Rational competition drives a margin inflection point; Nomura upgrades Meituan to Buy

Overview

This report focuses on the earnings inflection point after Meituan's 1Q26 results. Nomura believes that rapid improvement in the food delivery business's unit economics, competitors placing greater emphasis on profitability rather than aggressive subsidies, and better-than-expected control of new business losses have significantly improved Meituan's risk-reward profile. The report upgrades Meituan to Buy and raises the SOTP target price to HKD109.

Core views

The core views are: first, the food delivery business has entered a margin recovery phase under rational competition, with 2Q26F likely to break even and FY27F unit economics expected to turn positive; second, instant retail is still in an investment phase, but the level of losses appears manageable; third, the in-store, hotel and travel business shows strong revenue resilience, with margins expected to remain stable at around 25%; fourth, new businesses remain a medium-term investment focus, but efficiency improvements at Keeta and Xiaoxiang Supermarket have reduced loss pressure.

Analysis framework

The report combines earnings review, segment operating tracking, earnings forecast revisions, and SOTP valuation. Nomura models food delivery, instant retail, in-store/hotel/travel, and new businesses separately, values each segment using P/E or P/S multiples, and raises earnings forecasts and the target price based on improving food delivery UE and controlled losses in new businesses.

Methodology notes

• Valuation frameworkSOTP segment valuation

  Obtain the target price by valuing different business lines separately and summing them

  The report values food delivery at USD16bn, instant retail at USD5bn, in-store, hotel and travel at USD21bn, and new businesses at USD28bn, which together imply a target price of HKD109.

• Relative valuationP/E multiple method

  Assess the value of mature businesses by applying valuation multiples to expected earnings

  The food delivery business uses 7x FY28F P/E discounted back to FY26, instant retail uses 15x FY27F P/E discounted back to FY26, and in-store, hotel and travel uses 8x FY27F P/E discounted back to FY26.

• Relative valuationP/S multiple method

  Use revenue multiples to value new businesses that are still in the investment phase

  New businesses are valued at 1.5x FY26F P/S, reflecting that they are still in an expansion and investment stage, with lower earnings visibility than mature businesses.

• Operating analysisUnit economics UE

  Measure the profitability of the food delivery business on a per-order basis

  Nomura expects food delivery UE to improve from about -CNY0.94/order in 2025 to -CNY0.24/order in FY26F, and to turn positive to CNY0.31/order in FY27F, which is a key basis for the rating upgrade.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Meituan 03690.HK

  Core covered name

  Strengths

  Food delivery UE is improving rapidly, 1Q26 losses were significantly better than expected, the in-store and hotel businesses remain resilient, and loss control in new businesses is better than expected.

  Weaknesses

  New businesses as a whole are still loss-making, and food delivery order volume may decline YoY in 2H26E due to a high base and more rational subsidies.

  Comparison

  The report compares Meituan against the Hang Seng Index as a benchmark and notes that the current roughly 26x FY27F P/E is below the roughly 33x FY27F P/E implied by the target price.

  Risks

  Intensifying competition in food delivery or in-store, weaker-than-expected new business performance, and changes in subsidy strategy leading to volatility in order growth and margins.

• Meituan food delivery business

  Core driver of the rating upgrade

  Strengths

  Delivery cost control, AOV recovery, and more rational subsidies are driving UE improvement, and management said the business was already slightly profitable in April and May.

  Weaknesses

  Order volume in 2H26E may decline YoY due to a high base, and 3Q26F UE may also turn negative because of seasonality.

  Comparison

  On the competitive front, the report believes competitors such as Alibaba are placing more emphasis on profitability discipline, helping industry subsidies return to rational levels.

  Risks

  If competitors step up subsidies again, the path of food delivery UE improvement could be delayed.

• New businesses and overseas expansion

  Medium-term investment focus and source of earnings uncertainty

  Strengths

  Keeta has shown notable improvement in Saudi Arabia, while Xiaoxiang Supermarket's order volume and GTV both grew by more than 40%, and mature cities have basically reached city-level profitability.

  Weaknesses

  The segment is still loss-making overall, Xiaoxiang Supermarket continues to expand into new cities, and Keeta requires investment to ramp up in new markets.

  Comparison

  Compared with mature local services businesses, new businesses are valued using P/S, reflecting lower earnings visibility but greater growth optionality.

  Risks

  Regional conflict in the Middle East, the pace of expansion in Brazil, the timing of Keeta reaching break-even, and the efficiency of Xiaoxiang Supermarket's new-city expansion could all affect earnings forecasts.

Key data

• Rating changeNeutral -> BuyNomura upgraded Meituan to Buy on the back of improving food delivery profitability and more disciplined management of new business losses.
• Target priceHKD109.00The target price was raised from HKD92 to HKD109, implying about 28% upside.
• Current priceHKD85.50The current price shown on the report cover is dated June 2, 2026.
• 1Q26 total revenueCNY91bnUp 5.6% YoY, broadly in line with Bloomberg consensus expectations.
• 1Q26 consolidated non-IFRS operating lossCNY4.1bn41% lower than the market-expected loss of CNY7.0bn, indicating profitability was significantly better than expected.
• Food delivery UE forecastFY26F -CNY0.24/单；FY27F CNY0.31/单Nomura assumes 2025 food delivery UE was about -CNY0.94/order and expects it to turn positive in FY27F.
• Quarterly food delivery UE path2Q26F break-even; 3Q26F -CNY0.2/order; 4Q26F CNY0.09/order3Q may decline due to seasonality, while 4Q is expected to turn positive again.
• 1Q26 instant retail performanceRevenue up 23.6% YoY; operating loss about CNY500mnLosses narrowed significantly from CNY1.0bn in 4Q25; in 2Q26E they may expand QoQ due to the 618 promotion, but management expects them to remain below the 4Q25 loss level.
• 1Q26 in-store business performanceRevenue CNY16.0bn; operating profit CNY4.0bn; OPM 25%Revenue rose 8.4% YoY, while OPM fell 9.5 percentage points YoY, but overall performance was in line with Nomura's expectations.
• 1Q26 new business performanceRevenue CNY27.0bn; operating loss CNY2.1bnRevenue rose 21.3% YoY, and losses were better than Nomura's prior forecast of CNY2.9bn, mainly due to improving Keeta UE, higher efficiency at Xiaoxiang Supermarket, and slower expansion in some Middle East markets.
• Earnings forecast revisionFY26F operating loss CNY2.2bn; FY27F operating profit CNY19.4bnThe FY26F operating loss forecast narrowed sharply from the previous CNY15.8bn, while the FY27F operating profit forecast was raised by 26%.
• SOTP valuation breakdownFood delivery USD16bn; instant retail USD5bn; in-store/hotel/travel USD21bn; new businesses USD28bnThe food delivery valuation was raised from the previous USD10bn to USD16bn, an important source of the target price increase.

Impact & implications

For investors, the key implication of the report is that Meituan's valuation narrative is shifting away from subsidy pressure and loss concerns toward recovering food delivery UE, controllable segment losses, and upward revisions to medium-term earnings forecasts. If rational competition continues, the current 26x FY27F P/E may have room for re-rating versus the 33x FY27F P/E implied by Nomura's target price; however, if competition in food delivery or in-store intensifies again, or if losses from new business expansion exceed expectations, realization of the target price could be hindered.

Risks

• Renewed intensification of food delivery competition, leading to higher subsidies and dragging on UE improvement.
• Intensifying competition in in-store consumption verticals, especially pressure from Douyin's continued investment.
• New business performance weaker than expected, with losses at Keeta, Xiaoxiang Supermarket, or other expansion projects exceeding management's controllable range.
• YoY decline in food delivery order volume in 2H26E due to a high base and more rational subsidies, which may affect market expectations for revenue growth.
• Overseas market expansion affected by regional conflict, market entry pace, and the local competitive environment.

What to watch

• Whether food delivery UE in 2Q26F reaches break-even as guided by management.
• After subsidy rationalization in food delivery, the extent of YoY order-volume decline in 2H26E and the speed of subsequent recovery.
• The intensity of subsidies and marketing spending by competitors such as Alibaba and Douyin in food delivery and in-store segments.
• Whether instant retail losses remain below the 4Q25 level of CNY1.0bn after the 618 promotion.
• Whether OPM in the in-store, hotel and travel business can remain at around 25%.
• Whether Keeta in Saudi Arabia can achieve monthly break-even within the year and full-year break-even in 2027.
• The impact of Xiaoxiang Supermarket's expansion into new cities on losses and cash burn.