New Competition May Compound Existing Headwinds for Meituan; Maintain HKD 165 FVE

Meituan stock fell by over 6% during trading on Feb. 8, following various media reports that ByteDance’s Douyin platform will soon enter the food delivery and bulk delivery industry. There has been market talk in the past that ByteDance would become a competitor, but we believe that there are plans to come to market within the first half of 2023. We view this as an incremental negative for Meituan and while we expect ByteDance (or other entrants) to require time and resources to build up food delivery operations, we believe that this will lead to greater subsidies being handed out by Meituan and result in lower margins in the long term should Douyin compete for market share. Regardless of the timing and magnitude of impending competition, we believe there is an unfavorable risk/reward ratio even after today’s pullback in Meituan's share price. We maintain our fair value estimate of HKD 165 and could revise our margin forecasts and valuation if competition affects profitability more than we currently expect.