Date: September 19, 2024
Broker: China Galaxy International
Takeaways from the Conference Call with Investors
Trip.com held a Non-Deal Roadshow (NDR) call with investors on September 17, 2024. Management shared updates on expected growth during the upcoming National Day holidays (October 1-7), emphasizing that outbound travel will be a significant driver in FY24F and FY25F.
Solid Tourism Growth for Mid-Autumn Festival Holidays
During the Mid-Autumn Festival (September 15-18, 2024), the national tourism market in China saw stability. According to the Ministry of Culture and Tourism, domestic tourist trips reached 107 million, representing a 6.3% increase compared to 2019. Total spending by domestic tourists amounted to RMB 51 billion, marking an 8% increase from 2019. Trip.com management observed strong demand for short-haul trips due to the upcoming National Day holidays and the impact of a typhoon in the Yangtze River Delta area. They expect long-haul domestic and outbound trips to be the key growth drivers for revenue during the National Day holidays.
Outbound Travel as a Major Growth Driver
Management stressed the importance of outbound travel for Trip.com’s growth, noting that industry outbound flight capacity returned to 75% of 2019 levels in 2Q24. They expect it to recover to 85-90% in 3Q24F and reach 100% in 4Q24F. Trip.com’s outbound travel revenue grew by 60-70% year-over-year (yoy) in 2Q24, and they project over 40% yoy growth for the second half of FY24. For FY25F, they anticipate mid-teen growth in total revenue, with outbound travel contributing 20-30% yoy revenue growth. The company is also benefiting from strong inbound travel, as revenue grew 120% yoy in 2Q24, contributing 2-3% of total revenue.
Global Expansion Efforts
Trip.com is focusing on expanding its global travel platform, which contributed approximately 10% of its total revenue in 2Q24. While not directly competing with global travel platforms, the company is gaining market share from local offline travel agents. With a global hotel take-rate of 8-10%, which is lower than the global average of over 15%, Trip.com has built a solid market presence in Hong Kong, Singapore, Japan, and other regions. Management is committed to continuing this global expansion and expects an increase in sales and marketing expenses in FY24F, though they maintain flattish non-GAAP operating profit margin (OPM) guidance for the year.
Financial Projections
For 3Q24F, Trip.com expects revenue and non-GAAP net profit to grow by 13.5% and 8% yoy, respectively. In FY24F and FY25F, revenue growth is projected to be c.100% and c.50-60%, respectively. The company reiterated its non-GAAP EPS forecasts for FY24-26F and maintains a DCF-based target price (TP) of HK$530, with a weighted average cost of capital (WACC) of 10.1%, beta of 1.2, and terminal growth rate of 3%.
Share Buyback Plan
Trip.com has allocated US$580 million for its share buyback program, of which US$300 million had been utilized by the end of June 2024. The company plans to use the remaining US$280 million by the end of 2024F.
Valuation and Stock Performance
As of the report date, Trip.com’s stock price stood at HK$374, with a target price of HK$530, reflecting an upside potential of 41.7%. The company has a market capitalization of US$31,009 million and an average daily turnover of US$68.7 million.
Key Catalysts and Risks
The key catalyst for Trip.com’s stock re-rating is a stronger recovery in outbound travel during 2H24F. However, the company faces potential downside risks, including weaker-than-expected travel demand recovery and higher-than-anticipated marketing expenses, which could hurt profit margins.
