(Yicai) Jan. 11 -- Shares in Meituan advanced today after the Chinese on-demand services giant repurchased the first tranche of a USD1 billion buyback plan announced in November last year to stabilize its share price as intense competition squeezes profits.

Meituan’s share price [HKG:3690] closed up 5.4 percent at HKD75.60 (USD9.67) today. Yesterday it slumped to the lowest since August 2019 at HKD69.55 intraday, just HKD0.55 higher than its issue price in 2018. The stock halved in value last year.

Meituan repurchased 5.6 million shares yesterday at a price ranging from HKD69.60 to HKD72.85, accounting for 0.09 percent of its total issued share capital, according to documents disclosed by the Hong Kong Stock Exchange. It is the firm’s first buy back since it went public in 2018 and amounted to an outlay of around HKD400 million (USD51.2 million).

Douyin, the Chinese version of TikTock, has put a lot of pressure on Meituan’s profitability, and initially investors reacted lukewarmly to Meituan’s buyback program, Zhao Hongmei, head of research at Zhongtai International Securities, told Yicai.

Douyin, which has more than 700 million monthly active users, has been expanding its local lifestyle business since last year. The Beijing-based firm is now providing online marketing services to restaurants as well as entertainment and service providers to attract their consumers to spend in its stores and earn commissions.

As a result, Beijing-based Meituan cut its fees for many of its merchants in the middle of last year, causing profit growth to slow. 

Meituan’s adjusted net profit jumped 62 percent in the third quarter year on year to CNY5.7 billion (USD795 million) in the third quarter, but in the second quarter it had nearly quadrupled, according to its latest earnings report published on Nov. 28.

This report led to several international investment institutions downgrading Meituan’s rating from overweight to keep pace with the broader market and to lower its target price. The US’ Morgan Stanley, for instance, slashed the target price to HKD120 (USD15) from HKD180.

Editors: Dou Shicong, Kim Taylor