JPMorgan leads Meituan stock downgrades after US$10 billion share sell-off

A US$10 billion sell-off in Meituan shares is shaking the confidence of analysts who have been bullish on the Chinese food-delivery company for more than three years. Many cut their upside expectations this week as the stock skidded to a 12-month low.

At least 30 brokers have slashed their 12-month price targets for Meituan by 10 to 49 per cent this week, with four of them downgrading their recommendations. That knocked the consensus target down by 18 per cent from the previous week to HK$160.67, the lowest level since July 2020, according to Bloomberg data.

JPMorgan was the most aggressive, nearly halving its price target to HK$100 from HK$195 and downgrading its rating to neutral from overweight. Morgan Stanley downgraded its recommendation to in-line from equal-weight and slashed its target by a third to HK$120.

“Our lowered valuation reflects our view that margin pressures are likely to linger, compounded by a downward revision of food-delivery growth,” Kai Wang, senior equity analyst at Morningstar, said in a note on Wednesday. He cut the price target by 30 per cent to HK$102 and downgraded the stock to hold from buy.

The wave of downgrades came after Chen Shaohui, Meituan’s chief financial officer, said the company expects revenue growth for its core business to slow this quarter as uncommonly warm weather is likely to reduce meal orders. The company posted a 22 per cent jump in third-quarter revenue, slightly better than expected.

“We anticipate a revenue slowdown because management expects consumers to be more cautious and value-oriented,” Morningstar’s Wang said.

Meituan closed up 0.2 per cent to HK$90.60 on Thursday in Hong Kong after a 12.2 per cent plunge on Wednesday that erased HK$78 billion (US$10 billion) of the company’s market capitalisation. The stock has tumbled 48 per cent so far this year to the lowest since March 2020, ranking it among the worst performing Hang Seng Index members.

Some money managers are also turning less optimistic about consumer discretionary spending in general amid economic headwinds such as slower income growth and mounting deflation pressures.

“We feel the recovery there will be slower, with weaker expectations,” said Caroline Maurer, head of China and Hong Kong equities at HSBC Asset Management, who trimmed positions on the sector last quarter.

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Still, most analysts maintained their buy call on Meituan, as fundamentals remain intact. A buy-back plan that the company’s board has approved for up to US$1 billion in Meituan shares starting in December would provide extra support to the share price, they said.

As Meituan will “adjust its strategy if it sees limited long-term potential in profitability”, loss reduction will be a re-rating factor and share buy-backs will be “a catalyst”, analysts at Daiwa Capital Markets including John Choi and Robin Leung said in a note.