Meituan (HKG:3690) faces a volatile road back to profitability as potential promotional spending spikes from rivals could reignite sector subsidy wars, S&P Global Ratings said in a recent release.

The Chinese delivery giant's first-quarter operating margins rebounded to -7% from -21% during the peak of price competition in the third quarter of 2025, the rating agency said.

S&P forecasts the company's EBITDA margins will recover to about 3% in 2026, dependent on a positive EBITDA in the second half of the year through highly targeted subsidies.

S&P has a negative outlook on the company, saying that aggressive rival promotions could delay positive free cash flow generation beyond 2026.

The company is shifting its focus toward higher net gross transaction value over absolute volume while boosting operational efficiency by deploying Tencent Holdings' (HKG:0700) Yuanbao agentic AI.