Meituan (3690.HK) Report Interpretation

Overview

The report reviews Meituan's 2Q26 results and concludes that both revenue growth and operating profit were significantly better than expected. Margin improvement in Core Local Commerce and narrower New Initiatives losses driven by Xiaoxiang Supermarket and Keeta's overseas operations were the main contributors to the quarter's earnings beat.

Core views

Meituan's 2Q26 total revenue was RMB104.643 billion, up 14% YoY and 15% QoQ, exceeding Morgan Stanley's estimate and market consensus by 2.8% and 3.8%, respectively. Gross profit was RMB35.095 billion, up 15% YoY and 35% QoQ, exceeding Morgan Stanley's estimate and market consensus by 16.7% and 9.4%, respectively. Operating profit reached RMB2.691 billion, compared with RMB226 million in the same period last year and an operating loss of RMB6.470 billion in 1Q26; net profit was RMB2.155 billion, up 491% YoY, compared with a net loss of RMB6.827 billion in 1Q26. Adjusted EBITDA was RMB4.098 billion, up 47% YoY, 96.5% above Morgan Stanley's estimate and 49.5% above market consensus; the adjusted EBITDA margin was 3.9%, up 0.9 percentage points YoY and 7.3 percentage points QoQ, but 0.1 percentage points below the 4.0% market consensus. Overall, the results show that the revenue beat and earnings recovery occurred simultaneously, rather than reflecting improvement in only a single profit item. Core Local Commerce revenue was RMB71.531 billion, up 10% YoY and 12% QoQ, exceeding Morgan Stanley's estimate and market consensus by 3.3% and 4.4%, respectively. Segment operating profit was RMB5.668 billion, up 52% YoY and significantly above Morgan Stanley's estimate of approximately RMB3.0 billion and market consensus of RMB3.419 billion; the operating margin rose to 7.9%, up 2.2 percentage points YoY, versus -3.2% in 1Q26. The report attributes the earnings beat to narrower losses in related operations and optimized marketing strategies, indicating that the core business achieved more substantial profit improvement while maintaining double-digit revenue growth. New Initiatives revenue was RMB33.112 billion, up 25% YoY and 23% QoQ, broadly in line with expectations and 1.6% and 2.4% above Morgan Stanley's estimate and market consensus, respectively. Operating loss narrowed to RMB1.739 billion, compared with losses of RMB1.881 billion in the same period last year and RMB2.116 billion in 1Q26, also better than Morgan Stanley's projected loss of RMB2.4 billion and the market consensus loss of RMB2.410 billion. The New Initiatives operating margin improved to -5.3% from -7.1% in the same period last year and -7.8% in 1Q26. The report specifically notes that Xiaoxiang Supermarket and Keeta's overseas operations were the main contributors to the better-than-expected New Initiatives loss performance this quarter. Morgan Stanley's model projects Meituan's earnings per share at RMB-3.15, RMB-0.31, RMB5.35, and RMB7.11 from 2025 to 2028, respectively; revenue at RMB364.9 billion, RMB412.2 billion, RMB478.7 billion, and RMB537.8 billion, respectively; and ModelWare net profit at RMB-23.4 billion, RMB-9.2 billion, RMB24.7 billion, and RMB34.0 billion, respectively. The corresponding P/E ratios for 2027 and 2028 are 16.3x and 11.9x; EV/EBITDA declines from 42.8x in 2026 to 4.0x in 2027 and 2.2x in 2028, reflecting the model's expectation that earnings will turn significantly positive in 2027. The report assigns an Overweight rating and a price target of HK$120.00, implying 55% upside from the HK$77.50 closing price; the price target is based on a DCF valuation with key assumptions of a 12% WACC and a 3% perpetual growth rate. Morgan Stanley's Overweight rating indicates that the stock's risk-adjusted total return is expected to exceed the average of its industry coverage universe over the next 12 to 18 months. The upside scenarios listed in the report include increasing food delivery market share accompanied by margin improvement, further monetization of merchant ARPU, and New Initiatives investments beginning to generate returns. Conversely, intensifying competition in food delivery and on-demand retail, limited visibility for loss-making and asset-heavy New Initiatives, a weaker-than-expected macroeconomic environment, and antitrust regulation could all undermine earnings improvement and valuation realization. Therefore, the report's core thesis depends on whether the core business can simultaneously increase market share and margins, and whether the narrowing of New Initiatives losses can continue.

Analysis framework

The report first compares actual 2Q26 revenue, profit, and margins item by item against the same period last year, 1Q26, Morgan Stanley's estimates, and market consensus. It then breaks down Core Local Commerce and New Initiatives to identify the sources of the earnings beat. Finally, it combines 2025–2028 financial forecasts, key DCF assumptions, and explicit upside and downside risks to support its Overweight rating and price target assessment.

Methodology notes

• Valuation MethodDCF

  Discounted cash flow valuation

  The report determines its base-case price target by discounting future cash flows, using a 12% weighted average cost of capital and a 3% perpetual growth rate to derive a price target of HK$120.00.

• Event-Driven Analysis and Behavioral FinanceExpectation Gap/Expectation Management

  Analysis of results relative to Morgan Stanley's estimates and market consensus

  The report compares actual revenue, adjusted EBITDA, and segment operating profit with both the institution's own estimates and market consensus, using the magnitude of the beat or miss to assess the quarter's impact on the existing investment view.

• Corporate Fundamentals and Financial Framework

  Morgan Stanley ModelWare framework

  Unless otherwise specified, the report's historical and forecast metrics are compiled under the Morgan Stanley ModelWare framework; “e” denotes Morgan Stanley estimates, while market consensus data are sourced from Refinitiv Estimates to maintain comparability among actual results, institutional estimates, and consensus data.

Asset mapping & comparison

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

• Meituan (3690.HK)

  2Q26 revenue, adjusted EBITDA, and segment operating profit were all better than expected; the report maintains its Overweight view and assigns a price target of HK$120.00.

  Strengths

  Core Local Commerce maintained double-digit revenue growth and increased its operating margin to 7.9%; Xiaoxiang Supermarket and Keeta's overseas operations helped narrow New Initiatives losses.

  Weaknesses

  New Initiatives still recorded an operating loss of RMB1.739 billion, while some loss-making operations are also asset-heavy and have limited earnings visibility.

  Comparison

  The report expects its risk-adjusted total return over the next 12 to 18 months to exceed the average of Morgan Stanley's China Internet and Other Services industry coverage universe.

  Risks

  Intensifying competition in food delivery and on-demand retail, a weaker-than-expected macroeconomic environment, antitrust regulation, and slower-than-expected narrowing of New Initiatives losses.

Key data

• 2Q26 Total RevenueRMB104.643 billionUp 14% YoY and 15% QoQ, exceeding Morgan Stanley's estimate and market consensus by 2.8% and 3.8%, respectively.
• 2Q26 Gross ProfitRMB35.095 billionUp 15% YoY and 35% QoQ, exceeding Morgan Stanley's estimate and market consensus by 16.7% and 9.4%, respectively.
• 2Q26 Operating ProfitRMB2.691 billionUp 1089% YoY; compared with RMB226 million in the same period last year and a loss of RMB6.470 billion in 1Q26.
• 2Q26 Net ProfitRMB2.155 billionUp 491% YoY; compared with RMB365 million in the same period last year and a loss of RMB6.827 billion in 1Q26.
• 2Q26 Adjusted EBITDARMB4.098 billionUp 47% YoY, 96.5% above Morgan Stanley's estimate and 49.5% above market consensus.
• Core Local Commerce RevenueRMB71.531 billionUp 10% YoY and 12% QoQ, exceeding Morgan Stanley's estimate and market consensus by 3.3% and 4.4%, respectively.
• Core Local Commerce Operating ProfitRMB5.668 billionUp 52% YoY, with an operating margin of 7.9%, up 2.2 percentage points YoY.
• New Initiatives RevenueRMB33.112 billionUp 25% YoY and 23% QoQ, broadly in line with expectations.
• New Initiatives Operating LossRMB1.739 billionNarrowed further from the RMB2.116 billion loss in 1Q26, with the operating margin improving from -7.8% to -5.3%.
• Price Target and UpsideHK$120.00; 55%Relative to the HK$77.50 closing price on August 28, 2026.

Impact & implications

The report believes the 2Q26 results reinforce the view that Meituan can achieve revenue growth and profitability improvement simultaneously: Core Local Commerce contributed higher profits, while New Initiatives losses continued to narrow. If market share, merchant monetization, and New Initiatives efficiency improve as envisioned in the report, the model projects that the company will turn significantly profitable in 2027; however, competition, the macroeconomic environment, and regulation could still affect this realization path.

Risks

• An upside risk is that food delivery market share continues to increase while margins improve.
• An upside risk is further monetization of merchant ARPU, strengthening the core business's revenue and profitability.
• An upside risk is that New Initiatives investments generate returns more quickly.
• A downside risk is intensifying competition in food delivery and on-demand retail, which could pressure market share, subsidy efficiency, or margins.
• A downside risk is insufficient earnings visibility for loss-making and asset-heavy New Initiatives.
• A downside risk is a weaker-than-expected macroeconomic environment.
• A downside risk is antitrust regulation.

What to watch

• Monitor whether food delivery market share and margins can improve simultaneously.
• Monitor progress in further monetizing merchant ARPU.
• Monitor the continued contributions of Xiaoxiang Supermarket and Keeta's overseas operations to narrowing New Initiatives losses.
• Monitor changes in competitive intensity in food delivery and on-demand retail.
• Monitor the impact of the macroeconomic environment and antitrust regulation on the business.