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Didi is making a comeback. The Chinese ride-hailing group has posted its first profit since Beijing’s crackdowns in 2021. Back then, regulators launched a probe into its data handling and forced a delisting in New York where it briefly had a valuation of more than $80bn. These latest earnings numbers boost the outlook for a Hong Kong listing. 

Net income was Rmb107mn ($14.7mn) on revenues that increased by a quarter to Rmb51.4bn in the third quarter, Didi said on Monday. This follows a sales jump of more than 52 per cent in the June quarter.

That was quite a feat. Didi only resumed registration of new users in January after an 18-month ban imposed by Beijing. That gap not only put the brakes on sales growth but allowed rivals such as Meituan to eat into its market share in the hyper-competitive Asian ride-hailing industry.

Didi had a market share of more than 90 per cent before the crackdown began. Since then, the number of competitors has surged, with more than 300 ride-hailing apps now operating in the country.

The fallout from the crackdown lingers. Didi shares have gained about 40 per cent in the over-the-counter market from there May low. But a market value of about $17bn is a fraction of what Didi was worth in 2021.

Still, it is not too late for the company to win back lost users. Despite the inroads made by competitors, its market share was about 80 per cent last year. Didi has a history of crushing rivals, including Uber, which sold its China operations to its rival for $7bn in 2016. It has strong backers, including Tencent and Alibaba.

Costs are rising for US delivery groups. Protections for gig workers are increasing through such measures as minimum earnings guarantees. In China, costs are going down. Record youth unemployment means an oversupply of workers in the ride-hailing sector.

On an enterprise value basis, Uber trades at 2.7 times forward sales, a significant premium to Didi at its current valuation. The market in China is expected to grow 12 per cent a year in the next four years.

Didi has a good chance of proving that weak profitability is a problem for western ride-hailing and delivery businesses, not Asian peers.

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