Strong travel demand drives tourism market
- Trip.com reported 4Q23 revenue of Rmb10.3bn (+105% yoy, -25% qoq), largely in line with our expectation, thanks to strong travel demand.
- Non-GAAP net income was Rmb2.7bn in 4Q23 (+437% yoy, -45% qoq), beating our expectation, owing to better GPM expansion and expense control.
- We expect the strong travel momentum to last through 1Q24F and FY24F and forecast revenue and non-GAAP NP to grow by 17% yoy and 6% yoy, respectively, in FY24F.
- Reiterate Add, with a higher DCF-based TP of HK$480, as we believe Trip.com would continue to benefit from the recovery in outbound travel demand in FY24F.
4Q23 topline largely in line
4Q23 accommodation revenue rose 131% yoy to Rmb3.9bn (32% higher than 4Q19), and transportation revenue was up 86% yoy to Rmb4.1bn (18% more than 4Q19). 4Q23 domestic hotel and air reservations continued to outpace pre-Covid levels. Outbound hotel and air reservations have recovered to c.80% of 4Q19’s level, higher than the industry’s 60% of recovery vs. 4Q19’s level, driven by the strong travel demand in the APAC regions and favourable visa-free policies. Hotel booking revenue on its overseas platform (Trip.com) continued to deliver triple-digit yoy growth in 4Q23. Packaged tour revenue was up 329% yoy in 4Q23 to Rmb704m (recovered to 88% of 4Q19); domestic packaged tour revenue fully recovered, but outbound package tours are still lagging due to flight capacity constraints. 4Q23 corporate travel revenue was up 129% yoy to Rmb634m (70% higher than 4Q19). The company’s domestic revenue delivered over 40% growth in FY23 vs. FY19, and outbound revenue was back to c.50% of FY19’s level, with better recovery in 2H23 (i.e. back to 60-70% of 2H19’s level). The company’s domestic hotel and ticketing revenue grew by 60% and 50% yoy during the Spring Festival (10-17 Feb 24).
4Q23 bottomline beat our expectation
GPM expanded by 4.4% pts yoy (-1.5% pts qoq) to 80.5% in 4Q23, driven mainly by favourable revenue mix and higher ticket prices. Management said it remained disciplined with opex in 4Q23, leading to a non-GAAP net margin of 25.9% (+16% pts yoy, -9.7% pts qoq). For 1Q24F, we expect revenue to maintain a solid growth momentum of 27% yoy, factoring in the strong travel momentum during the Spring Festival, but potentially offset by the high base in Feb/Mar 23 post-reopening. We forecast the marketing expenses ratio to largely remain stable qoq but increase yoy in 1Q24F, deriving a non-GAAP OPM of 27% (+1.4% pts qoq, but -1.5% pts yoy).
Overseas travel expected to be the growth driver for FY24F
Management said in an analyst call that it noted strong outbound travel during 2024’s Spring Festival. Singapore, Malaysia and Thailand delivered revenue growth of 30% vs. during 2019’s Spring Festival, while travel revenue from HK, Macau and Japan also surpassed 2019’s level. For FY24F, management expects strong outbound travel demand to be the main topline growth driver. The company’s overall outbound revenue has recovered to 2019’s level during the Spring Festival, and we expect it to fully recover in FY24F. Management guided that its global platforms, Trip.com and Skyscanner, should deliver over 50% and mid-teen yoy revenue growth, respectively, in FY24F. In the next 3- 5 years, we expect the Trip.com platform to contribute c.20% of total revenue (from 7% in FY23, 9-10% in 4Q23) through business expansion in more regions, and the Trip.com platform to breakeven through better operating leverage in the next three years.
Reiterate Add, with a higher DCF-based TP of HK$480
We raise our non-GAAP NP forecasts for FY24-25F by 9.6-12% and introduce FY26F forecasts to reflect higher operating profit, resulting in a higher DCF-based TP of HK$480 (WACC: 10.1%, beta: 1.2, TG: 3%). We reiterate Add, as we believe the company will continue to benefit from strong travel demand and improved efficiency with its recently launched AI tools. Key re-rating catalyst: stronger outbound travel recovery. Key downside risks: 1) weaker travel demand recovery, and 2) higher marketing expenses.
