Date of Report: October 28, 2024
Broker: UOB Kay Hian Private Limited

Meituan’s Strategic Role in China’s Service and Consumption Ecosystem

Meituan is positioned as a major beneficiary of China’s policy-driven consumption initiatives, particularly in sectors related to dining, accommodation, and other consumer services. With a focus on local commerce and the service economy, Meituan has been able to capitalize on government-backed programs aimed at stimulating domestic consumption.

Boost from Government Consumption Vouchers

On September 25, 2024, Shanghai introduced a distribution plan for RMB 500 million in consumption vouchers to encourage spending across various sectors. The breakdown of this voucher program includes RMB 360 million allocated for dining, RMB 90 million for accommodation, RMB 30 million for movie discounts, and RMB 20 million for sporting activities. Meituan, as a leader in the food delivery and lifestyle services sector, is well-positioned to benefit from this policy, which directly aligns with its core business model and consumer engagement strategies.

Financial Performance and Margin Improvement

Meituan has shown consistent improvement in operating margins for its in-store and hotel businesses, driven by cost control measures and a focus on efficiency in service delivery. UOB Kay Hian projects continued narrowing of losses from Meituan’s new initiatives segment as the company exercises prudent cost management. This disciplined approach is expected to support earnings growth and enhance Meituan’s overall financial performance into 2025.

Valuation and Target Price

UOB Kay Hian has assigned a “BUY” recommendation for Meituan with a target price of HK$235.00. This valuation is based on a 19x P/E multiple for Meituan’s core local commerce segment and a 16x P/E multiple for its new initiatives segment. The target price implies a 14.3x 2025F P/E against a 15% projected earnings growth rate from 2025 to 2028, which makes Meituan an attractive investment in the local commerce and lifestyle services market.

Sector Catalysts and Long-Term Growth Potential

Meituan’s growth is supported by several catalysts, including rising consumer spending in service-oriented areas and favorable government policies that promote local commerce. With increasing penetration of online services in dining, accommodation, and entertainment, Meituan stands to gain from the long-term shift toward digital and app-based consumer engagement. The company’s diverse service offerings and established market presence position it to benefit from these positive macroeconomic and sector-specific trends.