Morgan Stanley expects Meituan's new business losses to narrow in the first quarter, with a target price of 120 yuan, continuing to recommend "overweight."

Morgan Stanley published a research report indicating that Meituan (03690.HK) is showing signs of recovery in the first quarter of this year, such as improved unit economics in its delivery business and better-than-expected losses in its overseas operations. Market share has also been maintained, with the gap in unit economics compared to peers widening, while competitive pressure on the profitability of in-store business is also better than expected.

The firm estimates that core local business revenue in the first quarter will remain flat year-on-year, with operating losses narrowing from RMB 10 billion in the previous quarter to RMB 4.3 billion; losses from new business operations are expected to narrow from RMB 4.7 billion to RMB 2.7 billion. The expected unit economics for the delivery business is a loss of RMB 1.3 per order, compared to a loss of RMB 2 in the previous quarter; the average daily order volume for instant retail is 77 million orders. The operating profit margin for in-store, hotel, and tourism businesses is expected to stabilize at 25% quarter-on-quarter.

The firm has lowered its adjusted EBITDA forecast for 2026 by 53% to reflect the decline in core local business operating profits and increased overseas investments. It now sets a target price of HKD 120 and a "Buy" rating