Meituan’s credit rating upgraded to ’A-’ by S&P Global Ratings

Investing.com -- On Wednesday, S&P Global Ratings upgraded the issuer credit rating of China-based online delivery company, Meituan, to ’A-’ from ’BBB+’. This upgrade is attributed to Meituan’s strong business momentum, despite a soft consumption environment in China.

In 2024, Meituan demonstrated its business strength by maintaining robust transaction volume and earnings growth. This was achieved despite increased costs due to overseas expansion and benefits for delivery riders. Meituan’s successful business execution and financial discipline, coupled with its ability to leverage its strengths in China’s food delivery business, have contributed to this improvement in its credit metrics.

The stable outlook on the rating indicates S&P Global Ratings’ expectation that Meituan will generate revenue growth of 12%-18% over the next 12-24 months, while maintaining its profitability and financial discipline. This growth is expected despite a soft Chinese economy.

Meituan’s strong performance is reflected in key operating metrics and financial results. The company’s annual transacting users exceeded 770 million, and annual active merchants increased at a two-year compound annual growth rate of 25% to 14.5 million. Additionally, Meituan increased its revenue by 20% and EBITDA by 190% in the fourth quarter of 2024, compared to the same period in the previous year.

Meituan’s dominance in the food delivery market has also strengthened its in-store business. The company has successfully directed its large delivery user traffic to in-store merchants, allowing it to further penetrate lower-tier cities and defend market share against competition. This has resulted in stabilized margins and regained share in core categories like in-store dining, beauty services, and entertainment.

Despite the recent entry of JD.com into the food delivery market, the effect on Meituan is expected to be minimal. This is due to Meituan’s broad coverage of food outlets and economies of scale, which give it an advantage over JD.com’s more selective offering.

Meituan’s core local commerce revenue grew by 22% in 2024, outpacing China’s retail growth of 4.2% and catering growth of 5.3%. The company’s initiatives, such as "Pin Hao Fan," a group purchase for food delivery, have helped capture changing consumer preferences.

Over the next two years, Meituan is expected to perform strongly with revenue growth exceeding 10%. The company plans to onboard more restaurant chains and expand its delivery service into more product categories and varying price points.

In February, Meituan announced plans to introduce insurance coverage for its riders. The associated costs are expected to be offset by transaction volume growth and other measures, such as reducing user incentives and promotional expenses.

Meituan also plans to expand overseas, with a three-year plan to build a significant presence in the Middle East. The costs associated with this expansion are not expected to significantly impact its credit measures.

Despite higher capital expenditure to build up AI capabilities in 2025-2026, Meituan is expected to maintain a strong net cash position. The company’s discretionary cash flow is estimated to more than double to about RMB 30 billion a year, allowing Meituan to grow its sizable net cash position, which stood at RMB99 billion at the end of 2024.

The stable outlook reflects the expectation that Meituan will maintain its strong net cash position and generate revenue growth of 12%-18% with 8%-12% EBITDA expansion over the next 12-24 months. This is despite potential margin drag from delivery rider costs and increasing losses from overseas expansion.

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