Summary of Meituan's 3Q25 Earnings Call Company Overview - **Company**: Meituan (3690.HK) - **Industry**: E-commerce and food delivery services Key Financial Metrics - **Total Revenues**: Rmb95.5 billion, a 2% year-over-year increase and 4% quarter-over-quarter increase, but 1.8% lower than Citi's estimate of Rmb97.25 billion and 2.0% lower than consensus of Rmb97.47 billion [1][3] - **Core Local Commerce Revenue**: Declined 2.8% year-over-year to Rmb67.4 billion, below the expected Rmb69.0 billion [1] - **Delivery Services Revenue**: Decreased 17.1% year-over-year to Rmb23.0 billion, accounting for 24% of total revenues [1] - **New Initiatives Revenue**: Increased 15.9% year-over-year to Rmb28.0 billion, slightly below the expected Rmb28.2 billion, with an operating loss of Rmb1.3 billion [1] - **Group Adjusted Net Loss**: Rmb16.0 billion, better than the expected Rmb16.26 billion but worse than consensus of Rmb13.96 billion [1] - **Adjusted EBITDA**: Rmb-14.8 billion, with a margin of -15.5% [1] Operating Metrics - **Operating Loss in Core Local Commerce**: Rmb-14.1 billion, a significant decline from Rmb+14.6 billion in 3Q24, with an operating margin of -20.9% [2] - **Operating Loss for New Initiatives**: Rmb-1.3 billion, compared to Rmb-1.03 billion in 3Q24, with a loss margin of -4.6% [2] Competitive Landscape and Future Outlook - **Competition**: Intense competition is expected to continue, leading to further operating losses in the CLC segment and overall group level in 4Q25 [3] - **Concerns**: The increase in loss from unallocated items to Rmb4.4 billion this quarter from Rmb1.6 billion in 2Q25 raises concerns about financial management [3] - **Management Focus Areas**: Strategies to defend market share, recover from losses, updates on AI initiatives, and capital allocation for AI investments were highlighted as key discussion points for future calls [6] Valuation and Risk Assessment - **Target Price**: HK$117.00, representing a potential upside of 14.1% from the current price of HK$102.50 [4][11] - **Market Capitalization**: HK$625.54 billion (approximately US$80.41 billion) [4] - **Risk Rating**: High risk due to volatility and competition, with potential downside risks including continued losses in food delivery and intensified competition in the in-store and hotel business [12] Additional Insights - **AI Initiatives**: Progress on AI integration into the Meituan app is noted, with positive early results from AI Assistant Xiaomei and AI agent Ask Xiaotuan [6] - **Future Call Focus**: Management's thoughts on profitability timing, competition strategies, macroeconomic sentiment, and merchant feedback on promotional subsidies will be critical areas of discussion [6]

Investment Rating - The industry investment rating is Attractive [9] Core Insights - Meituan has established a strong competitive advantage in quick commerce, with expectations for Alibaba's e-commerce and local services to enhance adoption [1][6] - Meituan's Instashopping gross transaction value (GTV) is projected to reach Rmb350 billion in 2025, reflecting a 30% year-over-year growth [5] - The downsizing of Meituan's Select mini program is viewed positively, as it allows for more investment in profitable areas like Instashopping and international expansion [4] Summary by Sections Meituan - Meituan is ramping up its quick commerce business by increasing the number of Instamarts and expanding product categories, with a focus on tier 1 and 2 cities [3] - The closure of Select warehouses, which incurred losses of approximately Rmb7 billion in 2024, is expected to free up resources for more strategic investments [4] - The company has over 30,000 Instamarts and more than 5,000 merchants, achieving break-even in 2024 [5] Alibaba - Alibaba is merging Eleme and Fliggy into its e-commerce group, which is anticipated to create strong synergies across e-commerce, on-demand delivery, and travel segments [12][13] - This strategic move follows JD's entry into quick commerce and food delivery, highlighting the competitive landscape [13] Financial Projections - Meituan's core local commerce operating profit (OP) is forecasted to be Rmb53 billion for 2025, with new initiatives expected to incur losses of Rmb11 billion [7] - The total on-demand retail market in China is projected to reach Rmb2 trillion by 2030, with Meituan's total on-demand retail GMV expected to reach Rmb1 trillion by the same year [18][22]

Core Insights - Meituan reported 1Q25 revenue of RMB86.6 billion, an 18% year-over-year increase, exceeding both internal forecasts and Bloomberg consensus estimates by 1% [1] - Adjusted net profit reached RMB10.9 billion, up 46% year-over-year, and was 12-13% higher than forecasts [1] - The core local commerce (CLC) segment generated RMB64.3 billion in revenue and RMB13.5 billion in operating profit, reflecting 18% and 39% year-over-year growth, respectively [2] Financial Performance - The operating profit for the CLC segment was 10% better than consensus estimates, primarily driven by the food delivery (FD) business due to user subsidy optimization [1] - Revenue from new initiatives was RMB22.2 billion, up 19% year-over-year, with an operating loss of RMB2.3 billion, which narrowed from RMB2.8 billion in 1Q24 [3] - The company expects solid revenue and earnings growth in the in-store hotel & travel (ISHT) segment to mitigate investment impacts in the short term [2] Strategic Initiatives - Meituan is actively responding to increasing competition in the food delivery and instant retail markets, aiming to maintain market share [2] - The company is committed to investing in international expansion to drive long-term revenue and earnings growth [1] - For 2Q25, revenue for new initiatives is estimated to grow by 21.5% year-over-year, driven by grocery retail and overseas FD business [3] Forecast Adjustments - Revenue and adjusted net profit forecasts for 2025-2027 have been lowered by 1-2% and 11-21%, respectively, to account for additional investments in the FD business and overseas expansion [1] - The DCF-based target price was reduced by 9% to HK$181.6, translating into a 25x 2025E adjusted PE [1]

Investment Rating - The report maintains a "BUY" rating for Meituan, with a target price of HK$181.6, which reflects a 40.3% upside from the current price of HK$129.4 [2][10]. Core Insights - Meituan's 1Q25 results showed revenue of RMB86.6 billion, an 18% year-over-year increase, and adjusted net profit of RMB10.9 billion, up 46% year-over-year, exceeding both forecasts and consensus estimates [1]. - The company is actively responding to increased competition in the food delivery market by optimizing user subsidies to enhance user stickiness, while also committing to international expansion for long-term growth [1][10]. - Revenue from the core local commerce (CLC) segment reached RMB64.3 billion, up 18% year-over-year, with operating profit of RMB13.5 billion, which was 10% better than consensus estimates [1][8]. Financial Performance Summary - For FY25E, revenue is projected at RMB386.1 billion, with a year-over-year growth of 14.4%, while adjusted net profit is expected to be RMB39.3 billion, reflecting a decline of 10.3% year-over-year [7][9]. - The CLC segment is forecasted to generate revenue of RMB66.7 billion in 2Q25E, indicating a 10% year-over-year growth [1]. - New initiatives generated revenue of RMB22.2 billion in 1Q25, up 19% year-over-year, with an operating loss of RMB2.3 billion, which is an improvement from the previous year [1][8]. Forecast Revisions - The revenue and adjusted net profit forecasts for 2025-2027 have been lowered by 1-2% and 11-21% respectively, due to increased investments in the food delivery business and international expansion [1][9]. - The target price was cut by 9% to HK$181.6, translating into a 25x adjusted PE for 2025E [10][12]. Share Performance - The market capitalization of Meituan is approximately HK$792.6 billion, with a 52-week high of HK$213.40 and a low of HK$102.10 [2][3]. - Over the past month, the stock has seen a 1.4% increase, but a decline of 25.7% over the past three months [4]. Shareholding Structure - Major shareholders include Crown Holdings Asia Limited with 8.1% and BlackRock with 5.3% [3].