Strong Travel Demand Visibility Into 2024
New Year’s Festival 2024 recorded strong travel growth, bolstered by the ongoing travel consumption upgrade and encouraging promotion policies to stimulate travel demand. This sets a compelling prelude for both companies to capture the resilient momentum of domestic travel demand during the Spring Festival holiday. We still prefer TCOM as it is the key proxy to capture the strong demand for international and outbound travel. Maintain OVERWEIGHT.
WHAT’S NEW
- Key catalysts driving TCOM’s and TT’s share price performances include the rising popularity of travel themes (like a winter vacation) and resilient New Year festival travel data. During the 2024 New Year’s holiday, Harbin’s tourism popularity soared by 240% yoy, according to Tongcheng Travel’s (TT) data, ranking fourth in the national destination tourism popularity list. It is expected that the local tourism craze will continue into the winter vacation and the Spring Festival holiday. According to TCOM, during the New Year’s Day period, the proportion of out-of-town visitors in Harbin was 75%, and the tourism order volume rose by 158% yoy during the three-day holiday.
- Overview of New Year travel data. According to the Ministry of Culture and Tourism (MCT), on 2 Jan 24, during the three-day New Year’s Day period, domestic tourist trips in China surged 155.3% yoy and grew 9.4% vs 2019 level to 135m. The domestic tourism revenue jumped 200.7% yoy and 5.6% vs 2019’s level to Rmb79.73b. The New Year’s Day holiday in 2024 has ignited consumers’ enthusiasm for travel and stimulated the vitality of the tourism market. TCOM’s domestic New Year’s Eve travel orders elevated by 168% yoy on its platform, and outbound travel orders soared by 388% yoy. Domestic flight bookings during the New Year’s Day holiday ramped up by 44% mom, and the average airfare was down 5% compared to the New Year’s Day holiday in 2023. (b) TT’s average airfare dropped 10-15% yoy, while train ticketing volume grew 20% yoy during the New Year’s Day holiday. Meanwhile, hotel ADR grew 10-15% yoy and inched up by low-single-digits vs 2019’s level.
- TCOM: Encouraging travel data despite low seasonality. In Dec 23, TCOM’s hotel ADR growth was in line with industry’s performance (-5% vs 2019), due to higher exposure to low tier cites. During end-Dec 23, overall industry hotel revenue growth was recorded at 12% growth vs 2019, compared with -7% at the beginning of Dec 23, and improved meaningfully from the October and November performances. Furthermore, along with China National Tourism Administration, TCOM provides the “China Travel Guide”, a comprehensive guide that provides inbound visitors to China with hotel, transport, payment and other travel-related information, serving nearly 100,000 overseas visitors since its launch in Sep 23. TCOM also partners e-payment service providers like Alipay to simplify payment for overseas visitors.
- For the upcoming Chinese New Year, the company is confident of travel growth and expects a similar trend to the October Golden week (+12% vs 2019) in travel revenue growth. According to Civil Aviation Administration of China (CAAC), outbound recovery is expected reach 71% of pre-pandemic levels during end-Jan 24, while TCOM outbound travel should recover to 90% by Dec 23.
STOCK IMPACT
- TT: The key beneficiary of strong domestic travel demand. On 11 Jan 24, TT released the “2024 Spring Festival Travel Trend Forecast Report” and indicated that Spring Festival tourism consumption market will be exceptionally vibrant. Based on TT, the search for flights departing from 8 Feb 24 to 17 Feb 24 has nearly doubled yoy. The search for international flights jumped 7x, surpassing 2019’s level. The most popular travel theme during the 2024 Spring Festival holiday is ice and snow tourism. Data from TT shows that the holiday tourism popularity in places like Harbin, Mohe, Baishan, and Yanji has all surged by over 100% yoy.
- Poised for strong recovery in outbound tourism…The total number of flights during the 2024 New Year’s Day holiday is expected to surge 85.5% yoy and grow 2.7% vs 2019 to 49,000. The search volume for 2024 Spring Festival outbound flight tickets on the TT platform and the consultation volume for packaged tour products have both exceeded 2019’s level. As of now, the popular outbound destinations for the Spring Festival are mainly concentrated in Southeast Asia. Countries such as Thailand and Malaysia, popular Southeast Asian destinations, currently have visa-free policies for Chinese tourists. In addition, the popularity of medium- to long-haul outbound destinations such as the United Arab Emirates and Australia has experienced significant growth.
- …and transportation ticketing demand during Spring Festival. During the 2024 Spring Festival holiday, the domestic air ticket booking volume jumped by 2.5x wow. According to Civil Aviation Travel Services platform “Travel Horizons” on 20 Dec 23, as of 19 Dec 23, the average price (excluding taxes) for domestic air tickets during the 2024 New Year holiday was about Rmb707, and the average price (excluding taxes) for international and domestic air tickets was about Rmb1,823. The booking volume for domestic air tickets during the 2024 Spring Festival holiday grew by 2.5x vs the previous week, and the booking volume for international and domestic air tickets during the Spring Festival holiday rose by about 2.3x vs the previous week.
- TT’s outlook: 4Q23 outlook remains solid. In view of the positive sentiment brought about by the domestic travel demand and travel consumption upgrade, TT’s top-line is estimated to grow 41-46% in 4Q23 compared with 2019’s level to Rmb2.76b-2.85b. The sequential moderation in revenue growth stems from low seasonality and normalised domestic travel demand. We forecast 4Q23/2024 revenue to grow 89%/22% yoy and 45%/92% vs 2019’s level. We estimate non-IFRS net profit in 4Q23/2024 at Rmb479m/Rmb2.5b, with net margin of 17%/18%. TT continues to adopt its low price strategy to capture the heightened travel demand and is confident of achieving revenue growth of 20% yoy. In addition, another important driver for TT is by seeking M&A with International Air Transport Association (IATA) qualified companies. In 2023, TT’s revenue proportion from international tourism accounted for 2%. This is guided at 5% in 2024 and 10% in the long term.
- TCOM’s outlook: Resilient 4Q23 growth momentum was anchored by better visibility of outbound travel and rapid growth of Trip.com. The outbound travel recovery pace in 4Q23 remains flattish sequentially from 3Q23, with the recovery in the industry’s outbound air flight capacity/TCOM’s air ticketing and hotel booking of outbound travel remaining at 50-55%/80% of pre-pandemic level respectively. According to management, TCOM’s revenue growth will outperform the industry with 60% yoy growth during normal days and 80-90% yoy growth during festive seasons. Although Southeast Asia countries involved in the visa-free policies for Chinese tourists merely account for 6% of Trip.com’s revenue, we believe the visa-free policies for Chinese tourists will be the key catalyst to drive the outbound travel capacity in the long term.
EARNING REVISION/RISK
- We raised TCOM’s non-GAAP net profit by 5%/5%, with higher overseas contribution which are benefitted from China visa waiver. We leave TT forecast largely unchanged.
VALUATION/RECOMMENDATION
- Maintain BUY on Trip.com (9961 HK) with a higher target price of HK$423.00 (US$54.00) as we ascribe 18x 2023-24F PE and 16x EV/EBITA respectively to the company’s accommodation+transportation ticketing and package tour+corporate travel segments respectively. TCOM is now trading at 15x PE against 19% EPS CAG, implying a 1.3x PEG. TCOM is our top pick in the OTA sector as it is the key proxy to benefit from the rebound in outbound travel and strong momentum in overseas travel by strategic implementation of promotion policies. Our target price implies 1.9x/1.2x 2023/24F PEG over the next three years, compared with 1.2x before the pandemic.
- Maintain BUY on Tongcheng Travel (780 HK) with an unchanged target price of HK$21.00, pegged to 22.8x 2024F PE. Our target price implies PEG of 1x against EPS CAGR of 22% from 2024-27. TT currently trades at 18x 12-month forward PE, 1SD below its historical mean of 26.5x. The company’s key catalysts include penetration into lower tier cities as well as resilient domestic tourism performance in the absence of overseas revenue.
SECTOR CATALYST AND RISK
- Sector catalysts: Strong macro recovery, continued penetration of OTA platforms into domestic offline and lower-tier cities travel markets
- Risks: Price war and competition may arise given growing market demand, and softer travel consumption spending power.
