Investment Rating - The investment rating for the company is "Buy" with a current price of 92.15 HKD and a target value of 133.47 HKD [3]. Core Insights - The report anticipates that the company's revenue for 2025 will reach 365.3 billion RMB, with an adjusted net profit loss of 22.5 billion RMB. The company is expected to maintain a strong operational barrier in the takeaway business, despite short-term profit pressures due to competition [6][13]. - The report highlights that the competition in the instant retail business is easing, with a projected order volume growth of 30% for flash purchases in Q4 2025. However, the takeaway business is expected to face continued competition, particularly in high-value orders [6][7][8]. Financial Forecast - Revenue projections for the company are as follows: - 2023: 276.74 billion RMB - 2024: 337.59 billion RMB (growth rate: 25.82%) - 2025: 365.32 billion RMB (growth rate: 8.21%) - 2026: 414.90 billion RMB (growth rate: 13.57%) - 2027: 467.34 billion RMB (growth rate: 12.64%) [6]. - The adjusted net profit forecast indicates losses for 2025 and 2026, with expected losses of 22.5 billion RMB and 7.2 billion RMB, respectively [6][13]. Business Segment Performance - Core local business revenue is projected to be 643.92 billion RMB in Q4 2025, with a year-over-year decline of 1.79% and an operational loss of 111.16 billion RMB [7][9]. - New business revenue is expected to reach 270.46 billion RMB in Q4 2025, reflecting an 18% year-over-year growth, although operational losses are projected at 42.78 billion RMB [8][9]. Valuation Methodology - The report employs a sum-of-the-parts (SOTP) valuation method, estimating the company's fair value at 133.47 HKD per share, based on contributions from various business segments including takeaway, in-store travel, flash purchases, and new businesses [13][14].

Investment Rating - The report maintains a "Buy" rating for the company with a target price of HKD 150.00 and USD 152.90 [6][7]. Core Insights - The company is expected to experience short-term profit pressure due to increased investment in flash sales, although its e-commerce business is projected to perform steadily in 1QFY26 with a year-on-year growth of 11% in CMR [1][2]. - The cloud business is anticipated to continue its accelerated growth, with a projected revenue increase of 22% year-on-year in 1QFY26, supported by strong external demand [1][2]. - The report highlights the rapid growth of the flash sales business, which launched on May 2, and the significant investments made to attract both merchants and consumers [3][4]. Revenue and Profit Forecast - The company’s revenue for 1QFY26 is expected to increase by 1% year-on-year to CNY 245.7 billion, with adjusted EBITA projected to decline by 16.5% to CNY 37.6 billion due to increased spending on flash sales [2][11]. - The adjusted net profit forecast for FY26, FY27, and FY28 has been reduced by 20.6%, 22.2%, and 21.3% respectively, reflecting the higher-than-expected investments in flash sales [4][11]. Business Segments and Performance - The report notes that the flash sales business has seen a rapid increase in daily order volume, reaching over 80 million orders per day, with significant user engagement improvements [3][4]. - The company’s various business segments, including the Taobao Group and local life services, are expected to show mixed performance, with some segments continuing to reduce losses while others face challenges [2][11]. Valuation and Estimates - The report adjusts the valuation based on a sum-of-the-parts (SOTP) approach, with new target prices reflecting a decrease due to increased competition and investment pressures [4][14]. - The estimated non-GAAP net profit for FY26 is projected at CNY 134 billion, with a corresponding PE ratio of 13.36 [10][12].

Summary of the Conference Call on Ele.me's Q2 Local Life - Flash Purchase Business Industry Overview - The conference call focuses on the local life service industry, specifically the flash purchase business of Ele.me, a major player in the food delivery and e-commerce market in China. Key Points and Arguments 1. **Order Volume and Growth** - In 2025, Ele.me's daily order volume for the flower category is approximately 40,000, with peak days like May 20 reaching 600,000 orders. The average order value remains stable at 100 yuan. The supermarket convenience segment saw a year-on-year growth of 30% in May, while the flower segment grew slightly less by 5% [1][6][3]. 2. **Impact of Meituan's Regulatory Issues** - Following Meituan's regulatory scrutiny in March 2025, Ele.me expanded its supply aggressively, particularly in lower-tier cities and suburban areas, significantly increasing the number of merchants. Monthly cash incentives for previously underserved areas can reach 20,000 to 30,000 yuan [1][7]. 3. **Commission Rates and Revenue Structure** - Ele.me's commission rate for warehouse-store integration increased from 5% in 2024 to 6% in 2025. The flower business charges a 10% service fee, while supermarkets and convenience stores have varying commission structures [12][11]. 4. **Advertising Revenue** - Advertising income primarily comes from merchants and brand partners, contributing about 1 yuan per order from supermarkets and convenience stores. The overall advertising expenditure is around 6% for warehouse stores [13]. 5. **Market Competition and User Behavior** - The market is highly competitive, with Ele.me's daily order volume reaching 750,000, which is 2-3 times that of Meituan. However, the overall traffic growth has plateaued [14][15]. 6. **Integration with Taobao Flash Purchase** - The integration with Taobao's flash purchase service has led to a significant increase in orders for supermarkets and convenience stores, with non-main site traffic rising from under 20% to 50%. However, actual order growth is around 30%, indicating some user migration rather than new user acquisition [21][22]. 7. **Profitability of Flash Purchase Business** - The flash purchase business is currently operating at a loss, with average spending per order in 2024 being 1 yuan for convenience stores, 6 yuan for supermarkets, and 10-12 yuan for flowers. In 2025, additional subsidies are expected to impact these figures [26][27]. 8. **Future Development Focus** - Ele.me plans to concentrate on expanding customer frequency and product categories in nine key cities and an additional twenty cities, prioritizing these areas for major marketing activities [20]. Other Important but Overlooked Content - **User Experience and Merchant Costs** - The subsidy strategy significantly affects merchant costs and user experience, with merchants potentially increasing their costs by 5 yuan monthly to subsidize users, especially during holidays [29]. - **京东's Shift in Strategy** - 京东 (JD.com) is shifting its focus towards food delivery and away from retail flash purchases, using substantial consumer subsidies to drive growth in the restaurant sector, which has led to a 1:1 order ratio with Ele.me in convenience store orders [32][33]. - **Market Penetration and City Focus** - Ele.me does not strictly categorize cities but focuses on nine major cities and twenty others for marketing efforts, with these top cities accounting for about 30% of GMV [19]. This summary encapsulates the critical insights from the conference call, highlighting Ele.me's strategies, market dynamics, and competitive landscape in the local life service industry.