU might face similar issues
 

As a result, Pinduoduo's stock price has been volatile since the earnings release.
 

On the other hand, Meituan, another growth stock, has been a different story. Its stock price has surged from a low of HKD 61 to a high of HKD 105.7, nearly doubling in just two months
 

Meituan has been in Brother Cai's portfolio for nearly three years.

The reason for the sharp decline two months ago was widely attributed to competition from Douyin, but Brother Cai believes the bigger issue was Wang Xing's overconfidence.

Overall, if the stock price falling below HKD 90 was due to concerns about Douyin's competition, then the drop from HKD 85 to the new low of HKD 61, a difference of HKD 24, was entirely due to market concerns about Wang Xing's personal credibility and had nothing to do with fundamentals!!!

Fortunately, Wang Xing has paid the price for his overconfidence. After correcting his attitude, he has begun fulfilling his promise of share buybacks.
 

At the time, Brother Cai believed Meituan's fundamentals were sound but worried that Wang Xing's occasional impulsiveness might drag the company down. Now, this risk has been completely eliminated.
 

After the article was published, some netizens speculated that Wang Xing intentionally depressed the stock price to buy back more shares with the same amount of money.

For example, if the logic held true, Meituan would stop buybacks once the stock price returned to HKD 90.

But in reality, even after reaching new highs, Meituan continues to buy back shares daily.

This validates Brother Cai's earlier point about Wang Xing's clever tactics.
 

With the negative factors now dissipated, Brother Cai hopes Wang Xing has learned his lesson and won't repeat such actions in the future!
 

.......

However, some market participants still believe that Meituan's biggest risk is competition from Douyin.
 

Brother Cai has written several detailed articles on this topic since last year.

The conclusion is: The impact is minimal!

Today, let's analyze this quantitatively and qualitatively.

1. Quantitative Analysis

2023 was the first full year of Meituan competing with Douyin, making this earnings report highly valuable for objectively assessing the competition.Has Meituan really been crushed by Douyin?

In 2023, while actively competing with Douyin, Meituan's revenue grew by 25.8% YoY, with standardized net profit turning positive. Adjusted net profit surged 7.2x YoY, while adjusted EBITDA rose 1.45x YoY. The operating cash flow Brother Cai values most grew 2.55x YoY.
 

Is this what a company crushed by Douyin looks like?
 

Objectively, doesn't it seem like Meituan is doing better than ever?
 

Rapid revenue growth, soaring adjusted profits, and a sharp increase in actual cash inflows—this is the objective data of a growth stock!

Of course, it would be unrealistic to say Douyin's entry had no impact.
 

The only noticeable effect is that Meituan's profit margins have been pressured by the competition.
 

The chart above shows Meituan's quarterly data over the past few years. Clearly, sales and marketing expenses are Meituan's biggest cost in competing with Douyin!

In recent quarters, the sales expense ratio has remained above 20%, with absolute amounts increasing.
 

These expenses mainly include user subsidies and increased ad spending, which squeeze profits.
 

To offset this, Meituan can either grow revenue faster than expenses or improve profitability in other segments.
 

In 2023, Meituan chose the first path: aggressively growing revenue.

In Q4 2023, online advertising and commission revenue grew 40.8% and 32.7% YoY, respectively, both near historical highs.
 

Looking ahead to 2024, Wang Xing has finally realized the need to boost profitability in other segments while maintaining revenue growth
 

This segment is the long-underperforming new initiatives.

Despite years of operation, new initiatives remain loss-making, with a -26% margin in Q4 2023.
 

Fortunately, in 2024, Wang Xing is finally moving in the right direction.

In 2024, Meituan will strategically adjust its new initiatives, improve business models, and aim to significantly reduce operating losses.

Instead of focusing on market share, Meituan will prioritize core competitiveness and user experience. It plans to increase product markups, reduce subsidies, and focus on organic user retention.

Meituan's 2024 performance is something to look forward to!

2. Qualitative Analysis

In terms of specific businesses, in-store and hotel services are Meituan's core, while Douyin is spreading itself thin across multiple fronts—gaming, e-commerce, live streaming, and local commerce—which will inevitably reduce its operational efficiency. Just look at Alibaba's struggles after diversifying too aggressively.

Historically, when two giants compete, they initially engage in price wars, hurting each other. Over time, they break free from the prisoner's dilemma, reach a tacit balance, form a duopoly, and see profit margins and stock prices rebound.
 

In the cola wars, Pepsi didn't eliminate Coca-Cola; they became a duopoly.
 

In the air conditioner wars, Midea and Haier didn't eliminate Gree. The same pattern holds in many industries.
 

Once competition eases and a tacit balance forms, both companies' stock prices rise together!!!

Brother Cai didn't sell Meituan at its low of HKD 61 and hasn't sold now at its peak. He believes Meituan's competitive advantages remain strong and will hold the stock to witness its doubling!
 
 

That's all for today's analysis. I hope you found it helpful! I'm StockPro, an ordinary investor who loves reading financial reports, specializes in Hong Kong and U.S. IPOs, and adopts a long-term + short-term investment style. See you next time!