New Rivalries and Lower Margins May Compound Existing Headwinds for Meituan; Lowering FVE to HKD 145

We are lowering our fair value estimate for Meituan to HKD 145 after management indicated that it expects intense competition in the near term that will lower its in-store hotel segment’s long-term steady-state margins to 35% from 42%-46%. This significantly affects its valuation given that it accounts for 51% of Meituan’s core operating profits in 2022 in our estimates. Meituan expects a gradual decline to 35% ending in 2025, but indicated that it could recover if its competitors decide to scale their businesses back. This is likely to be a response to Alibaba’s Koubei which merged with its navigation app Amap and could pose a serious threat given the size of the challenger.