Meituan HK SDR 5to1 (SGX: HMTD)

Believe it or not, Google’s search engine used to be relatively big in China. And one of the engineers who worked there – Wang Xing – identified a unique business opportunity in the fast-growing trend of so-called “group buying”.

In 2010, inspired by the runaway success of Groupon in the West, Xing started up Meituan (SGX: HMTD) with the same idea of bringing low prices for a critical mass of buyers. These ranged from spa treatments to restaurant meals and more.

It quickly became the leader in the space, buoyed by support from the “big boys” of China’s tech dominance in the 2010s – Alibaba and Tencent. The company expanded into food delivery and Xing later merged Meituan with rival Dianping to form Meituan-Dianping in 2015.

The company has come full circle and is now simply known as “Meituan”. However, Meituan has continued to expand and has entered the lucrative hotel bookings space and the massive grocery delivery market in China, too. By integrating these offerings and providing them to customers on one unified app, Meituan has been better able to scale.

As a result, Meituan is now a juggernaut in the China tech space and last year it notched up sales of over RMB 337 billion (US$46.8 billion). Here’s a closer look at this exciting business and whether it’s stock is an appropriate fit for investors’ portfolios. 

Meituan: Expanding its core competencies

Meituan is an instantly recognisable brand in many Chinese cities with their delivery drivers donning the bright yellow jackets that represent the company’s primary colour.

With near total dominance in tier-1 and tier-2 Chinese cities for food delivery, Meituan’s drivers can typically get a food/drink order to its customers within 35 minutes. This speed and efficiency has enabled the firm to build trust with customers and be the go-to partner for restaurants.

The company has two big, but distinct, core revenue drivers; these are called “delivery services” and “commission”. First off, Meituan’s delivery services encompass various categories such as food delivery and the company’s own “Instashopping” offering. The revenue here comes from delivery services that are derived from fees charged to consumers for delivery.

For the company’s commission-based business, this revenue is generated from fees it charges merchants that use its platform in order to facilitate transactions. By taking a cut of the order value, Meituan can retain some revenue.

This commission-led model has been a strong growth driver for its travel and hotel booking platform, which has benefitted hotels of all sizes as they get access to an enormous user base – in order to promote their properties – via Meituan. 

Both its delivery services and commission units are crucially important and reinforce each other as both are closely intertwined.

Size and scale matter

How big is each? They’re both similar in size. For Q4 2024, delivery services posted RMB 26.2 billion in revenue, or 29% of its top line. Meanwhile, Meituan’s commission saw RMB 24 billion in revenue, making up 27% of overall revenue. 

The rest comes from online marketing services (1.5%) and other services and sales (27.5%), with the bulk of this coming from “new initiatives” that include loss-making operations such as Meituan Select – its community group-buying service – and Xiaoxiang (Little Elephant) Supermarket app, which is Meituan’s self-operated grocery business that offers 30-minute delivery. 

Perhaps one area that investors aren’t too concentrated on right now, but which could become meaningfully important later on in Meituan’s development, is the contribution from ad revenue. Given the power of Meituan’s platform, cross-selling can be increasingly leveraged by the firm.

But it also opens up the avenue of selling more ads within its various services to merchants already on its platform. This is something that both Amazon.com Inc and Walmart Inc are doing successfully in the US.

It’s also a global trend as companies such as MercadoLibre Inc and Sea Ltd are ramping up their online ad capabilities in both Latin America and Southeast Asia, respectively. For Meituan, using its scale and size, online advertising (strategically placed) could become another growth lever in future.

New initiatives driving top-line expansion

Meituan has been aggressively trying to expand its footprint beyond its home market of China. It has been most successful in this pursuit by focusing on cities like Hong Kong, where it launched its first food delivery service outside of Mainland China.

Named KeeTa, it has taken Hong Kong by storm and quickly grabbed market share with promotional offers and free delivery. The phenomenal growth of the service in Hong Kong contributed to Deliveroo losing market share and eventually exiting the market.

Food delivery operators’ market share in Hong Kong in 2024

Source: Bloomberg, Measurable AI as of 2024

Having only launched in mid-2023, by the end of last year Keeta had grabbed over 40% of the Hong Kong food delivery market. Late in 2024, Keeta expanded into Saudi Arabia – marketing its first foray outside of China – and it’s now looking to also use Meituan drones for delivery in both Saudi Arabia and UAE, where it launched in December of last year.

While Hong Kong is a more limited market, the Middle East offers better long-term potential for Meituan. Indeed, Saudi Arabia’s food delivery market is expected to grow at an annualised pace of 20% in the coming years – driven by accelerating urbanisation and an expanding young population.

Meituan launched its Xiaoxiang Supermarket service in Saudi Arabia, its first grocery foray outside China, in December of 2024 and the company sees the fast-growing Middle East online grocery market as an exciting opportunity to expand its global offerings.

Meituan gives growth with a side of consistency

Meituan saw solid Q4 2024 and FY2024 earnings when it reported its numbers in March of this year. The company notched up RMB 88.5 billion in revenue for the fourth quarter of last year and this was up 20% year-on-year.

More importantly, operating profit for Meituan during the quarter hit RMB 6.7 billion and this skyrocketed by a whopping 281% year-on-year, giving the company a comfortable operating margin of 7.6%. For the whole of 2024, Meituan’s operating profit margin was an impressive 10.9% as operating profit surged by over 140% year-on-year to RMB 18.5 billion for 2024.

That margin profile compares favourably to other listed food delivery businesses globally, with US-based DoorDash Inc only posting an operating margin of just over 5% in its latest quarter (Q1 2025).

Meituan’s business, on the whole, has been a consistent grower through the pandemic and beyond. From 2020 to 2024, Meituan saw revenue expand at a compound annual growth rate (CAGR) of 30%.

While its new initiatives unit has been growing substantially bigger, it did run an operating loss of RMB 7 billion in 2024. However, this operating loss in new initiatives narrowed by over 50% in Q4 2024 as its enviable scale is clearly starting to benefit the company.

Delivering valuation comparison

Meituan is a unique entity in that it has a thriving food delivery business alongside hotel booking, grocery delivery and other on-demand delivery services. In that sense, it’s hard to directly compare but close overseas-listed peers include DoorDash and Uber Technologies Inc, which has a sizeable food delivery business.

DoorDash, as mentioned earlier, generates a less superior operating margin yet it also trades at a more expensive price-to-earnings (PE) valuation than Meituan.

Meituan is trading for a 12-month trailing PE ratio of around 23x while DoorDash is more than 10 times more expensive with a PE ratio of 249x. Uber? Well, the West’s go-to ride hailing and food delivery giant has a much more reasonable PE ratio of 16x but its platform is arguably less valuable than Meituan’s all-in-one super app.

As for expansion, Meituan is looking more seriously outside of China – as evidenced by its Middle East endeavours – and this will be a growth driver which competitors like Uber won’t have given their presence in most countries around the world, excluding China.

Risks you don’t want delivered

As with any growth stock, like Meituan, there are risks that should be considered. Regulatory risks will be front and centre for investors as any renewed crackdown on the tech sector by the Chinese regulatory authorities would negatively impact Meituan as well as the broader China tech sector.

Beyond that, Meituan also operates in a fiercely-competitive space – particularly online grocery delivery and community group-buying – where incumbents such as Alibaba Group Holding (SGX: HBBD) and PDD Holdings Inc are duking it out to be the market leader.

Of course, finally there’s the uncertainty of whether Meituan’s international expansion plans will play out as they hope. This is something Chinese companies more broadly will have to adapt to as they look overseas for growth.

What works in China won’t necessarily work in other markets so Meituan will need to iterate successfully to find a formula that delivers profitable long-term growth in the Middle East.

How to get access to Meituan stock?

For its Hong Kong-listed shares, buying Meituan can be cumbersome. It requires you having to wade into the Hong Kong stock market and purchase it with a board lot of 100 shares. That would set you back around HK$14,000, or S$2,330 per board lot.

But if you go through SGX’s Singapore Depository Receipts (SDRs) of Hong Kong-listed shares, this barrier can be brought down significantly. With the Meituan SDR’s underlying ratio of 5:1, and the minimum board lot for Singapore investors being just 100 shares, this means investors can get access to Meituan for as little as S$455.

SDRs give investors a beneficial interest in the underlying securities and these are held by a custodian on behalf of the SDR issuer who in turn holds on behalf of SDR holders. Not having the headache of overseas trading commissions or exchange rate fluctuations, SDRs make it much simpler for Singapore investors to access the massive Chinese market.

However, ensuring your dividends come to you in local currency gives investors just one less thing to have to worry about – particularly when dealing with overseas dividend holdings.

Finally, the SGX HK SDRs are fully fungible meaning they can be converted into the underlying Hong Kong shares of the company, if investors wish to do so.

About the Author: Tim Phillips

Tim has spent over 15 years in the finance industry with the likes of Schroders, The Motley Fool, and CGS International. 

He’s passionate about helping people take control of their finances by building wealth through long-term investing and thinking more coherently on all things "money".

Tim hopes to share the experience he’s garnered having worked in asset management, securities, and private wealth. He loves breaking down complex financial topics into content that’s easy to understand and, most importantly, engaging.

Give him a follow on TikTok @timtalksmoneysg and Instagram @timtalksmoney or subscribe to his free weekly newsletter at TimTalksMoney.com for more money and investing insights.

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