Recovery on the way
? Trip.com reported 1Q22 revenue of Rmb4.1bn, flat yoy, recovering to 50.3% of 1Q19
revenue; and a non-GAAP net loss of Rmb36m, narrowing by 82.4% yoy, above our
expectation because of better revenue growth.
? However, because of the Omicron situation in several cities, we now expect total
revenue to drop by 40% yoy and its gross margin to be stable qoq in 2Q22F.
? We expect the domestic travel market to recover gradually in 2H22F, along with the
government’s related policy relaxation measures, and Trip.com’s revenue to be yoy
flattish in 3Q22F.
? Reiterate Add with a new DCF-based TP of HK$275, given large revenue recovery and
margin improvement potential once the pandemic situation improves.
1Q22 results above expectation
1Q22 revenue for accommodation, packaged tours and corporate travel fell by 8.2%,
26.6% and 11.9% yoy, respectively, but revenue for transportation ticketing and others
showed stronger resilience, with growth of 10.4% and 8.3% yoy, respectively. The 1Q22
revenue recovery in accommodation, transportation ticketing, packaged tours and
corporate travel was 48.0%, 49.6%, 11.9%, and 93.3%, respectively, of the 1Q19 level. Its
gross margin was 74.0%, down 0.8% pts yoy and down 5.3% pts compared to that in 1Q19.
The 1Q22 GAAP product development, sales and marketing, and administrative expenses
ratios fell by 6.1%, 2.7% and 2.4% yoy, respectively.
Domestic pandemic hurt 2Q22F results, but silver lining in 2H22F
Owing to the serious Omicron outbreak and lockdown measures in Apr–May, we still see
downside risks for our full-year forecasts because of likely weak 2Q22F results. We now
expect total revenue to drop by 40% yoy and the gross margin to be stable qoq in 2Q22F.
Management noted that the domestic travel market recovered in the past two weeks after
Shanghai and Beijing lifted the lockdown policy. The Chinese government announced a
reduction in the hotel quarantine period for travelers from overseas to China from 14+7
days to 7+3 days, indicating some relaxation in the pandemic-related policy. The
government also relaxed the restrictions for domestic package tours across provincial
boundaries. We expect the domestic travel market to recover gradually in 2H22F and
Trip.com’s revenue to be yoy flattish in 3Q22F.
Overseas market rebound sets an example of strong travel demand
So far in 2022, many overseas countries have removed travel restrictions, and the travel
market has seen a significant recovery. According to management, in overseas markets,
air ticket bookings on Trip.com surpassed the 2019 level, with over 150% growth in 1Q22,
gaining market share in all of its key markets. In 1Q22, overall hotel bookings on Trip.com’s
global platforms increased by over 25% above the 2019 level. The recovery momentum in
Europe, the US and Asia remained robust, and Trip.com’s international brands showed
further improvement in Apr–May. We expect Trip.com to continue to gain market share in
overseas markets. Skyscanner’s revenue was back to the 50% of the 2019 level in 1Q22,
and management expects it to fully recover by the end of 2022.
Reiterate Add with a new DCF-based TP of HK$275
We cut our FY22–23F net profit forecasts by 26.9% and 6.4%, respectively, to reflect the
impact of the pandemic-control measures, but we raised out FY24F net profit forecast by
1.9% due to a likely travel market recovery. We adjusted up our DCF-based TP to HK$275
(risk-free rate: 4.0%, beta: 1.2, WACC: 10.1%) and reiterate our Add rating, given a large
revenue recovery and margin improvement potential once the pandemic situation
improves. Positive catalysts are a stronger domestic travel recovery and better expenses
control. Risks include a further pandemic rebound and travel restrictions that could hurt
Trip.com’s revenue growth trend.