1Q results beat; expecting food delivery business to return to breakeven in 2Q26

1Q results beat; expectingfood deliverybusiness toreturn tobreakevenin 2Q26 Target PriceHK$138.00(Previous TPHK$141.10)Up/Downside76.4%Current PriceHK$78.25 Meituan reported(1Jun)its1Q26results:revenue of RMB91.0bn (+5.6% YoY)was in line with both our and Bloomberg consensus estimates, while theadjusted net loss of RMB5.0bn came in well ahead of our/consensus forecastsof RMB6.9bn/6.8bn. The beat was driven by a smaller-than-feared loss in theCore Local Commerce (CLC) business and a narrower-than-expected loss innewinitiatives. CLC operating loss narrowed 80% QoQ in 1Q26, and we expectthe segment to swing to an operating profit of RMB3.0bn in 2Q26, aided by moredisciplined user subsidies infood delivery (FD) as industry competition turnsmore rational. Excluding theimpactfrom investment in enhanced membershipbenefits, we expect FD operating profit to return to breakeven during thepeakseasonin 2Q26E. In our view, the worst has passed, even if competitiveintensityremains dynamic.Meituan has consolidated strong consumermindshare in high-value FD orders, and improving operating efficiency shouldsustain its unit economics (UE) advantage over peersinthe long term. We fine-tune our DCF-based TP toHK$138.0 (from HK$141.1)and maintain BUY.◼ China Internet Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Ye TAO, CFA(852) 3850 5226franktao@cmbi.com.hk Wentao LU, CFAluwentao@cmbi.com.hk CLC: loss narrowed more than expected.CLC revenue of RMB64.1bnwas flat YoY and in line with both our and consensus estimates, while theoperating loss of RMB2.0bn was 52%/53% narrower thanour/consensusforecasts. Meituan sustained its lead in the mid-to-high average order value(AOV)FD market, holding above 70% share of orders with an AOVofoverRMB30. Management noted that FD returned to small-scale profitability inApril and May on the back of more rational industry competition. For thepeak seasonin2Q26, we forecast CLC revenue of RMB68.9bn (+5.5%YoY), driven by FD/in-store/Instashopping growth of +1%/+9%/+20% YoY,and expect the segment to turn to an operating profit of RMB3.0bn afterfactoring in c.RMB800mn of investment in membership benefits.◼ Shuyin GUO(852) 3916 3716guoshuyin@cmbi.com.hk Stock Data Newinitiatives: revenue growth accelerated further.New Initiativesrevenue reached RMB27.0bn in 1Q26 (+21.3% YoY), accelerating from+18.9% in 4Q25, supported by the expansion of Xiaoxiang Supermarket andKeeta.The segment operating loss of RMB2.1bn was narrower thanconsensus of RMB2.6bn, reflecting better-than-expected UE for Keeta inSaudi Arabia and stronger operating efficiency at Xiaoxiang. For 2Q26, weexpect revenue growth to accelerate further to +23% YoY on continuedexpansionof both Xiaoxiang and Keeta,with the operating loss atRMB2.4bn. Source: FactSet Revision of forecast and valuation We trim our 2026E revenue forecast by 1%, reflecting slower-than-expected FD revenuegrowth on a more gradual recovery in monetization rate, alongside softer in-store revenuegrowth than we had previously assumed. We nonetheless cut our operating loss andnon-IFRS net loss forecasts by 27%/43%, respectively, to capture a better-than-expectedrecovery in FD profitability, aided by faster-than-expected easing of competitive intensityacross the industry. DCF-based target price of HK$138.0 Our DCF-based TPisfine-tuned toHK$138.0(WACC of 11.0%, terminal growth of 2.5%;both unchanged), translating into 28/17x 2027E/2028E adjusted PE. Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to the securities or issuer that the analyst covered in thisreport: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3)serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies covered in this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 monthsHOLD: Stockwith potential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broadmarket benchmark over next 12 months:Industry expected to perform in-line with the relevant