業績會第一現場

was live · ·

美團2026Q1業績直播

Key Takeaways (AI-Generated)

Financial Performance

- Total revenue was RMB 91 billion, up 5.6% year-over-year

- Cost of revenue ratio increased 8.7 percentage points to 71.5% due to consumer and rider incentives

- Total segment operating loss narrowed to RMB 4.1 billion, adjusted net loss to RMB 5 billion

- Achieved more than RMB 10 billion sequential loss reduction with cash reserves of RMB 180 billion

Business Highlights

- Core local commerce returned to positive growth with RMB 64 billion revenue, operating loss narrowed

- New initiatives segment grew 23% to RMB 27 billion revenue with narrowed operating losses

- Xiaoxian Supermarket expanded to 55 cities with robust GTV growth and private label expansion

- Launched AI assistant Xiao Tuan serving over 700,000 merchants with smart management tools

Financial Guidance

- Expect meaningful unit economics improvement in Q2 if competition remains rational with seasonal support

- May see negative year-over-year order volume growth in H2 due to high comparisons

- Net GTV growth expected more resilient than order volume growth trends

- Target sustainable low single digit profit margin for Xiaoxian Supermarket long-term

Opportunities

- Accelerated Xiaoxian Supermarket expansion to more cities and deeper lower-tier market penetration

- AI integration across business with specialized products like health assistant and enhanced capabilities

- Strategic partnerships with global brands like Marriott and Doubao AI for service integration

- Improved operational efficiency and faster market adaptation capabilities in overseas markets

Risks

- Ongoing competitive pressure from Douyin and irrational subsidy competition affecting food delivery margins

- Economic volatility from airline fuel surcharges impacting hotel and travel industry performance

- Geopolitical complexity requiring enhanced risk management for global operations and supply chains

- Challenging Middle East environment affecting Keeta operations with manageable but notable impact

Full Transcript (AI-Generated)

Operator

Thank you for standing by and welcome to the Mesh One First Quarter 2026 Earnings Conference Call. All participants are in listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad.

I would now like to hand the conference over to Scarlett Shu, VP and Head of Capital Markets. Please go ahead.

Scarlett Shu

Thank you, operator. Good evening and good morning, everyone. Welcome to our first quarter of 2026 earnings conference call. Joining us today are Mr. Xin Wang, Chairman and CEO and Mr. Xiao Hui Chen, Senior Vice President and the CFO of May 20.

For today's call, management will first provide a review of our first quarter of 2026 results and then conduct AQ and a session. Before we start, we would like to remind you that our presentation contains forward-looking statements, which include a number of risks, uncertainties and may differ from actual results in the future.

This presentation also contains an audited non IFIS Accounting Standards financial measures that should be considered in addition to and not as a substitute for measures of the company's financial performance prepared in accordance with IFIS Accounting Standards. For detailed discussion of risk factors and non IFIS accounting standards measures, please refer to disclosure documents in the IR section of our website.

Now I will turn the call over to Mr. Xin Wang. Please go ahead, Xin.

Xin Wang

Hello everyone. In the first quarter of 2026, we stay focused on our long term retail plus Technology Strategy, driving high quality growth for both our company and the whole industry. And the preferred local service platform for consumers, merchants and the Atlanta's ecosystem showed a strong resilience.

Despite a complex market environment, we kept innovating products and services. We increase the investment in our ecosystem and technology and remained committed to creating long term value for both consumers and merchants. We also expanded growth retail and overseas business with improving operating efficiency.

Meanwhile, we accelerated the application of AI in real business use cases. Thanks to these efforts, both our All local commerce and new initiative segments delivered the solid results in the first quarter. Their operating losses narrowed significantly compared with the prior quarter.

Now let me walk you through each segment in details in the first quarter. In food in on demand delivery industry. The irrational subsidy moderated compared with the last quarter and Even so our food delivery business continue to attract a large number of new users.

This shows that consumers choose this may time for our comprehensive and reliable services rather than price incentive alone. In addition, our stable reliable delivery services during holidays and extreme weathers together with our growing high quality supply have further strengthened all users stickiness.

Notably high and mid frequency users become more active. There are pool increased, a user royalty strengthened, a large number of mid frequency users, upgraded to high frequency users. This high quality user have a more diverse consumption needs and value services and supply quality more.

Meanwhile, for users of the major instant shopping also demonstrated higher order frequency. Notably the post 2000 generation has emerged as a key growth driver. Our user structure advantages support our industry leading operational efficiency.

In the first quarter, the operating loss of our own demand delivery business narrowed sharply on 1/4 on quarter basis to better meet user demand, especially that of our core users. We continue to improve our delivery services, merchant supply, the whole ecosystem.

First, we expanded the coverage of our high quality delivery service. More food delivery users now choose to use one to one express delivery into EG zone and they are waiting to pay a premium for faster delivery during the holiday shopping season.

We further promoted this delivery service for May time instant shopping. This service addresses users time sensitive shopping needs for categories such as mother and baby products or daily necessities and their needs for high end gift purchase including electronics Baijo.

Second, we further enhanced our supply chain capabilities for food delivery. Our branded satellite stores PIN by Wei Xindian expanded rapidly with our comprehensive operational support. These stores achieved higher conversion rates and repeated purchase rates than traditional restaurant for Pinghao fan.

We worked closely for the merchants to optimize their menus based on our in depth insights into local consumer preferences for mega instant shopping. We upgraded our supply chain services for all Meta instant bars. We helped the merchant improve product assortments, enhance procurement efficiencies and elevate the consumer experience.

Guamar Songzhou, Songzhou Bien Li and branded flagship Insta Mart ping Π, Guangxi, Sandien Tsang all continue their steady expansion, further enriching the product supply available on our platform. Beyond the supply upgrade, we expanded support for small and medium sized merchants and further improved safety governance to build a healthier platform ecosystem.

In the first quarter, we provided A targeted operational support for more high quality local restaurant merchant. We launched practical tools policies to improve merchant experience including malicious review management, order damage protection and AI powered operational solutions among others.

On food safety, we launched 10 improvement initiatives in April, which strengthened the food safety governance in three core areas. The 1st is emergent onboarding and the second is transparent operations and the third is cross party. Provision, our goal is to build a safer, a more trustworthy for delivery environment for all users.

For our in store hotel and travel business, we continue to optimize our supply system and focused on our LED investment. These effort further solidified our leading position in local services. Our core categories achieved steady growth in the first quarter attributable to our sustained efforts to reinforce consumers perception of maritime as a one stop local service platforms.

First, on the supply side, we build a full scope value for money supply system, spending all categories and price tiers, with a particular emphasis on high quality supply. We expanded the reach and influenced of our authoritative recommendation list, including the Blackpool list, Hidden Zoo must eat list, Beach Bar, must Visit list and must stay list.

These recommendation list help direct targeted traffic to high quality merchants while providing consumers with clear, reliable guidance to inform their decision making. In addition, we supported nearly 1.3 million skilled artisans on our platform. We help them upgrade professional skills and build personal brands through digital profiles and training programs.

We continue to serve as a key link connecting merchants, artisans and consumers. And 2nd, on the product side, we launched a new point system that integrate integrates platform points with the royalty programs of trained merchants and this help merchant refine operations based on member data and insights.

He also supports merchants in transitioning from one time a customer acquisition to long term user retention and customer relation management. Moreover, we actively upgraded industrial wide service standard and consumer protection mechanism. We expanded assurance programs for prepaid services across fitness, hair salon and massage categories.

We also introduced equipment medicine verification processes for dental care, medical aesthetics and other healthcare services. Our goal is to reduce information asymmetry in local services and build a standardized trust system. We believe this will help lower barriers to transaction conversion and particularly for non standard local service categories, thereby supporting the long term sustainable growth of both our platform and merchants.

Now let's turn to our new initiative segment. In the first quarter, we focused on the high quality development of grocery retail and Qatar. For grocery retail, Shaoxuan Supermarket increased its coverage to 55 cities in the first quarter through accelerated expansion while sustaining robust GTB growth.

It further strengthened its supply chain capabilities, offering consumers A broader selection of a high quality and very competitively priced products. For example, in the first quarter, private label products accounted for a higher share of HGTV. And for Gita, driven by economy of scale and refined operations, we achieved the meaningful efficiency gains in both Hong Kong and Saudi Arabia in the first quarter.

Qatar also posted a solid growth in other Middle Eastern markets and Brazil following their respective market launches that bridging our accumulated operational experience. Qatar has achieved efficiency gains. In certain new markets at a faster paces than we will realize in our mature markets comparable stages of development.

Going forward, we will continue to leverage our strength in product, technology and operations to deliver better consumption and and delivery experiences to get our users. This quarter, we continue to make progress in AI development. We upgraded our AI assistant Xiao Tan.

It brings users improved AI search experience. We recently added a dedicated Xiao Tan entry point within the main app, make it easier for users to access and engage with the AI assistant. He also helped users make quicker and smarter decisions on local services.

On the merchant side, our AI tools are designed to address real pain points in their online operations. In the in store dining domain, our smarter manager Zhenan Zhangui has served over 700,000 merchants in total. This quarter we expanded its coverage from individual stores to train stores.

Our digital staff, Suzi Wang Gong continue to support a small and medium sized merchants. In services retail. It now served over 300,000 merchants across a wide range of services categories. Moving forward, we will continue to evolve our AI tools from single point AI empowerment toward human machine collaborations.

AI will support the decision making emergence complex business scenarios. It will also enable end to end automation for routine and repetitive merchant tasks. Looking back at the first quarter, I would say we delivered solid results and ongoing industry changes.

All our businesses show the strong resilience amid a competitive market environment. For the full year of 2026, we aim to further deepen our competitive mode for core local commerce while further improving in overall operational efficiency. We will continue optimizing our products, advancing technological innovations and deepening investment in our ecosystem.

We will further improve user experience, help merge and improve operational efficiency and revenues and protect the rise and interest of couriers. With new initiative, we will focus on grocery retail and overseas expansion with a focus on achieving higher ROI. In addition, we will continue to invest in AI across both the physical and digital worlds, leveraging technology, retail upgrades and create a long term sustainable value for all stakeholders.

With that, I will turn the call over to Xiao Hui for an update to own our latest financial results.

Xiao Hui Chen

Thank you, Xing. Hello everyone. In this quarter we have achieved substantial financial improvement while maintaining resilient growth in. We are the go to platform for local service merchants to run their business and for consumers to discover and transact. This join my share together with our ongoing investment and user experience, supply and fulfilment allow us to navigate this dynamic environment effectively.

Now let's look at our financial results and details. All comparison are on a year over year basis unless otherwise noted. Total revenue was RMB 91 billion, up 5.6%. Cost of revenue ratio increased by 8.7 percentage points to 71.5%. This was primarily driven by two factors, more consumer incentive deducted from revenue, higher rider incentive to maintain leading service quality amid intensified competition.

Selling and marketing expenses ratio rose by 7.6 percentage points to 25.2%, largely due to our increase investments in promotion, advertising and user incentive to enhance our brand awarenesses and core user engagement to address the competition. R&D expenses ratio increased to 7.7%. Reflecting our increased investment in AI, while the GNA expenses ratio remaining stable at 2-3 point 2%, our bottom line showed a strong improvement this quarter.

Sequentially, we achieved more than RMB 10 billion loss reduction with total segment operating loss and adjusted net loss narrowing to RMB 4.1 billion and RMB 5 billion respectively. This meaningful improvement reflected a moderation of competition, our effective execution on high quality growth and operational efficiency improvement.

As of end of March, we held cash and cash equivalents and short term treasury investments totaling RMB 180 billion. Beyond our own AI initiative, we are also actively investing into some of China's leading AI and other technology companies to support their growth. As of March 31st, our investment portfolio was nearly RMB 53 billion.

Separately, fair value changes in certain of our investments, including ZAI G2 result in an RMB 7.6 billion gain recognized in other comprehensive income rather than the PNL this quarter. Now let's look at the segment results, starting with the core local 7 core local, segment.

Segment revenue was RMB 64 billion into one, returning to positive year over year growth. Segment operating loss narrowed meaningfully from last quarter to RMB 2 billion. On demand delivery interest wide subsidy started to go down into one. We further improved our subsidy efficiency and the state focus on high AOV order segment and our core user base.

Both the order volume and GTV of our own demand business maintain resilient year over year growth. During this quarter, we further solidify our leadership in both food and non food sectors. Our own demand deliveries unique nomics improved significantly quarter on the quarter.

This is mainly driven by two factors. First, our superior order mix and user structure supports a faster recovery in AOV. And second, our overall better operational capability allow us to adapt more quickly to market shifts and Dr. further efficiency.

However, both the AOV and subsidy for our own demand business still need more time to go back to reasonable level. So they continue to wait on the revenue growth and operating profit of on demand delivery business during this quarter. For install, we continue to focus on high quality growth.

We held our position in core insult categories and effectively capture increased holiday spending and emerging consumption trades. Our in stock business delivered steady growth this quarter driven by strong performance across multiple fronts. We continue to see categories including leisure and entertainment, sports and fitness, pet service and etcetera grow rapidly in both order volume and TV.

In time. We also saw promising traction in service verticals like medical aesthetics, elder care home, riven renovation and etcetera as we bring more non standard local service online and scale our skilled artisan community in those industry. In hotel and travel, we also deliver steady growth as we capture robust travel demand during holidays.

Our industry leading position in the low star hotel sector stayed strong despite ongoing competition. Our in store hotel and travel business overall operating profit margin remain stable quarter over quarter. Now turning to our new initiative segment revenue in Q1 was up 21 three percent year over year to RMB 27 billion.

Segment operating loss narrowed sequentially to RMB 2.1 billion. First, our growth of retail business narrow their loss quarter over quarter, supported by operational efficiency gains and the seasonal tailwinds even growing strategic importance. And the sustained growth, we have started to disclose their product service separately this quarter.

The product sales mainly generated from our grocery retail business grew about 41% year over year this quarter, contributing meaningfully to the segment's growth. Second, keep up deliver resilient growth in Middle East even in a challenging environment. Further supporting its rapidly revenue expansion.

The loss from Kita reduced quarter of 1/4 as we improved operating efficiency across all of its markets. In closing, I want to reiterate our confidence in the company's long term sustainable growth potential. As we continue to ask you our retail plus Technology Strategy, we will provide greater value to our merchants, consumers and the whole business partners.

This will further strengthen our competitive position in longer term. With that, we are now open for your Q&A.

Operator

Thank you. If you wish to ask a question, please press *1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press *2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Ronald Kung with Goldman Sachs.

Ronald Kung

Thank you. Seeing SW Scarlet and when when I ask about the food delivery business, so as the industry subsidies gradually rationalized, what what marginal ships have you seen in the competitive landscape and with seasonal tailwinds, do you expect the business to turn profitable for the second quarter and how should we think about the UE progression into the second-half?

Just building onto that on, on all the volumes given tough comps, what is your outlook for for the all the volume growth for the next few quarters and stepping back if we think about the Tam and key structural drivers for the overall market and could you just help us frame that and the long term UE economics trajectory from here? Thank you.

Xin Wang

Thank you, Rona. So for your question on food delivery subsidy and on the UE. So I think with industrial, industrial wide subsidy finally getting more rational. So we are seeing competition shifting back to the fundamentals that's an operational efficiency and user experience.

So this transition and plays direct to our strengths. But even as we see we gradually pull back subsidies, we can still continue to see how the usual growth and stronger engagement from our core users. We also solidified our leadership in mid to high AOB or the segment.

This is a natural result of our stronger user Mineshat Mineshare and better supply and service quality and our structural advantage in operational efficiency becoming increasingly evident at this stage and driving steady improvement in our financials. If a competition stays more rational, we expect a meaningful UE improvement in Q2 compared to Q1, supported by seasonal tailwind.

And we have sustained our market leadership in recent months, but also widening our UE gap advantage. We will continue to monitor the market closely and adapt thoughtfully. Our focus stays on sustaining our leading position while driving operational efficiency improvement, both for ourselves and our merchants.

And however, our UE improve in the second-half will still depend on how the competition environment evolves. Also keep in mind that delivery cost per order, it is similarly higher in Q3 and Q4 compared with Q2. And on order volume, given a high basis from last year, we may see negative year over year of the growth in the second-half.

But we are seeing a healthier order mix as consumers are increasingly willing to pay for quality. I would say this is a very positive sign for merchants who invest in quality supply. Therefore, we expect the net GTV growth to be more resilient than order volume growth that really come.

That really comes down to our leadership in mid to higher AOB segments and the expected AOV recovery supported by our user structure advantages and looking long term, longer term will continue to see upset in China's food delivery market. The service is becoming a high frequency daily necessities for border and broader demographic, a structural shift that provides sustained momentum for deeper market penetration over time.

And as we broaden our reach, we also help merchant access a bigger customer base. In fact, we are seeing the industry user base continue to expand. On one hand, food delivery is penetrating deeper into the lower price segment. On the other hand, in our better service to consumer seeking, premium and diverse options driving steady expansion in the user base as well.

We see high growth potential in purchase frequency and retention for the new users and we believe our superior services and supply can well position us to capture this upside. Looking back, this wave of irrational competition proved one thing. Volume acceleration driven solely by subsidy is not sustainable.

True long term growth comes down to supply side innovation and better matching of the demand supply across diverse use cases, leveraging AI and other technologies to job efficiency and experience improvement across the industry. It also should be important. These are the true foundation for healthy sustainable growth.

And that is actually where we will continue to invest within conviction. We we have confidence in the industry, long term growth potential and achieving A sustainable high quality one minute order a day stays our target on long term unit economics. We expect competition to be more rational, particularly under regulatory guidance and we are confident in sustaining our industrial leading operational efficiency which will support our long term competitiveness.

We believe our food degree long term UE will get back to a reasonable level and beyond that significant synergy potential remains untapped across our core local commerce businesses. We will actively Dr. cross selling between food delivery and other services. Ultimately, this will generate a long term compounding value for the entire core local commerce segment. Thank you.

Operator

Thanks, Ying. Your next question comes from Thomas Chong with Jefferies.

Thomas Chong

Hi, good evening. Thanks management for taking my question. Given the ongoing competitive pressure from Dao Ying, could management share some color about the recent trend for the install business? Should we expect continued pressure on both the top line growth and margin for the install business in the longer term?

How do you project the growth and margin trajectory especially given the traffic disadvantage? Thank you.

Xin Wang

Thank you for the question. We have always viewed local in store services this morning just a traffic dream of business. It is a business built on physical world fulfillment and on consumers trust. Traffic alone doesn't automatically translate into transaction, and local services may.

China has built strengths that cannot be replicated purely through traffic. First is our brand, our strong consumer mindshare for finding stores and deals supported by a trustworthy information and review system. Our value for money grew by. Offerings verify merchant information, integrate services like online reservation and curing system, and billions of authentic user generating reviews together form a strong Moat.

Secondly, it's our continuous innovation across the whole Valley chain to build better and better experience. We support millions of field additions on our platform and we have deeply penetrate into sectors like medical incentives, elderly care and home maintenance. Our consumer protection initiatives have rebuilt consumer trust in prepaid service by transform transforming offline non standard and long tail services into reliable standardized online SKUs.

We have built a very differentiated supply ecosystem. These initiatives continue to help build a self reinforcing cycle at scale, continue to provide the best experience in the industry. We also greatly using AI technology with a focus to reshape the value that we deliver in the local service industry, transforming Maituan from a customer acquisition channel into a full rounded AI power business partner in the local ecosystem.

While competition has created some near to noise, we believed market players have to continue differentiate across category, merchant segment and market scenarios. Our position is a one stop local service platform stay strong. Our in store revenue keeps growing steadily and will continue to lead in core categories.

We have also expanded into new service retail verticals and deepen our reach in lower tier markets. Our investment strategy we are adapt dynamically to the industries with primary focus always being the long term healthy development of the industry. This year we will focus on two things, strengthening our competitive edge in core categories and building a better digital infrastructure for local service merchants.

As the industry subsidy gradually normalized, the value we delivered to merchant will matter even more in their day-to-day operations. We expect the install margin to stay stable in the near term with room to recover over long term. We have the conviction and patience to keep leading the evolution of the local service sector. Thank you.

Operator

Your next question comes from Gary Yu with Morgan Stanley.

Gary Yu

Hi, thank you, management for the opportunity. I have a question regarding AI. We've noticed that the Mituan app has recently launched the AI assistant Xiao Tuan on its homepage. Can management share some color on the progress so far? Are there any other initiatives under way to accelerate AI integration on the product side?

And what capabilities are you looking to build and what goals do you aim to achieve on the AI front over the longer term? Thank you.

Xin Wang

Thank you, Gary. Yes, you are exactly right. We have placed our AI assistant Xiao Tang front and center in the Maituan app. It now sits in the middle of the bottom navigation bar for easier access. But I would say it is due at a very early stage.

But anyhow, we are already seeing good initial results. More and more users are coming to show not just for very simple and short searches, but for more complex and and cross use cases queries. Things like please recommend a restaurant between two locations for guests who do not eat spicy food or book an on site repair service.

And what makes Showtime different is its foundations. It's the authentic consumer reviews and comprehensive POI information and proprietary model trained specifically for local service businesses. Together this gives shot on the ability to understand better the full context and provide users with the personalized recommendations and particularly when user change their mind and adjust criteria like price range.

Locations or anything else. Shelton can seamlessly factor that as in all factor in all prior instructions and updates its recommendation accordingly. The Mayday holidays was a good example. Session volumes pick up meaningfully compared to Chinese New Year.

More importantly, users won't just come in to redeem coupons on short time. They are actually using short time to discover services, destinations and ultimately plan and make purchase on our platform. And beyond the short time, we are also embedding AI deeper into some specific specific verticals.

A good example is Shaohun Health Assistant, Shaohun Jin Hong Guan Jiang, our dedicated AI product for healthcare services. It's built on years of proprietary and real world data from pharmacies, transactions and online medical consultations on our platform. And it's developed in close partnership with the professional medical teams because that's that's where you don't want to have any hallucination by AM.

It brings health consultations, medication guidance, medical reports, interpretation or into one seamless experience where users can consult and can order medication or book appointments or within the major app. And looking ahead, Shajan will be one of our key AI products.

On the consumer side, we will continue to deepen its integration into Meta app and beyond improving the effectiveness of a user agent interactions. We will deploy Shajan's agent agentic task execution capabilities progressively across our business protocols. And our partnership between May try Assistant, Xiaomi and and the $0.10 and AI chat board to Yambao will also be launched soon.

And when the user submits local services related to request in Yuanbao, it will trigger an agent to agent communication with Xiaomi. And this seamlessly connects the user to our services such as the food online food ordering and delivery. This collaboration will facilitate A streamlined one stop local service transaction experience for users.

I think going forward we will need to build capabilities not just for to see to consumers or to be to businesses and to A to agents. It's actually become the more and more important then as I've said in the past Q&A's we tried to play offense, not offense in AI and we can see the AI to be very important opportunity to deepen our mode and unlock new values.

Then we have been investing our own large language model, lone Cat. We are improving our authentic capabilities. But what really set us apart is our the foundation, the data we have. We have full spectrum local services coverage and verified emerging informations, authentic user reviews and fulfillment infrastructure.

And putting AI on top of these structural advantages, we will deliver superior AI powered local service experience to users. Thank you.

Operator

Thank you. Your next question comes from Kenneth Phong with UBS.

Kenneth Phong

Hi, good evening, management and thanks for taking my question. Given the evolving industry and regulatory trends in the travel industry, could management share the recent performance of the company hotel and travel business as well as its development strategy for the full year? Thank you.

Xin Wang

Thank you, Kenneth. The hotel and travel industry has entered into a new phase in terms of regulation and competition. Consumer preference has increasingly shifted toward value for money options or peak travel, lower tier cities and local leisure and short distance getaway in first quarter our hotel and travel business.

Deliver steady growth and we further consolidate our leading position in the Lower Star Hotel area, riding on strong travel momentum during Spring Festival holiday, including home visits and leisure travel. We offer well priced, high quality accommodation with outstanding user experience, which effectively lifted transaction commercial rates.

We also continue to deepen our presence across the industry supply chain, catering to the differential needs of merchants at various operational stage. We provide end to end solutions covering brand establishment, targeting, marketing, revenue enhancement, room renovation and the PMS system support. These tailored solutions help merchants improve online operational efficiency and achieve long term sustainable growth.

On the high star hotel front, a mean that evolving regulatory environment, we expand our high star hotel portfolio to enrich accommodation choices for consumers. Earlier this April, we launched the 2020 Sixth Must, a list featuring thousands of premium hotel across more than 200 cities nationwide.

This list has become a credible curated guided guide for user seeking high quality lounging experience. We partner with selected hotel merchants on the list to offer exclusive pre sale products for later travelers, bringing exclusive benefits, unique experience and one stop high quality vacation services.

Furthermore, we remain focused on strengthening our membership ecosystem. On the internal front, we wrap up front selling between accommodation and other businesses, provide high tier Maituan members with exclusive perks including complimentary room upgrades, free breakfast, late check out, early check in and special discounts.

Externally, we continue to promote joint membership programs with global high end hotel brands such as Marriott and launch exclusive membership benefit in partnership with Shanghai Loca. Looking ahead to the full year, we recognize that the recent hike in airline fuel surcharge will bring near term volatility to hotel and travel industry.

Long distance travel and high star hotels are likely to face headwinds, while short term distance, later travel, local accommodations and low star hotels will remain resilient. Our structural advantage in these resilient domains position us well to navigate the current market cycle. In addition, we will fully capture opportunity broad by ongoing regulatory upgrade updates.

First, we will further solidify our core market leadership in the low star hotel sector. Second, we will continue to expand footprint in the mid to high end hotels, deepen strategic partnerships with merchants, enrich our offerings and strengthen our ecosystem synergies. We will also continue to leverage the Meituan membership program to deliver targeted services to high value users and push for further progress in the high star hotel domain.

We are confident in driving healthy, sustainable and high quality growth for our hotel and travel space. Thank you.

Operator

Thank you. Your next question comes from Charlene Liu with HSBC.

Charlene Liu

Thank you. Thank, good evening, management. Thank you for taking my question. I would like to ask about the Middle East situation. Can you help us understand the operational impact on Keter so far on UE? Are the UE improvements trends in Hong Kong and Saudi Arabia are still on track for the quarter?

Finally, given the heightened geopolitical uncertainty globally, how are you thinking about Keter's expansion and investment pace going forward? Thank you so much.

Xin Wang

Thank you. Regarding the Middle East, we have seen some near term fluctuations in our growth metrics given what's happening in this region. However, the impact has been manageable so far and our long term conviction for this market is. Changed.

We still believe Middle East is one of the most attractive on demand delivery markets globally. The market is still growing fast, penetration remains low and consumers there have strong willingness to pay. Notably, even in this challenging environment, we continue to see a clear acceleration in the transition from offline to online.

Consumer mind share for on demand retail continues to strengthen and industry wide online penetration is accelerating. On demand delivery has clearly become an essential infrastructure. This shows the structural resilience of this business model. Broadly speaking, going global is a long term goal for us and navigating geopolitical complexity is what we need to learn.

We will keep sharpening our risk management and building an organization that is better suited for global operations. As we do so, we will continue to grow alongside local players and create value for users, merchants and riders in the local markets. Operationally, FETA maintains solid growth across all markets into one.

Following Hong Kong's unique economics break even in Q4 last year, we delivered further efficiency gains in both Hong Kong and Saudi Arabian this quarter. This also is encouraging to see that the efficiency ramp up in other Middle East markets and Brazil has been even faster thanks to the operational experience accumulated earlier.

We will prioritize operation improvement this year over new market expansion. In the longer term, we are confident in key task potential to deliver on both scale and bottom line. Growth in many global market for delivery is still an occasional service for a small segment of consumer, not a daily necessity for the mass market.

This demonstrate significant growth potential. Going forward, we will explore market expansion opportunities thoughtfully and we will be financially disciplined for delivery is the proven business model globally and keep us steady. Efficiency gains across existing markets validates our operational playbook.

As we grow and keep optimizing our operations, we are confident we will eventually achieve sustainable profitability at scale. Thank you.

Operator

Your next question comes from Alicia Yap with Citigroup.

Alicia Yap

Hi, good evening management. Thanks for. After taking my questions, I have a question related to your grocery retail downtown supermarket business. So amidst the on demand delivery price war, we have seen fresh people maintain a rapid growth recently. Could management provide some colors on Southdown Supermarket's recent performance?

And then specifically, how do you view the strategic value of the 1T models like the Southdown supermarket within the one's on demand delivery legal system? And what are your long term targets for this business? Thank you.

Xin Wang

Thank you, Alicia. Well, to answer your question, yes, we know that all our peers are growing fast. I could say Xiaoxia is growing even faster. So thank you for paying attention to the Xiaoxia Supermarket. But in today's very competitive online environment and we need to make sure we have the best supply on our platform for average consumers.

They don't understand, they don't care about whether it's a so-called 1P model or three P model. So they only care about what they can buy from the platform and whether the suppliers, the stores can provide good quality and also an equally important predicted reliability.

So here in Xiao Xiang is competing on a level playing field on the made time platform. But it's very important that as everything now becomes the new normal for more and more users and they are raising their expectation on product of variety, quality and value.

They know they can get a thing very fast delivery from any seller, but they are expecting more from the sellers. Then we believe the future growth of on demand retail market will be driven by a hybrid model including the so-called 3P model or like an or initiatives by maintenance shopping and together with A1P model like Xiao Shan supermarket.

Then Xiao Shan provides a a very consistently high quality supply with a very competitively priced product fulfillment. So this position us strongly in to capture the substantial growth potential in this evolving space. We think it's a model built, built directly on our core strengths and had the clear path to profitability.

But on the other hand, we have a lot to learn in this grocery business. And on the on the operational side, Xiao Xiang has delivered a very robust GGB growth in 2025, significantly outperforming the whole industry. And I'm glad to say that this momentum continued into Q1.

And recently, we accelerated our expansion. Now Xiao Shan covers 55 cities as of the end of Q1 and with the plans to enter more markets in the coming quarters. And meanwhile, we could continue to strengthen our merchandising capability and go deeper into the entire supply chain.

And I think example, our private brand product PP products are getting greater recognition from consumers and now accounted for a growing share of our sales in our more established cities like Beijing and Shanghai. We have seen a notable increase in AOB over the past few quarters.

This reflects our success in capturing more body share by expanding our high quality and competitively priced product offerings and also to further strengthen our Omni channel capabilities. We are actively launching new physical stores and you may be aware that we Xiao Xiang started at the pure online duck store model.

But last December, we have opened our first physical store in Beijing in Haidian. And building on the success of our first physical storm, we opened. Second one in Ningbo in this past April, we believe physical stores can broaden our usual reach, allow the consumers or potential customers to see more directly our high quality physical goods.

Because when you enter a physical store and you are going to have a much broader view of a view compared to any screen and you can not only see more, you can smell it and you can touch it. So this is a much more attractive to them and the online presentations, so physical still will be a very good channel to strengthen Xiao Xiang's brand awareness over time.

And on the other hand, even with this very rapid expansion, we remain very focused on our life because grocery retail is a long game and this reflect in our continued year over year improvement in margins in Q1. And looking ahead, we are confident that Xiao Shan will become one of the.

Players among online grocery stores. We are targeting A sustainable low single digit profit margin in the long run. But what's most important is that we want to view the Xiaoxiang to become one of the most loved grocery brand in future because the mission of our company is to help people eat better.

Besides, food delivery people who want to cook for themselves need to buy grocery. And we want to build the Xiao Shan to become one of the most loved grocery brands. That's our target. Thank you.

Operator

Thank you. There are no further questions at this time. I'll now hand back to Skyla Hsu for closing remarks.

Scarlett Shu

OK, Thank you all for joining our call. We look forward to speaking with everyone next quarter. Thank you for your support.

Operator

That does conclude our conference for today. Thank you for participating. You may now disconnect.

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