JP Morgan: Upgrades MEITUAN-W (03690) issuer rating to "Overweight," expects the worst-case scenario has passed.

J.P. Morgan released a research report stating that it has upgraded the issuer rating and bond curve rating of MEITUAN-W (03690) from "Neutral" to "Overweight." The firm believes that the worst situation for Meituan has passed, and under government guidance, the competition in the catering industry is normalizing, with profitability expected to remain positive in the second half of 2026 and into 2027. The company announced strong performance for the second quarter of 2026, with its Chinese food delivery business turning a profit after three consecutive quarters of losses. Core local business operating profit reached 5.7 billion RMB, ending three consecutive quarters of losses and returning to profitability; revenue grew by 10% year-on-year. The improvement was mainly driven by better unit economics in the food delivery business, including the normalization of subsidies and a recovery in market share in the second quarter, particularly in the high-ticket segment. Management expects that unit economics will remain positive in the third quarter, although there may be a slowdown on a quarter-on-quarter basis due to increased summer rider costs and marketing expenses. Regarding overseas business, specifically in Keeta, Saudi Arabia turned profitable in July 2026. Net cash increased by 8% quarter-on-quarter to 102 billion RMB. The firm noted that Meituan's curve is at the widest end of the Chinese BBB curve, and there is still room for narrowing under the improvement of fundamentals and attractive valuations; it also believes that Meituan mainly belongs to the consumer theme with limited exposure to AI, thus facing lower risks from potential re-pricing of data center bond supply in the Asia-Pacific region.