Broker: China Galaxy International Securities (Hong Kong) Co., Limited
Date of Report: May 27, 2025

Meituan Doubles Down: Expanding Globally and Defending Market Share Amid Margin Pressure

Overview: Meituan’s Strategic Shift in 2025

Meituan, Hong Kong’s internet services powerhouse, is ramping up investments to defend its market share and lay the groundwork for global expansion. In Q1 2025, the company reported robust revenue growth, a surge in profit, and outlined a Rmb100 billion plan to elevate the food delivery industry, even as rising subsidies and international ambitions put near-term pressure on margins.

Q1 2025 Financial Highlights: Revenue and Profit Beat Expectations

• Total revenue: Rmb86.6bn in Q1 2025, up 18.1% year-on-year.
• Adjusted net profit: Rmb10.9bn, up 46.2% year-on-year, surpassing forecasts due to higher margins in local commerce and effective operational cost controls.
• Core Local Commerce (CLC) sector: Revenue reached Rmb64.3bn, up 17.8% year-on-year; Operating profit rose 39.1% to Rmb13.5bn.
• New business segment: Revenue grew 19.2% to Rmb22.2bn, with operating losses narrowing from Rmb2.8bn (Q1 2024) to Rmb2.3bn, though higher than Q4 2024 (Rmb2.2bn) due to overseas expansion.
• Overall operating profit margin (OPM): Up 1.3 percentage points year-on-year to 21% for Q1 2025, mainly due to lower user incentives and fewer promotions.

Outlook: Profit Under Pressure as Meituan Invests in Market Defense

• Q2 2025 Revenue Forecast: Expected to grow 12.9% year-on-year, but adjusted net profit projected to decline 10.1% due to increased delivery business subsidies.
• Subsidy Strategy: Meituan is ramping up subsidies during the 618 shopping festival, targeting loyal users with high repeat purchases.
• Margin Guidance: CLC and overall OPM anticipated to drop to 20% and 10.9%, respectively, in Q2 2025 (from 21% and 12.2% in Q1 2025 and 25.1% and 13.7% in Q2 2024).
• Operating profit: Forecast to decline 12.4% (CLC) and 10.3% (overall) year-on-year in Q2 2025.

Global Expansion: Brazil Entry and Keeta’s Success

• Brazil Market Entry: Meituan will invest US\$1bn over five years to enter Brazil’s food delivery market, where iFood currently dominates with over 80% share, but overall penetration remains low at 30%.
• Keeta’s Performance: The overseas food delivery arm, Keeta, has become the number one player in Hong Kong and is showing strong performance in the Middle East, with over 200 million daily orders.
• Breakeven Target: Management expects Keeta to reach breakeven in Hong Kong by FY2026.
• Financial Impact: New business revenue is expected to grow 21% year-on-year in Q2 2025, but net losses are projected to widen to Rmb2.6bn (Q2 2025) and Rmb10.5bn (FY2025), from Rmb1.3bn (Q2 2024) and Rmb7.3bn (FY2024).

Rmb100 Billion Investment Plan: Elevating the Food Delivery Ecosystem

• Industry Growth: Meituan is committing Rmb100bn over the next three years to support merchants, improve supply quality, enhance kitchen standards with the “Bright Kitchen” initiative, and boost rider social benefits.
• Rider Safety & Benefits: Rmb1.5bn in accident insurance has been provided to approximately 7 million riders in 7 pilot provinces, with national coverage targeted by end-2026. Social benefits for full-time riders (approx. 70-80 million) are being rolled out nationwide.
• Cost Impact: Social benefits expenses are expected to be Rmb0.4-0.5 per order for the next 3-5 years, and Rmb0.2 per order for FY2025.

Instant Shopping: A New Growth Engine

• Non-food growth: Non-food instant shopping categories grew over 60% in Q1 2025.
• User base: Total transaction users exceeded 500 million, with about two-thirds being young consumers.
• Profitability: Achieved 1% GTV margin in Q1 2025; however, intensified competition from JD and Alibaba is expected to result in losses for this unit in Q2 2025.

Detailed Financial Performance Table

Earnings Revisions and Valuation

• EPS Guidance: FY2025-2027 non-GAAP EPS cut by 15-17% due to lower margins from higher subsidies.
• Target Price: DCF-based target price reduced to HK\$166 (from HK\$192), using 10% WACC and 3% terminal growth.
• Investment Rating: “Add” rating reiterated, supported by Meituan’s scale, merchant network, and brand strength, with global expansion as a new growth driver.
• Key Risks: Slower on-demand revenue growth from intensified competition and deeper losses from new ventures.

Shareholder Overview and Market Data

• Major shareholders: Tencent (18.0%), Wang Xing (10.0%).
• Market cap: US\$100.9bn / HK\$790.6bn.
• Current share price: HK\$129.4, with a 28.3% upside to the target price.
• Free float: 50%.
• Consensus rating: 59 Buy, 1 Hold, 1 Sell.

Comprehensive Financial Summary

Key Ratios and Drivers

• Revenue Growth: 22.0% in 2024, projected at 14.7% in 2025, 16.1% in 2026, and 14.1% in 2027.
• Operating EBITDA Margin: 14.3% (2024), expected at 13.2% (2025), 14.8% (2026), 16.8% (2027).
• Food Delivery Monetization Rate: 15.8% (2024), forecasted to decline to 6.9% (2025), before recovering to 11.2% (2026) and 9.2% (2027).
• Food Delivery GTV Growth: Stable growth around 20% per year projected through 2027.

Conclusion: Meituan’s Balancing Act – Growth, Investment, and Profitability

Meituan’s aggressive investment in both domestic market defense and international expansion positions it as a key player in the evolving global food delivery landscape. While short-term profit margins are under pressure due to elevated subsidies and international ambitions, the company’s strong brand, operational scale, and merchant network provide solid foundations for long-term growth. Investors will be closely watching margin recovery, competitive dynamics, and the global rollout of Keeta as critical factors influencing future performance.

Recommendation Framework

• Stock Rating: “Add” – Total return expected to reach 15% or higher over the next 12 months.
• Sector Rating: Overweight – Market cap-weighted stocks in the sector are viewed positively.
• Country Rating: Overweight – Investors should be positioned above-market weight in this country relative to benchmark.