Grab Vs. Meituan: Which Stock Can Deliver Long-Term Growth?

Kate Lin: Welcome to Morningstar. China's food delivery company Meituan (03690) has just launched its first app outside of the mainland. Meanwhile, in Singapore, food and ride-hailing app Grab (GRBA) is said to be in talks with Foodpanda for a partial acquisition of the latter’s Southeast Asia business. The moves suggest the companies’ intent to further strengthen their position in the countries they operate in. What do our analysts think about these plans? Our senior equity analyst Kai Wang covers these two stocks and is here today to tell us about them.

Hi,Kai. Meituan's new app KeeTa is officially launched in Hong Kong and aims to cover the entire city by the end of 2023. What do you think about this expansion and what impacts will it have on the company?

Kai Wang: While it's great that they're now expanding to Hong Kong, I think overall the benefit to the company isn't going to be that material. As you know, they have about 700 million users in mainland China, with all of Hong Kong, that's only about, Hong Kong has only about 7 million people that live here. So, at most, maybe, we'll see a 1 to 2% incremental revenue increase from its current state right now, and not to mention, there is heavier competition in Hong Kong. So it likely will not mean that much for operating margins in the long run.

Lin: Over to Singapore, also expanding, Grab is reportedly a potential buyer of Foodpanda’s Southeast Asia business. Given its already dominant presence in the space, how big is the marginal impact on Grab do you see?

Wang: I do think that, by reducing competition in the long run, I do think that this will alleviate some risk for margin pressures. Right now, they are reporting about adjusted EBITDA up about 3% and the company has indicated that they could go beyond that. What this does is that this probably gives investors a better sense of how they can achieve greater margins in the long run, just given the fact that they probably have to use fewer incentives and vouchers since there's just lesser competition.

Lin: Comparing these two food delivery platforms and their new plans, which one is a buy and why is that?

Wang: I think these two platforms are going in separate directions. As we talked about Grab, there is likely a better upside in the long run, just given their margin expansion and consolidation in the competitors and the number of orders from its competitor.

As for Meituan, the pending competition from Kuaishou (01024) and ByteDance is pretty well documented. There is a risk that margins for their core food delivery business could go down in the long run, not to mention their in-store and local services business has already seen a dramatic margin decline within the last couple of quarters. Meituan has no greater downside catalyst than Grab does.  

Lin: Thank you so much for joining us today, Kai. For Morningstar, I'm Kate Lin.