Meituan’s ratings upgraded to Baa1 by Moody’s, stable outlook forecasted

Investing.com -- Moody’s Ratings has elevated the issuer and senior unsecured ratings of Meituan from Baa2 to Baa1, transitioning the outlook from positive to stable on March 31, 2025.

The upgrade is a reflection of Meituan’s extended record of improved credit metrics, featuring low leverage and a robust net cash position. Moody’s anticipates that the company’s diversified operations, strong brand, and leading market position will continue to bolster a steady performance, according to Ying Wang, a Vice President and Senior Analyst at Moody’s Ratings.

The ratings also take into account Meituan’s ongoing investment requirements in artificial intelligence and overseas businesses. Wang noted that Meituan’s strong balance sheet is expected to manage these investment needs and that the company will continue its cautious financial management to maintain solid financial buffers.

Meituan’s Baa1 ratings are indicative of the company’s leading positions in China’s food delivery, in-store, hotel, and travel service markets. The company has displayed proficiency in developing new products and services that align with changing customer preferences, while also increasing operational synergy across its various business segments.

The ratings also acknowledge Meituan’s financial prudence and strong credit profile, characterized by low leverage, robust cash flow, and a consistently solid net cash position that amounted to RMB107 billion as of December 2024.

However, these strengths are offset by the company’s exposure to intense competition in its key business segments and the risks associated with its new business initiatives, including overseas expansion plans.

In 2024, Meituan’s total revenue grew by 22% to RMB338 billion, reflecting continuous growth in both its core business operations and new business initiatives. Over the next 12-18 months, the company’s total revenue is expected to increase by 10%-15% per year, supported by increasing demand for convenient lifestyle services and continuous service innovations.

Meituan’s adjusted EBITDA margin increased to 13% in 2024, slightly better than Moody’s previous expectation of 12% and compared with 6% in 2023. The improved profitability resulted from enhanced cost efficiency, a growing scale of its core business, and continuous loss reductions in the new business initiatives.

Over the next 12-18 months, Meituan’s adjusted EBITDA margin is expected to moderately decline to about 12%, as the company’s higher costs from its planned overseas expansion offset profitability gains from enhanced efficiency and increased cross-segment synergy of its core China operations.

As of December 2024, the company’s total adjusted debt remained stable at RMB62 billion, compared with RMB61 billion a year earlier. Over the next 12-18 months, the company’s adjusted debt is expected to remain at the current level.

Meituan’s liquidity remains excellent. Its RMB 169 billion in cash and short-term investments as of December 2024, together with expected operating cash flow, will more than suffice to cover its short-term debt of RMB 19 billion, planned capital expenditures, and expected share repurchases over the next 12 months.

The ratings also consider the company’s risk exposure relating to customer relations, human capital, and responsible production. These risks are mitigated by limited exposure to environmental risks and a long track record of financial prudence.

The stable outlook reflects Moody’s expectation that Meituan will maintain its strong financial profile and strong market position through the market cycles. A rating upgrade could be possible if the company continues to expand its business scale and scope while maintaining a prudent financial policy, and demonstrate a sustained track record of its solid credit metrics through a well-balanced approach to investment and growth.

A downgrade could occur if Meituan fails to maintain stable revenue growth or profitability, or if it funds any acquisition or meets shareholder return requirements that strain its balance-sheet liquidity or increase its overall operational or financial risk. A downgrade could be indicated by its Moody’s adjusted debt/EBITDA ratio consistently exceeding 2.0x-2.5x, or a sustained deterioration in its strong cash position and capital structure.

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