Meituan Earnings: Raising Fair Value by 4% on Loss Improvement but Long-Term Competition Still Looms

We raised our fair value estimate for Meituan to HKD 106 per share from HKD 102 after it reported first-quarter 2024 results with significantly improved operating losses in its new initiatives business. Results were mixed as revenue of CNY 73.3 billion, an increase of 25% year on year, topped our estimates by 4%. The new initiative business narrowed its operating loss to CNY 2.75 billion this quarter and loss margin to 15%, with improvements expected. We estimate it will further decline to CNY 2 billion next quarter, equating to an operating loss margin of 10%. This is already better than our previous loss margin forecast of midteens in 2025 and has prompted us to raise profitability assumptions, mainly contributing to our fair value change. Meituan cited that the improvement in loss was caused by shutting inefficient warehouses, raising price mark-ups, and lowering user subsidies. While we are encouraged by Meituan’s progress in narrowing its losses, the company still faces long-term headwinds as there is continuous pressure on operating margins for its food delivery and in-store businesses due to looming competition and lower average value per order. We recommend investors wait for margins to stabilize before taking a long position in Meituan.