Asia has become the key focus for investors in Delivery Hero (DH) as it absorbs most of DH’s investments (and represents 43% of 21E Sales). The region is growing fast in regards to food delivery/q-commerce and market share dynamics/competition levels are thus key to understand. Together with our analyst counterparts in the region, we do a deep-dive analysis of Asia (exMainland China, as dominated by Meituan/Alibaba), looking into markets like Taiwan, Hong Kong, Malaysia, Philippines, Thailand, Singapore, Vietnam and South Korea. Overall, we continue to see strong growth potential for Delivery Hero (OW) in the region and limited impact from regulation. Our estimate for group EBITDA profitability by 2023 still holds and we expect the shares to re-rate over the next 12m (currently on 0.6x ’22E EV/GMV versus DoorDash 1.6x) with our June-2023 TP of €192, indicating +62% upside potential. We note that Deliveroo (N) is also active in the region (HK, Singapore) and we see M&A providing further options in the future.

 Investments in Asia – high but likely to have peaked this year. We would argue that Delivery Hero’s level (or lack) of profitability has been the key share price driver recently and the main reason behind the valuation discount to DoorDash. Asia absorbs the majority of investments (-€202m EBITDA versus -€332m at group level in H1 2021), but we see improving trends and forecast profits in the region moving from -€530m in 2021 to -€300m in 2022 and €46m in 2023 – enough to achieve strong profitability at the group level by 2023E and to kick-start the valuation recovery.

 Taiwan. Delivery Hero’s Foodpanda is the leading player in Taiwan with Uber Eats the challenger. Both players are present across the market with cities outside of Taipei and New Taipei now also becoming increasingly important. Grocery provides a large opportunity and partnerships in grocery and retail have been growing exponentially in the past year. Foodpanda now collaborates with nearly all of the largest supermarkets, hypermarkets, 24H convenience store chains, and beauty/pharmacy retailers, which provides strong barriers to entry we believe. Meanwhile, Foodpanda is the dominant dark-store player with c.30 stores operating 24 hours in Taiwan.

 Hong Kong. With a high order frequency and order value, Hong Kong is an attractive market, despite a relatively small population of 7 million. This oligopoly market is owned by Deliveroo and Foodpanda, taking c.95% share, and we see very limited competition from other players (e.g. Uber Eats). With 1) Foodpanda further rolling out its Pandamart (dark store) business and 2) both platforms aggressively expanding their grocery and retail partnerships we believe new competition is unlikely to take share.

 In Southeast Asia, DH is present in 8 of 11 countries including Malaysia, Thailand, Philippines, and Singapore (also Deliveroo). We calculate online penetration of less than 10% in 2020 and estimate that online food delivery can achieve a c.30% CAGR from 2020-24. Competitors like Grab and ShopeeFood (owned by SEA) may put some pressure on marketing.