Food delivery service Meituan gets back on track

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Shares in Meituan, a Hong Kong-listed food deliverer, rebounded on Wednesday after a state-owned newspaper said investors may have over-reacted to a recent suggestion from the government about lowering service charges for restaurants.

The company’s shares dropped by 15% last Friday after the National Development and Reform Commission and 13 other Chinese government bureaus issued policy guidelines to support businesses in the service sector.

The government said food delivery companies should lower their service charges for restaurants.

Analysts said Beijing’s “common prosperity” drive, which urged internet platforms to bear more social responsibility, created significant pressure on the shares of Chinese technology firms last year, but that effect was diminishing.

They said the recent correction could be an opportunity for investors to buy Meituan’s oversold shares.

Last August, Chinese President Xi Jinping spoke at a top Communist Party financial and economic affairs committee meeting and said China should aim to promote “common prosperity.”

On August 28, Li Guangman, a former editor-in-chief of the Central China Electric Power News, which closed in 2013, published an article titled Everyone can feel that a profound transformation is happening.

He explained why Beijing had launched measures to curb technology giants, including Alibaba’s Ant Group, Tencent and Didi Global, in 2020 and 2021.

The central government also ordered food delivery companies to improve benefits and raise salaries for their deliverers.

In the past year, Meituan’s shares declined 58%. Last Friday, 14 official bureaus jointly released a policy guideline to support small-and-medium-sized enterprises in the service industry, which have been facing financial difficulties amid the pandemic.

The document proposed a series of supportive measures, including tax cuts, subsidies and financing support for the dining, retail, aviation, travel and transport sectors. It also said local governments should not expand lockdown areas, extend people’s quarantine periods and suspend public transport.

Within the 10-page document, the government suggested in a paragraph that food delivery companies lower their service charges for restaurants. Meituan’s shares slumped 15% to HK$186.9 (US$23.9) last Friday and were further down by 8.4% to close at HK$171.2 on Tuesday.

Other Chinese technology stocks were also under pressure due to Meituan’s correction.

Fitch Ratings said Tuesday that the guidance for food delivery companies to reduce fees they charge restaurants, especially those in areas of medium- to high-risk of Covid-19 infections, highlighted the regulatory risks of delivery platforms including Meituan.

However, Fitch said it could not yet assess the impact of the new policy on Meituan as details on the timeline of implementation, scale of coverage and the reduction in fees had not been announced.

On Wednesday, a commentary in the state-owned Economic Daily News said investors had over-reacted to the call. It said the fact that internet platforms were always called by the government to contribute relief measures showed they had an important position in society and the economy, a strong influence in markets and a bright future.

It said cuts in service charges for restaurants did not necessarily mean that internet platforms would make less money. It said if more restaurants could survive in this difficult environment, internet platforms would be able to grow in the future.

It added that the 14 bureau’s document only “suggested,” not “ordered,” a service charge reduction.

On Wednesday, Meituan’s shares rebounded 3.1% to close at HK$176.6.

CITIC Securities said as Meituan’s service charges for restaurants had already been very low, the government’s latest call to further cut the charges would not have a big impact on the company’s marginal profit. It said investors should stay calm as the document might not mean new curbs.

Analysts at Citibank said over the past two years Meituan had launched a series of relief measures for its food service merchants. They said investors might use this opportunity to buy into the oversold Meituan’s shares.

JPMorgan maintained a “buy” call for Meituan with a target price of HK$295.

Read: Chinese property stocks fall after downgrading

Follow Jeff Pao on Twitter at @jeffpao3

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