Meituan shows strong growth but also margin pressure
A sign that the Chinese economy is doing well came after the market close in Hong Kong with Meituan (the world’s largest meal delivery service) reporting Q3 earnings. Meituan delivered Q3 net income of CNY 6.3bn vs est. CNY 435mn on revenue of CNY 35.4bn vs est. CNY 34.1bn. The company has benefitted from the Covid-19 pandemic forcing many consumers in China to order take-away instead of eating physically at restaurants. The company is estimated to control two-thirds of the market for food delivery in China and as such profitability should begin to show strength because if the market leader cannot expand margins who can then? Revenue was up 29% y/y in Q3, but gross margin declined to 30.6% from 34.7% in Q2 again highlighting some of the cost pressures that are building in the e-commerce industry which we wrote about last week. Meituan is the number three in our global e-commerce theme basket with a market value of over $200bn. The news from Meituan has lifted Chinese and emerging market equities ahead of the US equity session so risk appetite for emerging markets is still intact.