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S&P Warns of Meituan Downgrade Over ‘Cash Generation’ Fears

Ratings agency’s analyst expects Meituan’s food delivery business to break even in 2022 but warns of the impact of further regulatory crackdowns

Meituan now has a ‘BBB’ rating – the lowest investment-grade rating
A delivery rider for Meituan heads out after picking up an order at a restaurant in Beijing. Photo: AFP.


China’s food delivery giant Meituan will lose its investment-grade rating from S&P Global Ratings if its new community group-buy business fails to break even in 2023 – or if its core food-delivery business suffers from more regulatory tightening, an analyst from the rating agency warned on Monday.

Meituan now has a ‘BBB’ rating – the lowest investment-grade rating – with a negative business outlook from S&P.

And S&P will downgrade the firm if Meituan Select, a grocery group-buying service it launched in 2020, continues to be a loss-maker for an extended period, Aras Poon, Associate Director of Corporate Ratings at S&P, said at a webinar.


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Joining a race with Pinduoduo, Alibaba and JD.com, Meituan has attempted to drive new growth from untapped markets by doubling down on so-called community group buying, a rapidly growing form of e-commerce in China in which people team up to buy groceries at lower prices. 

Meituan’s new business unit, including Meituan Select, posted an operating loss of 28 billion yuan ($4.4 billion) in the first nine months of 2021, slightly lower than S&P’s expectations.

But Poon believes the losses of Meituan Select peaked in 2021, and expects its loss to narrow by 10 to 15% in 2022 and by another 20% in 2023 thanks to better unit economy and scale. S&P expects Meituan Select to be profitable in 2023, he said.

Another scenario in which S&P will downgrade Meituan though would be if there was further regulatory tightening by Beijing.

“Regulations have made Meituan’s operating profit very thin,” said Poon. “The company cannot deliver good cash generation, even if it has good market share. We see it as a signal that the market position of its business is not as strong as before.”

Poon expects Meituan’s food delivery business to break even in 2022 with an up to 2% operating profit margin, and anticipates this margin will improve to 3 to 4% in 2023 as the service industry recovers from Covid-19.


Meituan Commissions Call

Commenting on a move by China’s top economic planner pushing Meituan to lower commissions for merchants on its platform, Poon said the measures “seem temporary” but flag “bigger risks” that the regulatory environment is becoming “increasingly unfavorable.”

“Meituan now has a narrower buffer to its current rating level compared to late last year when we reviewed its rating,” he said.

Meituan reported a 10 billion yuan ($1.57 billion) loss in the third quarter of last year after swallowing $534 million anti-trust fine that equated to 3% of its domestic sales in 2020. That, compared with a profit of 6.3 billion yuan a year earlier, was its worst ever quarterly performance since the third quarter of 2018.

Meituan has also been under fire from the government and the public over its treatment of delivery riders, most of whom are not covered for basic social and medical insurance. 

Half of Meituan’s 10 million delivery riders are expected to receive additional social insurance at a rate of 20%, which will also reduce the firm’s profit margin, Poon noted.


  • By Iris Hong


Read more:

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China’s Meituan Shares Fall 15% Over New Fee Guidelines


Iris Hong

Iris Hong is a senior reporter for the China desk, and has special interests in fintech, e-commerce, AI, and electric vehicles. She began her career in 2006 and worked for Interfax News Agency and for PayPal before joining Asia Financial in July 2020. You can reach out to Iris on Twitter at @Iris23360981


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