Meituan (03690) Report Interpretation

Overview

This earnings review assesses Meituan’s 2Q26 beat and the path of its recovery. Morgan Stanley remains Overweight and sees improving core profitability, but expects a sequential 3Q moderation from seasonality, shifted spending and ongoing competition.

Core views

Meituan delivered a solid 2Q26 revenue and operating-profit beat. Total revenue increased 14% YoY to Rmb104.6bn, exceeding Morgan Stanley’s estimate by 3% and consensus by 4%. Adjusted EBITDA was Rmb4.1bn, versus Morgan Stanley’s Rmb2.1bn estimate. Core local commerce (CLC) revenue grew 10% and operating profit reached Rmb5.7bn, up 52% YoY and well above the Rmb3.0bn Morgan Stanley and consensus expectations; CLC operating margin was 7.9%, up 2.2 percentage points YoY. The report attributes the profit outperformance to reduced losses and marketing-strategy optimization. The recovery in food delivery is central to the thesis. Morgan Stanley estimates 2Q food-delivery unit economics returned to positive Rmb0.26 per order, compared with negative Rmb0.9 in 1Q, alongside stabilizing competition and gains in order and GTV share. It expects Meituan to sustain roughly 70% share in food orders with average order value above Rmb30. However, 3Q unit economics are forecast to fall to Rmb0.1 per order because of seasonal rider costs and the peak summer period. CLC operating profit is therefore forecast at Rmb4.2bn in 3Q, down from Rmb5.7bn in 2Q; food-delivery operating profit of Rmb646mn is expected to be partly offset by an approximately Rmb500mn Instashopping loss. In-store, hotel and travel (IHT) was the main contributor to the 2Q CLC profit beat. Morgan Stanley estimates IHT operating margin reached about 30% in 2Q through cost efficiency and a better order mix, with a key competitor gaining share in lower-AOV orders. For 3Q, it expects IHT revenue growth of 7%, slowing sequentially because hotel and travel demand is weak, while operating profit is forecast at Rmb4.7bn, down 3.5% YoY, and margin at 25%, broadly stable versus 1Q26 and 4Q25. New initiatives also outperformed in 2Q: revenue rose 25% YoY to Rmb33bn and operating loss narrowed to Rmb1.7bn from Rmb2.1bn in 1Q, better than Morgan Stanley’s Rmb2.4bn loss forecast. The improvement was driven mainly by Xiaoxiang Supermarket and overseas Keeta operations. Morgan Stanley expects a similar Rmb1.7bn loss in 3Q, notes that Hong Kong remained profitable and Saudi Arabia reached break-even in July, and expects management to prioritize profitability improvement over market expansion for Keeta International. Morgan Stanley reduced near-term earnings assumptions to reflect ongoing competition and slower food-delivery volume growth from a high prior-year base. Revenue forecasts are largely unchanged, but its CLC operating-profit estimate is cut 5%. The forecast table shows 2027E revenue of Rmb485.4bn, operating profit of Rmb24.9bn, adjusted EBITDA of Rmb48.1bn and non-IFRS diluted EPS of Rmb4.68; 2027E CLC operating margin is projected at 15.2%, while new-initiatives loss narrows to Rmb8.0bn. The HK$110 price target, reduced 8% from HK$120, is Morgan Stanley’s DCF-derived base case. The model uses a 12% WACC and 3% terminal growth rate and implies 19x 2027E P/E, compared with Tencent at 16x F27. The report’s scenario framing indicates a bull case of HK$170 based on 22x 2027E P/E, a base case of HK$110 based on 19x, and a bear case of HK$60 based on 16x. While it sees attractive risk-reward and forecasts 14% total-revenue CAGR for 2025-30 in its higher case, it explicitly prefers Alibaba over Meituan.

Analysis framework

Morgan Stanley starts with the 2Q26 revenue and profit variance against its own estimates and consensus, then separates performance into CLC, food delivery, IHT and new initiatives. It projects 3Q operating trends using unit economics, margin, competition and seasonal assumptions, revises forward earnings, and values the shares primarily through a DCF based on unlevered free cash flow. It also presents bull, base and bear price scenarios using 2027E P/E multiples.

Methodology notes

• Valuation methodsDCF (Discounted Cash Flow)

  Discounted cash flow valuation using unlevered free cash flow, a 12% WACC and 3% terminal growth.

  The report discounts forecast operating cash generation to derive its HK$110 base-case value, with the discount rate reflecting the perceived risk profile.

• Valuation methodsFCFF/FCFE Free Cash Flow

  Unlevered free cash flow (FCFF) forecast through 2030.

  Morgan Stanley builds its DCF from operating profit, depreciation and amortization, capex, lease payments, taxes and working-capital movements.

• Industry AnalysisVolume-price decomposition

  Food-delivery unit economics, order volume, market share and mix analysis.

  The report links per-order economics, seasonal rider costs, order mix and market share to segment profit and margin forecasts.

Asset mapping & comparison

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

• Meituan (3690.HK)

  Primary covered company; recovery in food-delivery economics and IHT profitability supports the maintained Overweight rating.

  Strengths

  Food-delivery leadership, improving unit economics, IHT cost efficiency and mix, and improving profitability in new initiatives.

  Weaknesses

  Near-term earnings are exposed to seasonal food-delivery costs, weak hotel and travel demand, and loss-making new initiatives.

  Comparison

  The HK$110 target implies 19x 2027E P/E, versus Tencent at 16x F27; Morgan Stanley states a preference for Alibaba over Meituan.

  Risks

  Intensified food-delivery and quick-commerce competition, low visibility on asset-heavy new initiatives, weak macro conditions and antitrust regulation.

• Alibaba Group Holding (BABA.N)

  Preferred alternative cited by Morgan Stanley in its risk-reward discussion.

  Comparison

  Morgan Stanley explicitly states it prefers BABA to Meituan.

Key data

• 2Q26 total revenueRmb104.6bn+14% YoY; 3% above Morgan Stanley estimate and 4% above consensus.
• 2Q26 adjusted EBITDARmb4.1bnVersus Morgan Stanley estimate of Rmb2.1bn.
• 2Q26 CLC operating profitRmb5.7bn+52% YoY; CLC margin was 7.9%.
• Food-delivery unit economicsRmb0.26/order in 2Q26; Rmb0.1/order forecast for 3Q26Returned positive in 2Q from negative Rmb0.9/order in 1Q; 3Q decline reflects seasonality.
• 3Q26 CLC revenue and operating profitRmb77bn and Rmb4.2bnRevenue forecast +14% YoY; operating profit down from Rmb5.7bn in 2Q.
• 2027E revenue and adjusted EBITDARmb485.4bn and Rmb48.1bnMorgan Stanley forecasts 9.9% adjusted EBITDA margin.
• Price targetHK$110.00Cut 8% from HK$120.00; based on 12% WACC and 3% terminal growth.

Impact & implications

The report sees the 2Q beat as evidence that Meituan’s recovery is underway, particularly through food-delivery unit economics and IHT efficiency. It nevertheless expects short-term profit volatility and lower near-term earnings as seasonal costs and competitive investment weigh on 3Q. Over the longer term, Morgan Stanley expects Meituan to remain the dominant food-delivery player, though its share could decline to above 65% from 70-75%, while quick-commerce market growth is likely to be shared among multiple players.

Risks

• Food-delivery and quick-commerce competition could intensify.
• Loss-making, asset-heavy new initiatives have limited visibility.
• Macroeconomic conditions could be weaker than expected.
• Antitrust regulation could increase scrutiny of internet platforms.

What to watch

• Food-delivery unit economics and market share, particularly whether share in orders above Rmb30 remains near 70%.
• The extent of seasonal pressure on 3Q food-delivery profitability and CLC operating profit.
• IHT revenue growth, order mix and margin amid weak hotel and travel demand.
• The loss trajectory of new initiatives, including Keeta’s profitability progress in Hong Kong and Saudi Arabia.