CGS International

May 27, 2025

Meituan: Increasing Investment to Defend Market Share

Meituan’s Q1 2025 Performance

• Meituan’s revenue reached Rmb86.6bn in 1Q25, an 18.1% year-over-year increase, aligning with expectations. [[1]]
• Adjusted net profit for 1Q25 was Rmb10.9bn, a 46.2% year-over-year increase, surpassing expectations due to better margins in the local commerce sector and efficient operational expenditure control. [[1]]

Q2 2025 Forecast

• Revenue is projected to grow by 12.9% year-over-year. [[1]]
• Adjusted net profit is expected to decline by 10.1% year-over-year due to increased subsidies for on-demand delivery business. [[1]]

Investment Recommendation

• The report reiterates an Add rating with a reduced DCF-based target price of HK\$166. [[1]]

Core Local Commerce (CLC) Business Analysis

• The CLC business saw revenue growth of 17.8% year-over-year, reaching Rmb64.3bn in 1Q25, with an operating profit of Rmb13.5bn, up 39.1% year-over-year. [[1]]
• Food delivery and instant delivery order volumes grew by a high single-digit and approximately 30% year-over-year, respectively, while the average order value (AOV) slightly decreased. [[1]]
• Hotel and in-store businesses experienced gross transaction value (GTV) and revenue growth of about 30% and 20% year-over-year, respectively. [[1]]

New Business Segment Performance

• Revenue from new business segments increased by 19.2% year-over-year to Rmb22.2bn in 1Q25. [[1]]
• Operating loss narrowed from Rmb2.8bn in 1Q24 to Rmb2.3bn in 1Q25, but was still higher than the Rmb2.2bn loss in 4Q24, attributed to the expansion of the overseas food delivery business, Keeta. [[1]]
• Losses for Meituan Select remained relatively stable quarter-over-quarter in 1Q25. [[1]]
• Overall operating profit margin (OPM) increased by 1.3 percentage points year-over-year to 21.0% in 1Q25, primarily due to lower user incentives and fewer promotions. [[1]]

Strategic Investment for Market Share Defense

• Meituan plans to increase investments in on-demand delivery in 2Q25F to protect its market share. [[2]]
• The company expresses confidence in its scale advantage, extensive delivery team, and merchant base. [[2]]
• Management views price competition in China’s food delivery segment as unsustainable long-term, cautioning that short-term financial results may be volatile. [[2]]
• 2Q25F order volume growth for food and instant delivery units is expected to be similar quarter-over-quarter. [[2]]
• Increased subsidies are expected to impact revenue, with CLC business revenue forecasted to grow by 10% in 2Q25F. [[2]]
• Meituan announced higher subsidy levels during the 618 shopping festival, focusing on loyal users with high repeat purchases. [[2]]
• CLC and overall OPM are projected to decline to 20% and 10.9% in 2Q25F, respectively, compared to 21% and 12.2% in 1Q25 and 25.1% and 13.7% in 2Q24. [[2]]
• CLC and overall operating profit are expected to decrease by 12.4% and 10.3% year-over-year in 2Q25F. [[2]]
• The report maintains a positive outlook on Meituan’s ability to sustain its leading position in China’s food delivery sector, supported by its delivery fleet, merchant network, and brand awareness. [[2]]

Global Expansion as a Growth Driver

• Meituan announced its entry into Brazil’s food delivery market, planning to invest US\$1bn over the next five years. [[3]]
• iFood currently dominates the Brazilian market with over 80% market share as of FY24, but market penetration remains low at 30% according to Euromonitor. [[3]]
• Keeta has reportedly achieved success in Hong Kong and the Middle East, processing over 200m orders daily. [[3]]
• Keeta is expected to achieve breakeven in Hong Kong in FY26F. [[3]]
• Due to global expansion, new business revenue is projected to grow 21% year-over-year in 2Q25F, with net losses widening to Rmb2.6bn in 2Q25F and Rmb10.5bn in FY25F, compared to Rmb1.3bn in 2Q24 and Rmb7.3bn in FY24. [[3]]

Revised Earnings and Target Price

• FY25-27F non-GAAP EPS estimates have been cut by 15-17% to account for lower margins due to increased subsidies, resulting in a reduced DCF-based target price of HK\$166. [[3]]

Investment Risks

• Slower on-demand revenue growth due to intensifying competition. [[4]]
• Increased losses from new initiatives. [[4]]

Investment Positives

• Strong capability to defend its leading position in China’s on-demand delivery market. [[4]]
• Global expansion as a new growth driver. [[4]]

Financial Performance Summary

Key financial figures and projections for Meituan:

Meituan’s Rmb100bn Investment Plan

• Meituan announced a Rmb100bn investment plan over the next 3 years to improve the food delivery industry. [[2]]
• The plan focuses on: [[2]]
  • Empowering merchants
  • Elevating supply quality
  • Promoting its “Bright Kitchen” program to raise kitchen standards
  • Increasing social benefits plans for riders
• Meituan has provided Rmb1.5bn in accident insurance coverage for approximately 7m riders in 7 pilot provinces, with plans to expand the program nationwide by the end of next year. [[2]]
• Starting this year, Meituan will cover social benefits for its full-time riders (about 70m-80m), rolling this out nationwide gradually. [[2]]
• The expenses for social benefits payment are expected to be around Rmb0.4-0.5 per order for the next 3-5 years and Rmb0.2 per order for FY25F. [[2]]
• Meituan has started paying social benefits in two cities as allowances for full-time riders, receiving positive feedback. [[2]]

Growth Potential of Instant Shopping

• Management sees significant growth potential in Meituan Instant Shopping, even in low-frequency categories. [[2]]
• The non-food category grew by over 60% in 1Q25. [[2]]
• Total transaction users exceeded 500m in 1Q25, with young consumers accounting for about two-thirds. [[2]]
• The instant shopping business achieved a 1% GTV margin in 1Q25. [[2]]
• Increased subsidies to compete with JD and Alibaba are expected to cause losses in Meituan’s instant shopping unit in 2Q25F. [[2]]

Earnings Revisions

• FY25-27F non-GAAP EPS cut by 15-17% due to lower margins impacted by higher subsidies. [[3]]
• This lowers the DCF-based TP to HK\$166. [[3]]
• WACC of 10.1% (Risk-free rate: 3.0%, Risk premium: 7.5%, Beta: 1.0) and terminal growth rate of 3% are used. [[3]]

DCF Valuation Assumptions

• Risk-free Rate of Return: 3.0% [[3]]
• Equity Risk Premium: 7.5% [[3]]
• Company Beta: 1.00 [[3]]
• Cost of Equity: 10.5% [[3]]
• Pre-tax Cost of Debt: 5.5% [[3]]
• Tax Rate: 7% [[3]]
• After-tax Cost of Debt: 5.1% [[3]]
• Target debt to total capital: 8% [[3]]
• WACC: 10.1% [[3]]
• Terminal growth (“g”): 3% [[3]]

Key Balance Sheet Figures

Key financial figures and projections for Balance Sheet: