CICC: Maintain outperform rating on MEITUAN-W (03690) with a target price of 125 Hong Kong dollars.

CICC released a research report stating that it maintains the revenue and net profit forecasts for MEITUAN-W (03690) for 2025/2026/2027, maintains an outperform industry rating and a target price of HK$125, corresponding to 27E 23x adjusted P/E and 33% upside potential; the current price corresponds to 27E 17x adjusted P/E. Key points from CICC: Company Update Meituan announced the intention to acquire all the shares of Dingdong Maicai: the initial cost of the transaction is $717 million, the transferring party can withdraw up to $280 million, but must ensure that the net cash of the target group (Dingdong) is not less than $150 million. Considering the cash withdrawal, the bank estimates that the actual valuation level of the target acquisition may be around $1 billion. During the transaction period, Dingdong will continue to operate in the same manner as before the transaction, and any operating profits or losses generated during that period will belong to Meituan; if the delivery is not completed within 12 months, the agreement may be terminated, which may correspond to a termination fee of $150 million or $75 million. In addition, Dingdong Maicai's overseas business will be divested before the delivery, which is unrelated to this transaction. The bank believes that the core value of Dingdong Maicai lies in: 1) having strong stickiness and customer recognition among high-value family customers in Jiangsu, Zhejiang, and Shanghai; 2) a pre-warehouse and instant retail fulfillment network covering the core areas of Jiangsu, Zhejiang, and Shanghai; 3) an efficient supply chain system mainly focused on quality fresh products composed of over 85% direct procurement system, 12 self-operated factories, and 2 self-operated farms; 4) the ability to continuously develop high-quality products around consumer demand. As the acquirer with rich experience in instant retail and pragmatic values, Meituan is expected to leverage Dingdong's strengths. Considering the intense market competition, Dingdong is expected to enhance its ability to resist risks after being acquired. For Dingdong's financial data and recent updates, please refer to the bank's latest report. Enhancing the capabilities of Xiaoxiang Supermarket from multiple angles to play a defensive role in instant retail competition The bank believes that Meituan's acquisition of Dingdong is a multi-faceted gain: in terms of the supply chain, Meituan Xiaoxiang Supermarket is expected to acquire Dingdong's direct procurement source resources and self-operated factory supply chain capabilities through the acquisition; in terms of categories, the acquisition is expected to enhance Xiaoxiang's product strength and richness in fresh produce; in terms of regional layout, Xiaoxiang Supermarket is currently accelerating the opening of pre-warehouses, and is expected to integrate Dingdong's pre-warehouse assets in the future to support Xiaoxiang's scaled expansion, especially in the eastern region's pre-warehouse network encryption; from the perspective of industry competition, in the context of the increasingly heated competition in the instant retail track, Meituan may hope to enhance its own defense capabilities through the acquisition. In the long term, the integration of the pre-warehouse track may also enhance the industry's overall operating efficiency and expand the industry's long-term profit margin imagination space. Risk Warning: Antitrust regulatory risk; transaction landing is not as expected; macroeconomic uncertainty.