20221216-招银国际-Business_recovery_has_greater_visibility_7页_1mb

Trip.com (TCOM US) Summary

Core Content

Trip.com Group (TCOM) reported its 3Q22 results, showcasing a significant recovery in revenue and net profit, driven by the easing of pandemic prevention policies and the release of pent-up demand. The company has revised its forecasts and valuation, with a new DCF-based target price of US$40.0, up from US$29.7.

Main Points

• Revenue Recovery:

  • 3Q22 net revenue reached RMB6.9bn, up 29.0% YoY, and 5-6% ahead of consensus estimates.
  • It accounted for 66% of the 3Q19 level.
  • The company expects total revenue to recover to 86% of 2019 level in 2023, up from 56% in 2022E.

• Domestic Business Recovery:

  • Domestic transportation-ticketing revenue was RMB2.6bn, up 44% YoY, and reached 70% of 3Q19 level.
  • Domestic accommodation reservation revenue was RMB2.9bn, down 32% YoY, and at 71% of 3Q19 level.
  • The company expects constant sequential recovery from 2Q23 onwards due to the release of pent-up demand.

• International Business Recovery:

  • International revenue contribution was 15-20% in 3Q22.
  • Air-ticketing on the global platform increased over 100% YoY and has recovered to 80-90% of 2019 level.
  • Hotel bookings in the global platform grew by 45% vs 3Q19, with domestic hotel bookings in non-China markets up 300%.

• Margin Expansion:

  • Non-GAAP OPM for 3Q22 was 17.5%, 2.3pp better than forecast.
  • Long-term margin expansion is expected, with non-GAAP OPM projected to reach 5.3% in 2022E, 16.4% in 2023E, and 22.2% in 2024E.

• Valuation and Target Price:

  • The new DCF-based target price is US$40.0, translating into 35.2x 2023E PE and 21.8x 2024E PE (non-GAAP).
  • The previous target price of US$29.7 was 26.7x 2023E PE (non-GAAP).
  • The valuation is supported by an 81% CAGR in non-GAAP net income from 2021 to 2024E.

Key Information

• Pandemic Impact:

  • 4Q22-1Q23 saw a disruption due to pandemic resurgence, but the company believes business recovery will have greater visibility from 2023 onward.

• Future Catalysts:

  • Relaxation of inbound quarantine policies is expected to boost outbound travel, which accounts for c.25% of pre-COVID revenue.
  • Stronger-than-expected domestic long-haul travel recovery will be aided by pent-up demand.

• Financial Summary:

  • Revenue is expected to grow from RMB19.9bn in 2022E to RMB38.8bn in 2024E.
  • Non-GAAP net profit is projected to increase from RMB0.7bn in 2022E to RMB8.0bn in 2024E.
  • Operating margin is expected to improve from -0.9% in 2022E to 16.7% in 2024E.

• Valuation Metrics:

  • P/E (non-GAAP): 35.2x for 2023E, 21.8x for 2024E.
  • P/B: 1.3x for 2022E, 1.3x for 2023E, 1.2x for 2024E.
  • P/CFPS: 68.2x for 2022E, 12.8x for 2023E, 13.5x for 2024E.

• Market Performance:

  • 12-month price performance is not provided in absolute terms, but the company’s shares have shown positive returns over various timeframes.
  • Market Cap: US$21,128.5m.
  • Shareholding: Baidu Entities (10.8%), Morgan Stanley (5.8%).

Forecast Revision

• Revenue:

  • Revised 2022E forecast down by 4.9%.
  • Revised 2023E and 2024E forecasts up by 3.5% and 4.2%, respectively.

• Non-GAAP Net Profit:

  • Revised 2022E forecast down to RMB0.7bn.
  • Revised 2023E and 2024E forecasts up by 2.0% and 5.8%, respectively.

Valuation Table (DCF)

Industry Comparison

• P/E (non-GAAP):

  • Trip.com: 35.2x (2023E), 21.8x (2024E).
  • Industry Average: 22.3x (2022E), 26.6x (2023E), 21.4x (2024E).

• P/S:

  • Trip.com: 12.8x (2023E), 13.5x (2024E).
  • Industry Average: 3.4x (2022E), 2.8x (2023E), 2.4x (2024E).

Analyst Recommendation

• Maintain BUY.
• Target Price: US$40.0.
• Up/Downside: 16.2%.
• Current Price: US$34.41.

Summary of Financials

Conclusion

Trip.com Group is showing strong signs of recovery as pandemic prevention policies ease, with improved revenue and margin performance. The company is well positioned for growth in both domestic and international markets, particularly with the potential relaxation of inbound quarantine policies. The updated DCF-based target price of US$40.0 reflects the improved outlook and is supported by a strong CAGR in non-GAAP net income. The BUY recommendation is maintained, indicating positive future performance.