Summary of Meituan (3690) Conference Call Company Overview - **Company**: Meituan (3690) - **Industry**: Food Delivery and Local Commerce Key Points Financial Performance - **2Q25 Net Profit**: Dropped 90% year-over-year (yoy) due to increased consumer subsidies to compete with Alibaba and JD [1][3] - **Operating Profit**: Core local commerce operating profit fell 76% yoy to RMB 3.7 billion in 2Q25 [3] - **EBITDA and Net Profit**: Group EBITDA and net profit decreased by 81% and 89% yoy, respectively, but operating cash flow remained positive at RMB 5 billion [3] - **Net Cash**: Slight increase to RMB 144 billion in 2Q25 [3] Future Outlook - **2025E/26E Projections**: Expected net losses of RMB 7 billion and RMB 5 billion, respectively, due to market share loss and continued heavy subsidies [3][4] - **Free Cash Flow (FCF)**: Projected to reverse from RMB 47 billion in 2024 to negative RMB 2 billion in 2025E and 2026E [3] - **Credit Profile Deterioration**: Total debt to EBITDA ratio expected to widen from 1x in 2024 to 20x in 2026E, with EBITDA contracting 94% from RMB 48.5 billion in 2024 to RMB 2.9 billion in 2026E [3] Competitive Landscape - **Market Share Risks**: Potential loss of market share to Alibaba due to its aggressive expansion in the food delivery market [1][3] - **Competition Dynamics**: Management anticipates continued fierce competition, particularly in food delivery, which may lead to significant losses in core local commerce in 3Q [3][4] Credit Ratings and Recommendations - **Current Ratings**: Meituan is rated Baa1/A-/BBB+ by Moody's, S&P, and Fitch, with stable to positive outlooks [3][4] - **Downgrade Risks**: Risks of rating downgrades if competitive position weakens or leverage ratios remain high without earnings recovery [4] - **Investment Recommendation Change**: J.P. Morgan downgraded Meituan's bonds from Overweight to Neutral due to a cloudier financial outlook [1][4] Risks and Catalysts - **Key Downside Risks**: - Escalation of competition from Alibaba and JD with heavier subsidies - Larger-than-expected losses from overseas expansion - Potential rating downgrades by credit agencies [4] - **Key Upside Catalysts**: - Reduced competition if a smaller player exits the market - Faster-than-expected earnings recovery - Retaining market leadership despite intense competition [4] Conclusion - Meituan faces significant challenges in maintaining its competitive position in the food delivery market, with projections indicating potential losses and a deteriorating credit profile. The company's strategy of heavy subsidies to fend off competition may lead to further financial strain, prompting a cautious investment stance from analysts.