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

Meituan’s Strategic Investments and Global Expansion: Key Insights for Investors in 2025

Overview: Meituan Defends Market Share with Aggressive Investment

Meituan, a dominant player in China’s on-demand delivery and local commerce scene, continues to fortify its leading position with substantial investments, efficient cost control, and a bold push into international markets. The company’s Q1 2025 results demonstrate robust revenue growth, margin improvement, and a commitment to long-term market leadership, even as it braces for margin pressure from rising subsidies and global ambitions.

Q1 2025 Financial Highlights: Revenue and Profit Surge

• Total Revenue: Rmb86.6 billion in Q1 2025, representing an 18.1% year-on-year increase.
• Adjusted Net Profit: Rmb10.9 billion, up 46.2% year-on-year, surpassing expectations due to improved margins and operational efficiency.
• Core Local Commerce (CLC):
  • Revenue: Rmb64.3 billion, up 17.8% year-on-year.
  • Operating Profit: Rmb13.5 billion, up 39.1% year-on-year.
  • Order Volume: Food delivery and instant delivery daily orders grew by high single-digit and approximately 30% year-on-year, respectively.
  • Average Order Value (AOV): Slight decline year-on-year.
  • Hotel and in-store business: Gross transaction value and revenue up around 30% and 20% year-on-year, respectively.
• New Business Segment:
  • Revenue: Rmb22.2 billion, up 19.2% year-on-year.
  • Operating Loss: Narrowed to Rmb2.3 billion from Rmb2.8 billion a year earlier, but increased from Rmb2.2 billion in Q4 2024, driven by overseas expansion.
  • Meituan Select: Losses remained flat quarter-on-quarter.
• Overall Operating Profit Margin (OPM): Increased 1.3 percentage points year-on-year to 21.0% in Q1 2025, aided by reduced user incentives and fewer promotions.

Outlook for Q2 2025: Margins Under Pressure as Investments Ramp Up

• Revenue Growth: Projected at 12.9% year-on-year for Q2 2025.
• Adjusted Net Profit: Expected to decline by 10.1% year-on-year due to increased subsidies, especially in the on-demand delivery segment.
• Subsidies and Promotions: Raised during the 618 shopping festival, focusing on loyal, high-repeat users.
• Margins:
  • CLC OPM: Forecasted to decline to 20% in Q2 2025 (from 21% in Q1 2025 and 25.1% in Q2 2024).
  • Overall OPM: Expected to fall to 10.9% in Q2 2025 (from 12.2% in Q1 2025 and 13.7% in Q2 2024).
  • CLC/Overall Operating Profit: Expected to decline by 12.4% and 10.3% year-on-year, respectively.

Strategic Initiatives: Rmb100 Billion Investment Plan

Meituan announced a three-year, Rmb100 billion investment initiative to drive industry growth and quality improvement, focusing on:

• Empowering merchants and elevating supply quality.
• Promoting the “Bright Kitchen” programme to raise kitchen standards.
• Enhancing social benefits for riders, including accident insurance (Rmb1.5 billion coverage for 7 million riders in 7 provinces, with plans to expand nationwide by end of next year).
• Initiating social benefit payments for full-time riders (70–80 million), gradually rolling out nationwide, with expected costs of Rmb0.4–0.5 per order for the next 3–5 years and Rmb0.2 per order in FY25.

Instant Shopping: Rapid Growth and Intensifying Competition

• Instant Shopping Business:
  • Non-food category growth exceeded 60% year-on-year in Q1 2025.
  • Total transaction users surpassed 500 million, with two-thirds being young consumers.
  • Achieved 1% GTV margin in Q1 2025, but expected to incur losses in Q2 2025 due to rising subsidies and competition from JD and Alibaba.

Global Expansion: Meituan Goes Abroad

• Brazil Entry: Announced entry into Brazil’s food delivery market with a planned investment of US\$1 billion over five years.
• Competitive Landscape: iFood currently holds over 80% market share in Brazil, but overall market penetration is only 30%.
• Keeta’s Overseas Success: Achieved no. 1 status in Hong Kong food delivery with over 200 million daily orders and significant progress in the Middle East. Keeta is expected to achieve breakeven in Hong Kong by FY26.
• New Business Revenue: Projected to grow by 21% year-on-year in Q2 2025, but net losses expected to widen to Rmb2.6 billion in Q2 2025 and Rmb10.5 billion for FY25, compared to Rmb1.3 billion and Rmb7.3 billion, respectively, in the previous periods.

Valuation and Analyst Outlook: Target Price and Risk Factors

• Target Price: Lowered to HK\$166 (DCF-based, 10% WACC, 3% terminal growth), down from HK\$192, reflecting reduced margin assumptions due to higher subsidies.
• EPS Forecasts:
  • FY25–27 non-GAAP EPS cut by 15–17% due to margin pressure.
• Recommendation: Reiterate “Add” rating, citing Meituan’s robust ability to defend its domestic market leadership and the potential from global expansion.
• Re-rating Catalyst: Potential for better-than-expected operating margin in Q2 2025.
• Key Risks:
  • Slower revenue growth from intensifying competition.
  • Larger-than-expected losses from new business initiatives.

Shareholder Information and Market Data

• Major Shareholders: Tencent (18%), Wang Xing (10%)
• Current Share Price: HK\$129.4
• Target Price: HK\$166.0
• Market Cap: US\$100.9 billion (HK\$790.6 billion)
• Average Daily Turnover: US\$907.2 million (HK\$7.05 billion)
• Shares Outstanding: 6,038 million
• Free Float: 50.0%

Comprehensive Financial Summary (Dec-2023A to Dec-2027F)

Detailed Operational and Financial Metrics

• Gross profit margin improved from 35.1% in Q1 2024 to 37.4% in Q1 2025.
• Selling and marketing expenses rose 12% year-on-year in Q1 2025, with R&D expenses up 15% and G&A expenses up 14%.
• Operating profit more than doubled year-on-year in Q1 2025, while the net profit margin also climbed from 7.3% to 11.6%.
• Free cash flow to equity for Dec-23A was Rmb16.5 billion, surging to Rmb66.1 billion in Dec-24A, but projected negative for Dec-25F before recovering in subsequent years.
• Key operating metrics such as food delivery monetization rate, GTV growth, and ROIC remain robust, supporting the company’s long-term prospects.

Conclusion: Meituan Remains a Market Leader with Global Ambitions

Despite near-term margin headwinds from strategic investments and fierce competition, Meituan’s strong execution, extensive delivery network, and ongoing global expansion underpin its leadership in China’s on-demand delivery sector. The company’s commitment to innovation, quality, and social responsibility, combined with prudent financial management, makes it a compelling watch for investors and market analysts in 2025 and beyond.