CICC: Maintains Outperform Industry rating for Meituan-W (03690) with a target price of HKD 125

According to Zhitong Finance APP, CICC issued a research report stating that it maintains its revenue and net profit forecasts for Meituan-W (03690) for 2025/2026/2027 $MEITUAN-W (03690.HK)$ , maintaining the Outperform Industry rating and target price of HKD 125, corresponding to 27E 23x adjusted P/E and 33% upside potential; current price corresponds to 27E 17x adjusted P/E.

CICC’s main points are as follows:

Recent Developments of the Company

Meituan announced its intention to acquire all shares of DingDong: the initial transaction consideration is USD 717 million, with the transferor able to withdraw no more than USD 280 million in funds, but must ensure that the target group (DingDong) has net cash of no less than USD 150 million. Considering the cash withdrawal, the bank expects the actual valuation level of the acquisition target to be around USD 1 billion. During the transaction period, DingDong will continue operations according to the pre-transaction model, and any operating profits or losses generated during this period will belong to Meituan; if the transaction is not completed within 12 months, the agreement may be terminated, potentially corresponding to a termination fee of USD 150 million or USD 75 million. Additionally, DingDong's overseas business will be divested before the closing and is unrelated to this transaction.

The bank believes that the core value of DingDong lies in:1) Strong customer stickiness and recognition among high-value family customers in the Jiangsu, Zhejiang, and Shanghai regions; 2) A front warehouse and instant retail fulfillment network covering the core areas of Jiangsu, Zhejiang, and Shanghai; 3) An efficient supply chain system focused on quality fresh produce consisting of over 85% direct procurement sources, 12 self-operated factories, and 2 self-operated farms; 4) The ability to continuously develop quality products based on consumer needs. Meituan, as an acquirer with extensive experience in instant retail and pragmatic values, is expected to leverage DingDong's strengths, while considering the intense market competition, DingDong is likely to improve its ability to withstand risks after being acquired. For more details on DingDong’s financial data and recent developments, please refer to the bank's latest report.

Enhancing Xiaoxiang Supermarket's capabilities from multiple angles and serving a defensive role in the instant retail competition.

The bank believes that Meituan's acquisition of DingDong brings multiple benefits: In terms of the supply chain, Xiaoxiang Supermarket is expected to gain access to DingDong's direct procurement resources and self-operated factory supply chain capabilities post-acquisition; in terms of product categories, the acquisition is expected to enhance Xiaoxiang's product strength and variety in fresh produce; regarding regional layout, Xiaoxiang Supermarket is accelerating its expansion of front warehouses in new cities, and it is expected to integrate DingDong's front warehouse assets to support Xiaoxiang’s large-scale expansion, especially the densification of the front warehouse network in East China; from the perspective of industry competition, against the backdrop of increasingly fierce competition in the instant retail track, Meituan may hope to enhance its defensive capabilities through this acquisition. In the long run, the integration of the front warehouse sector could potentially improve overall industry operational efficiency and expand the profit margin outlook for the industry.

Risk Warning:Antitrust regulatory risks; transaction completion falling short of expectations; macroeconomic uncertainties.

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