Regional Morning Notes: In-Depth Analysis of Trip.com Group Ltd
Broker Name: UOB Kay Hian
Date of Report: Wednesday, 20 November 2024
Introduction
As the largest online travel agency (OTA) in China, Trip.com Group Ltd continues to cement its position in the travel industry by offering a wide range of travel products including hotel reservations, airline ticketing, packaged tours, and corporate travel. The recent report from UOB Kay Hian provides a comprehensive analysis of Trip.com’s financial performance, market strategies, and future outlook. This article delves into the detailed findings and insights provided by the analysts, Julia Pan Meng Yao and Soong Ming San, and explains their recommendations and forecasts for the company.
Trip.com Group Ltd: A Strong Performance in 3Q24
Trip.com delivered a remarkable earnings beat in the third quarter of 2024. The company reported a 15.6% year-on-year increase in net revenue, reaching RMB 15.9 billion. This performance was in line with consensus estimates, demonstrating the company’s resilience and robust operational capabilities. The non-GAAP net profit saw an impressive growth of 21.8% year-on-year, amounting to RMB 6 billion, which exceeded consensus estimates by 25%. The net margin expanded by 2 percentage points year-on-year to 37.6%.
Revenue Breakdown and Key Financials
The financial report highlighted the following revenue segments for 3Q24:
- Accommodation: Revenue increased by 21.7% year-on-year to RMB 6.8 billion.
- Transportation: Revenue grew by 5.3% year-on-year to RMB 5.7 billion.
- Packaged Tour: Revenue rose by 17.3% year-on-year to RMB 1.6 billion.
- Corporate Travel: Revenue increased by 11% year-on-year to RMB 656 million.
- Others: Revenue surged by 40.9% year-on-year to RMB 1.2 billion.
The gross profit also saw a year-on-year increase of 16.0%, reaching RMB 13.1 billion. The gross profit margin (GPM) was up slightly at 82.4%.
International Market Expansion
Trip.com has been aggressively expanding its international market share, evidenced by a 60% year-on-year increase in international air and hotel booking revenue in 3Q24. The Asia-Pacific region was a significant contributor, with a 70% growth in revenue. The company’s international brand, Trip.com, accounted for 9% of total revenue, up from 7% in the previous year. Furthermore, inbound travel bookings doubled year-on-year, making up 20% of international tourism revenue.
Outlook and Strategy for 4Q24 and Beyond
Looking ahead, Trip.com has guided a revenue growth of 17-22% year-on-year for 4Q24, targeting RMB 12.1 billion to RMB 12.6 billion. The growth is expected to be driven by international tourism, despite low domestic tourism seasonality. The gross margin is projected to remain stable at 80.5%. However, the non-GAAP operating margin is expected to see a year-on-year decline of 5 percentage points to 21%, attributed to increased sales and marketing expenses for international brand expansion.
2025 Growth Projections
For 2025, Trip.com anticipates domestic tourism revenue to grow at a mid-single-digit rate year-on-year, while outbound and international travel is expected to accelerate by 10% year-on-year, surpassing industry averages. The company projects outbound tourism to achieve 2-3 times growth, outpacing industry levels. Operating margins are expected to remain stable at 30% in 2025, supported by continuous investments in the Trip.com brand.
Earnings Revision and Risks
UOB Kay Hian has adjusted its revenue forecasts for 4Q24 and 2024 by 2% and 1% respectively, while lowering earnings forecasts by 24% and 3% due to increased investments. Potential risks include softer travel consumption spending power and normalized domestic travel demand.
Valuation and Recommendation
The analysts maintain a “BUY” recommendation for Trip.com with a revised target price of HK\$640.00 (US\$81.00), suggesting a 26.4x 2025 forecasted PE, which aligns with global peers. The company is well-positioned to benefit from the recovery of outbound travel and robust inbound travel, aided by favorable visa-free policies.
Conclusion
Trip.com Group Ltd continues to showcase strong performance and strategic foresight in capturing international market share while maintaining robust financial health. The company’s focus on international expansion and investment in its brand is poised to drive significant growth in the upcoming quarters. Investors are encouraged to consider Trip.com’s potential for robust market share gains amidst strong international travel demand.
