Date of Report
Thursday, 03 October 2024
Broker Name
UOB Kay Hian
Strong International and Outbound Travel Demand
Trip.com is benefiting from robust international and outbound travel demand, which is driving momentum for the second half of 2024. The company is seeing increased travel activities around key holidays such as the Mid-Autumn Festival and the Golden Week, boosting its overall performance.
3Q24 Revenue Growth Guidance
Trip.com has guided for 3Q24 revenue growth of 11-16% year-on-year (yoy), reaching RMB 15.3 billion to RMB 16 billion. This growth is underpinned by strong volume during the summer holidays, although it is slightly offset by a decline in domestic hotel average daily rates (ADR) and average airfares.
Accommodation and Transportation Bookings Growth
For 3Q24, Trip.com’s accommodation booking revenue is projected to grow by 23% yoy, while transportation booking revenue is expected to rise by 3% yoy, reaching RMB 6.8 billion and RMB 5.5 billion, respectively. Domestic hotel booking volume is forecasted to grow by 15% yoy, despite pressure on ADR, which is expected to decline in the high single digits.
Steady Margins and Profitability
Trip.com’s gross margin is expected to improve sequentially to 83% in 3Q24 due to the strong seasonality. The non-GAAP operating margin is anticipated to remain stable at around 33%, with the sales and marketing (S&M) ratio expected to stay steady at 23%. This demonstrates Trip.com’s strong focus on maintaining profitability despite market fluctuations.
Valuation and Target Price
UOB Kay Hian maintains a “BUY” rating for Trip.com, with an increased sum-of-the-parts (SOTP) based target price of HK$630.00. This valuation implies a 25.2x 2025 forecast price-to-earnings (PE) ratio, which is in line with global peers. The strong revenue growth outlook and focus on operational efficiency support this positive valuation.
Catalysts for Share Price Growth
Key catalysts for Trip.com’s share price growth include the continued penetration of online travel agency (OTA) platforms into domestic offline and lower-tier city travel markets, the implementation of travel bubbles, and the expansion of outbound flight capacities. These factors are expected to boost Trip.com’s market share and revenue growth in the near term.
Timeline for Growth
Investors can expect strong performance from Trip.com in the second half of 2024, particularly during key travel seasons. The company’s ability to capture growing demand for international and domestic travel, coupled with its stable margins, will drive its long-term growth.
Investment Outlook
Trip.com remains a strong investment opportunity due to its leadership in the travel industry and its ability to capitalize on rising travel demand. With robust growth in international travel and expansion into lower-tier markets, Trip.com is well-positioned for sustained financial performance in the coming years.
