Shares of China’s food delivery leader Meituan fall more than 5% on weaker Q3 outlook

Meituan‘s Hong Kong-listed shares fell greater than 5% on Friday after CEO Wang Xing warned of a meals supply slowdown within the subsequent quarter.

“For our food delivery, we expect the third quarter or the volume will slow down, but still be more resilient than other consumption-related sectors,” Wang stated in the course of the earnings name on Thursday.

On Thursday, Meituan posted sturdy second-quarter outcomes.

Revenue was 67.96 billion Chinese yuan ($9.33 billion), up 33.4% from 50.93 billion yuan posted in the identical interval a 12 months in the past. The agency additionally swung to revenue of 4.69 billion Chinese yuan for the second quarter, in comparison with a lack of 1.11 billion Chinese yuan a 12 months in the past.

“We have seen some short-term headwinds due to macro economy and extreme weather conditions.”

Regions similar to Beijing, Tianjin and the provinces of Hebei, Shanxi and Henan skilled excessive rain in July, inflicting widespread flooding. Typhoon Doksuri swept north after ravaging southern Chinese provinces.

“Extreme weather brings challenges to our business. Many merchants had to suspend their business, while consumers chose to stock packaged food instead of ordering fresh food delivery. In some cities, food delivery was even suspended in order to ensure safety,” stated Wang.

Meituan leads China’s meals supply market, holding virtually 70% of the market share within the mainland, in line with a 2022 report on Meituan.

Besides meals supply, the tech agency additionally operates numerous companies together with ride-hailing, on-demand supply, lodge and journey reserving, film ticketing, leisure and way of life companies.

Xiaolin Chen, head of worldwide at KraneShares, is bullish on Meituan.

The funding agency has a worth goal of 205 Hong Kong {dollars} ($26.14) on the inventory, which represents a 35.2% upside from the present worth of HK$132.80.

“They literally gained a lot of market share during [the pandemic]. They managed to grab lower tier cities and I believe [that] kind of market share will become sticky with them,” Chen advised CNBC’s “Squawk Box Asia” on Friday.

Wang stated customers will doubtless dine out extra because the economic system recovers, which might result in a decrease demand for meals supply.

“So far in third quarter, offline traffic and travel demand continue to recover rapidly. Consumers’ pent-up demand for offline consumption is further released, and this will lead to a temporary squeeze on food delivery transactions as people go out more often,” stated Wang.

Credit score company Fitch Ratings nonetheless expects China’s gross home product to develop 5.6% in 2023 because the economic system normalizes following very weak consumption development final 12 months, in line with a July report. This is barely increased than the Chinese authorities’s development goal of round 5%.

Meituan’s CEO stated he stays assured of long-term development in its meals supply business.

“Order volume in Q3 last year was a relatively high base, but we think a temporary slowdown in order volume growth is due to external factors,” stated Wang. “We will continue to activate our product and operational strategy to better capture the demand and stimulate the recovery.”

Meituan can be deploying autonomous supply autos which have been “more widely applied in more scenarios,” stated Wang.

Chinese self-driving automobile agency Pony.ai introduced in March that it’s partnering Meituan to construct unmanned autos for meals supply companies.

Chen stated that leveraging synthetic intelligence tech in meals supply is vital to “improving costs and services for clients.”

“We will leverage our proprietary research and external investment to explore the use of AI and autonomous delivery and other cutting edge technologies,” stated Wang.

In May, Meituan rolled out a sister app in Hong Kong, because it appears for brand new markets exterior of mainland China.