By Kimberley Kao


Meituan shares rose after the Chinese food-delivery giant posted a quarterly earnings beat and said it plans to overhaul an unprofitable group-buying grocery unit.

The company's Hong Kong-listed shares climbed 8.6% to 95.85 Hong Kong dollars (US$12.26) in afternoon trading Monday, taking year-to-date gains to 17%.

The Beijing-based company on Friday posted a fourth straight profitable quarter, beating analysts' estimates for the top and bottom lines amid strong consumer demand in China. Quarterly revenue rose 23% from a year earlier.

The company also said it will revamp Meituan Select, a group-buying service focused on groceries, to prioritize narrowing the unit's operating loss over growing market share. It said it will trim subsidies and boost price mark-up ratios.

Nomura analysts kept a buy rating, citing a better earnings outlook thanks to the strategy shift in the new business segment. Meituan Select accounted for the bulk of losses under the segment, they wrote in a research note. As such, "this move would be welcomed by investors, as many have lost faith in Meituan Select after the business has been incubated for so many years," they said.

Citi analyst Alicia Yap raised her target price to HK$128 from HK$113 while maintaining a buy rating. She cited the plans for Meituan Select and said she expects an organizational restructuring to boost efficiency.

Daiwa Capital Markets kept its buy rating, highlighting the change at Meituan Select as a key driver for earnings this year. "Management seems committed to reduce losses in 2024," which could lead to "faster-than-expected loss reduction," it said in a note.

Competition with Douyin, TikTok's sister app in China, remains an overhang, but it is likely stabilizing, Daiwa said, which will also help in-store operating profit margin recover substantially in the second half of this year.


Write to Kimberley Kao at kimberley.kao@wsj.com


(END) Dow Jones Newswires

03-25-24 0138ET