Great 2Q21, while headwinds look manageable

• Strong quarter, though 3Q21 could see some headwinds in core segments
• Labour cost increase for food delivery likely manageable; reassessing pricing strategy for Meituan Select
• FV of HKD316 (from HKD355 previously)

Investment thesis

Meituan’s 2Q21 results came in above expectations. Total revenue grew 77% YoY to RMB43.8b, or 3% above consensus. The food delivery Gross Transaction Volume (GTV) grew by 60% YoY while the average ticket size was stable. Adjusted net loss was RMB2.22, vs. consensus at -RMB4.04. Looking ahead at 3Q21, management does expect some headwinds arising from core segments of Food delivery and In-store, hotel & travel segments due to the recent extreme weather and the wave of Covid-19 cases. On Food delivery, management believes labour cost increase for platforms should be manageable, as policy intention is likely to strike a balance between labour protection and job creation. Management is keeping to its long-term EBIT per order of RMB1.0 on the back of a few levers, such as a higher monetization ratio (resulting from a lower subsidy rate), higher advertising revenue and more cost-efficient delivery methods. Following adjustments, including more conservative assumptions and a 10% ESG premium, our FV drops from HKD355 to HKD316.