2% YoY topline in 3Q25 missed consensus by 2%, with CLC and new initiatives logging -3% YoY and +16% YoY respectively. Operating loss was RMB19.8bn despite narrowed new initiatives loss QoQ. We deem Co. will continuously invest considerable resources to defend its leading share positions of 3 CLC segments and proactively explore various grocery retail models and accelerate overseas expansion in 4Q25, thus leading to our estimated RMB18.9bn group level operating loss in 4Q25. Maintain HOLD and HK$100 TP unchanged.
Key Factors for Rating
Still confronting intensified competitions on multi-segments. We deem Co. continues to face intense competitive pressure across food delivery, instashopping and in-store in the near to midterm to maintain its committed leading positions. We see Co. i) dynamically refines operations especially incentives to consumers, riders and merchants; ii) prioritises to serve high AOV cohort users through segmented operations especially member privileges; iii) spends marketing budget for brand mindset; and iv) enhances core supply, fulfillment, service and tech capabilities across retail formats and geographies. Thus, we expect 4Q25 CLC Op loss to maintain at a relatively high level of RMB13.3bn due to widened loss QoQ on instashopping and lower profit from in-store on increased investments against competitions, partially offsetting by slightly improved food delivery UE QoQ. Along with widened forecast quarterly op loss of RMB4.2bn on new initiatives primarily due to upfront overseas expansion costs, total operating loss is estimated to be RMB18.9bn.
3Q25 severely impacted by intensified competition. Total revenue grew 2% YoY to RMB95.5bn, 2% below consensus. Delivery services revenue dropped by -17% YoY. Commission and ad revenue were also impacted, decelerating to 4% YoY and 6% YoY respectively. For segments, CLC revenue dropped by -3% YoY. New initiatives revenue grew at 16% YoY, among which Xiaoxiang Supermarket and Kuailv maintained solid growth momentum and Keeta continued its global geographical expansions especially in Key Middle Eastern markets. Operating loss margin was 20.7%, larger than streets’ expectation of 15.8%. Among which, CLC and new initiatives recorded widened -20.9% and narrowed -4.6% OPM on a quarterly basis respectively.
Key Risks for Rating
Upside: i) moderate global on-demand competitive landscape; ii) better-thanexpected macro and online consumption rebound; and iii) accelerated AI adoption benefits.
Downside: i) more capital injection with increased global on-demand competitions; ii) weak macro and online consumption sentiments; iii) increased new initiatives’ investments; iv) regulations; and; v) dampened partnerships
Valuation
Maintain HOLD and our SOTP TP of HK$100.0 unchanged.