Summary of Key Points from the Conference Call Industry Overview - The conference call discusses the China Internet sector, particularly focusing on mega-cap companies and their upcoming Q2 earnings reports. - It is anticipated that aggregate profits for the China Internet sector will decline by 10% year-over-year (YoY) for the first time since Q2 2022, primarily due to challenges in eCommerce and local services [1][1]. Core Insights and Arguments 1. **AI and Cloud Revenue Growth**: - There is an expected sequential acceleration in AI/cloud hyperscaler revenue growth, with Alibaba Cloud projected to grow by 23% YoY, up from 18% in the previous quarter. This growth is attributed to rising demand for AI inference and applications [1][1]. - Comparatively, other cloud services like Google Cloud, Azure, and AWS are expected to grow by 32%, 39%, and 17% respectively during the same period [1][1]. 2. **Profit Declines in Transaction Platforms**: - Significant profit declines are anticipated across major transaction platforms, with Alibaba's EBITA expected to drop by 16% YoY, and Meituan and JD projected to see declines of 58-70% YoY due to increased competition in food delivery and merchant support measures [1][1]. - In contrast, sub-segments such as gaming and mobility are expected to show healthy profit growth, with Tencent's adjusted EBIT growth estimated at 15% YoY [1][1]. 3. **Government Policies and Competition**: - The intensity of food delivery competition is expected to peak in Q3, with a potential for a more fragmented market in the long term. ECommerce players are positioning food delivery as a customer acquisition channel [1][1]. - The report suggests that while competition may moderate in the near term, it will likely extend longer than anticipated, affecting the overall landscape of food delivery services [1][1]. 4. **Company-Specific Expectations**: - **Tencent**: Expected to report Q2 revenue growth of 11% YoY, with adjusted EBIT growth of 15% YoY, driven by solid performance in games and marketing services [1][1]. - **Alibaba**: Anticipated to see a 3% YoY revenue increase in Q1 FY26, with a significant decline in adjusted EBITA by 16% YoY due to investments in food delivery and instant shopping [1][1]. - **PDD**: Projected revenue growth of 11% YoY in Q2, but adjusted EBIT is expected to decline by 38% YoY [1][1]. - **Meituan**: Expected to report a 16% YoY revenue increase, but adjusted EBIT is projected to decline by 58% YoY due to competitive pressures [1][1]. - **JD**: Anticipated revenue growth of 16% YoY, but adjusted EBIT is expected to decline by 70% YoY [1][1]. - **DiDi**: Expected to see revenue growth of 8% YoY, with adjusted EBIT growth of 32% YoY, driven by operational leverage [1][1]. Other Important Insights - The report highlights the ongoing competition in eCommerce, particularly in food delivery and on-demand shopping, with Alibaba's instant shopping volumes reaching 15 million daily [1][1]. - Geopolitical developments and their implications on cross-border business models are also discussed, particularly in light of expanded tariffs and potential delisting risks for ADR companies [1][1]. - The report emphasizes the importance of AI investments and the expected increase in capital expenditures for AI applications in the second half of 2025 [1][1]. This summary encapsulates the key points discussed in the conference call, providing insights into the current state and future outlook of the China Internet sector and its major players.

Investment Rating - The report maintains a "Buy" rating for both JD and Meituan, indicating favorable risk-reward scenarios for investors [1][10][13]. Core Insights - JD's food delivery service has ramped up quickly, achieving 10 million daily orders within two months, which is significant compared to Meituan's approximately 65 million daily orders [1][12]. - The report outlines three potential scenarios for JD's future in the food delivery market, ranging from losing scale due to subsidy pullbacks to becoming the second-largest player [1][9][18]. - Meituan is expected to maintain its leadership in food delivery due to its extensive merchant coverage and established user base [10][11]. Summary by Sections JD's Market Entry and Performance - JD's food delivery service has seen rapid growth, doubling its daily orders from 5 million to 10 million in a short period [12][28]. - The company has implemented a Rmb10 billion subsidy program to attract users and has a zero-commission policy for new merchants [28][29]. - JD's long-term commitment to food delivery is supported by strategic investments and management changes [2][10]. Competitive Landscape - The food delivery market is becoming increasingly fragmented, with Meituan and Ele.me responding to JD's entry with their own competitive strategies [2][29]. - Meituan's unique competitive advantages include its large local service merchant network and a strong in-house delivery system [10][11]. - The report anticipates that the competitive dynamics will evolve as JD and Alibaba continue to invest in their food delivery operations [7][10]. Financial Projections and Valuations - The report projects significant upside potential for both JD and Meituan, with target price increases of 56% for Meituan and 53% for JD over the next 12 months [1][26]. - JD's potential EBIT impact varies across scenarios, with estimates ranging from Rmb7 billion to Rmb14 billion depending on market performance [8][9][18]. - Meituan's food delivery is valued at HK$83 per share, based on projected daily orders and EBIT per order [11][60]. Scenario Analysis - Scenario 1 suggests JD could shrink to below 5 million daily orders if subsidies are removed, leading to a significant EBIT impact [9][15]. - Scenario 2 maintains JD's order volume at 8-12 million per day, resulting in a moderate EBIT drag [9][17]. - Scenario 3 envisions JD becoming the second-largest player with daily orders reaching approximately 20 million, significantly impacting both JD and Meituan's EBIT [8][19]. Market Dynamics and Future Outlook - The report highlights the ongoing competition and strategic responses from Meituan and Ele.me, indicating a need for continuous adaptation in the market [2][29]. - JD's entry into food delivery is expected to shift the competitive landscape, with implications for pricing and market share among the key players [1][7][10].