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Trip.com Group (TCOM US) Summary

Core Content

Trip.com Group (TCOM US) reported its 4Q22 results, showcasing a recovery in both domestic and outbound travel. The company's net revenue for 4Q22 reached RMB5.0bn, up 7% YoY and 3/4% above the Bloomberg consensus estimate. This revenue accounted for 60% of the 4Q19 level. Non-GAAP net income was RMB498mn, surpassing the expected loss of RMB140-152mn due to better-than-expected cost savings.

Key Performance Highlights

• Recovery in Travel:

  • Domestic hotel and air bookings surpassed 2019 levels in 1Q23.
  • Outbound travel bookings on TCOM's platform recovered more than 40% of pre-pandemic levels, despite limited capacity.
  • Global air ticket revenue has fully recovered, and hotel bookings on the global platform hit a record high in 4Q22.

• Revenue Forecast:

  • TCOM's 2023E total revenue forecast was lifted by 11% to RMB34.0bn, indicating a YoY growth of 69% and 95% of the 2019 level.
  • The company forecasts 2023E AR revenue at RMB3.0bn, flat compared to 1Q19, and TT revenue at RMB3.7bn, up 11% compared to 1Q19.

• Margin Recovery:

  • Non-GAAP OPM for 4Q22 was 1.4%, 4.5pp better than the forecast.
  • TCOM is expected to see non-GAAP OPM expand to 19.0% in 1Q23E and recover to 19.2% in 2023E, showing a strong margin recovery trend.

• Valuation:

  • The DCF-based target price was raised to US$44.60 per ADS, translating into 37x and 23x 2023E/2024E non-GAAP PE.
  • TCOM is currently trading at 38x/23x 2023E/2024E non-GAAP PE, which is higher than the industry average of 18x.
  • The company's non-GAAP net profit margin is forecasted to grow from 16.1% in 2023E to 23.0% in 2025E, indicating a strong recovery in profitability.

• Analyst View:

  • Maintain a "BUY" rating.
  • The valuation premium is justified by strong earnings recovery post-pandemic.
  • TCOM is expected to achieve a non-GAAP net profit CAGR of 163% from 2022 to 2024E.

Key Drivers of Recovery

1. Pent-up Demand:

   • Release of pent-up demand for travel, especially business travel, has significantly contributed to revenue recovery.

2. Macro Improvement:

   • Recovery in the macroeconomic environment has supported the rebound in travel and accommodation bookings.

3. Cost Control:

   • TCOM has implemented stringent cost control measures, which are expected to aid in margin expansion as revenue recovers.

4. Outbound Travel:

   • Outbound travel, which accounts for about 25% of TCOM's pre-COVID revenue, is showing better-than-expected recovery.

5. Domestic Long-haul Travel:

   • Domestic long-haul travel has seen a strong rebound, supported by the release of pent-up demand.

6. Margin Expansion:

   • The recovery in revenue generation is expected to further expand margins.

Financial Summary (Selected Metrics)

Analyst Forecast and Valuation

• Target Price: US$44.60 (up from US$40.00)
• Valuation per Share (USD):
  • 2023E: 37.1x non-GAAP PE
  • 2024E: 22.6x non-GAAP PE

Industry Valuation Comparison

Analyst Certifications and Disclosures

• The analyst certifies that the views expressed accurately reflect their personal views.
• No trading in the stock covered in the report was done within 30 days prior to the report's release.
• The analyst will not trade in the stock within 3 business days after the report's release.
• The analyst has no conflicts of interest related to the report.

Conclusion

Trip.com Group is demonstrating a strong recovery in both domestic and outbound travel sectors. The company's improved cost control and strong ties with suppliers have contributed to better-than-expected performance. The analyst maintains a "BUY" rating, citing the potential for continued growth and margin expansion, along with a justified valuation premium. The updated DCF-based target price of US$44.60 reflects the improved outlook for the company.