AFTER pulling an about-face to become one of the best-performing technology stocks in China this year, Meituan may be primed for further gains on easing competition and improving profitability.
Analysts see shares of China’s top food-delivery platform rising another 17 per cent over the next year, on projections for record earnings. Cost cuts are helping Meituan boost margins, while hopes are high for its overseas expansion plan after it showed it can replicate its mainland success in Hong Kong.
At home, ByteDance’s Douyin and Alibaba Group Holdings appear to have backed off from attempts to steal market share, observers say. Concerns over encroachment by rivals had made Meituan the biggest loser on the Hang Seng Tech Index last year.
“There is a valuation re-rating going on for Meituan as investor sentiment keeps improving,” said Julia Pan, an analyst at UOB-Kay Hian Holdings, who upgraded the stock to buy this month.
“The rivalry between Meituan and Douyin looks to be more rational than before,” as ByteDance doesn’t seem to be spending as much money on the battle this year, she said.
Meituan’s shares have surged more than 90 per cent from a late-January low. Sell-side pundits have boosted their price targets for the stock by 24 per cent since March, the most among all of its Hang Seng Tech peers.
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They are also expecting the firm to post all-time high profits for the next 12 months after it solidly beat estimates for the first quarter. Restructuring, including the shuttering of some loss-making businesses, and a recovery in merchants’ advertising have improved the company’s bottom line, while competition is taking less of a toll.
“Alibaba’s focus on regaining its e-commerce foothold within China appeared to have temporarily slowed the firm’s chase for more food delivery market share via Ele.me, one of Meituan’s key rivals,” said Catherine Lim, an analyst with Bloomberg Intelligence. The “more subdued” environment has probably helped Meituan’s shares outperform, she added.
To contend with slowing growth in China in addition to the threat from rivals, Meituan has been moving to expand overseas. KeeTa, an offshore version of the company’s core service, earlier this year became the second-biggest food-delivery app in Hong Kong within just months of its debut.
Meituan is now working towards launching KeeTa in Saudi Arabia’s capital Riyadh, which would mark its first move outside of greater China. The company is seen to be taking its time with the strategy, rolling it out in phases and carefully targeting certain districts.
“Compared to Alibaba and other consumer-centric Internet firms such as PDD Holdings, which are also facing threats to their overseas expansion plans from local players and regulations, Meituan appears to be less exposed to such uncertainties based on more conservative steps taken by the company year-to-date,” said Lim. BLOOMBERG
