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2Q21: Steady Recovery in 2Q21 with 2H21 Marred by Domestic COVID-19 Cases

TCOM reported a solid set of 2Q21 results with net revenue growing by 86% yoy to Rmb5.9b due to a strong recovery in domestic travelling. Gross margin expanded 6.8ppt yoy to 79.2%. Non-GAAP net profit was Rmb728m versus a loss of Rmb1.2b in 2Q20 and a loss of Rmb204m in 1Q21 as a result of stringent cost control. We maintain BUY on the company with a lower target price of US$38.00 (HK$296.00) to factor in the slower recovery dragged by the resurgence of the pandemic.

RESULTS

• Solid performance from domestic market. In 2Q21, the key business segments of Trip.com (TCOM), namely accommodation reservation/transportation ticketing/packaged tours, saw a 96%/80%/182% yoy growth respectively, representing a 28%/39%/48% decline versus 2Q19 levels. Domestic hotel and air-ticketing GMV increased by 150% yoy whereas booking volume increased by double digits versus pre-COVID-19 levels. Excluding the impact from the pandemic in Guangdong province, domestic hotel and air ticket bookings were up by 30% versus 2Q19. Corporate travel and others business segment recorded a 141%/32% yoy growth and 26%/17% growth versus 2Q19. During 2Q21, the average daily rates (ADR) of hotel bookings remained at c20%, below 2019 levels despite volume growing by double digits in 2Q21 versus 2Q19 as a result of the company having further penetration into Tier 2 cities and more promotions offered for short haul travel. Staycations played a key part in the recovery of domestic tourism, with local hotel reservation growing by 80% versus 2Q19. The company expects 3Q21 revenue to decline by 50% to Rmb5.2b (30% below street estimates) versus 3Q19 due to the recent resurgence of COVID-19 cases in China.

• Margin overview. Gross margin expanded 6.8ppt yoy to 79.2% in 2Q21, 2.6ppt above street estimates, due to an improvement in operating efficiency. TCOM stated that the total number of calls handled by staff had decreased by 50% as the company digitalised its call center services. Non-GAAP operating margin was 11.7% (versus 19.9% in 2Q19), better than the management’s expectations of 7%, as the company continues to exercise prudent cost controls offset by a sequential uptick in S&M spending ratio as TCOM resumes its promotional activities amid a recovery in domestic tourism activities. TCOM delivered a non- GAAP net profit of Rmb728m versus a net loss of Rmb1.2b, better than the street estimated profit of Rmb280m. Non-GAAP net income was guided to achieve Rmb58m in 3Q21, representing 1% non-GAAP net margin.