TCOM - Trip.com: Positives Priced In

Summary

• China's travel and tourism metrics for the Chinese New Year holiday were reasonably good.
• But the Chinese travel industry's recovery has already been reflected in TCOM's consensus financial figures and valuations.
• Positives are priced in for Trip.com, implying that a Hold rating for the stock is fair.

Elevator Pitch

I have a Hold rating assigned to Trip.com's ( TCOM ) [9961:HK] stock. My prior write-up for Trip.com published on December 7, 2022 touched on how China's reopening could affect TCOM's prospects.

With the current article, I discuss where TCOM's shares could be heading in the near term following Trip.com's recent share price outperformance. My view is that Trip.com's shares might trade sideways for a while, given that positives have been factored into TCOM's stock price and valuations. This explains my Hold rating for Trip.com

Chinese New Year Holiday Metrics Were Encouraging

The Chinese New Year Holiday took place between January 21 and January 27 this year, and data relating to tourism and travel activity in China were pretty good.

Based on data provided by China's Ministry of Culture and Tourism, the number of tourist trips in the country grew by +23% YoY from 251 million during the 2022 Chinese New Year festival to 308 million for this year's holiday period. It is necessary to highlight that tourism trip volume in China for the 2023 Chinese New Year Holiday was just -11% below what the country witnessed in the 2019 festive period prior to the COVID-19 outbreak.

In monetary terms, tourist revenue for China expanded by +30% YoY to RMB376 billion in the 2023 Chinese New Year period and this was -25% lower as compared to China's pre-pandemic tourism revenue generated during the 2019 Lunar New Year holiday.

Also, sales generated by travel agencies in China increased by +130% YoY for the 2023 Chinese Spring Festival as highlighted by the country's State Tax Administration. Notably, Chinese travel agencies' revenue for the Chinese New Year had already recovered to 81% of pre-COVID levels.

The National Immigration Administration in China revealed that the number of outbound trips and inbound trips for the country went up by +118% YoY and +123% YoY to 1.44 million and 1.43 million, respectively for the Chinese New Year period in late-January this year.

On January 31, 2023, TCOM issued a media release mentioning that its outbound flight and hotel bookings and attraction ticket bookings surged by +400% and +320%, respectively in YoY terms during the 2023 Spring Festival.

Change In Consensus Numbers And Positive Valuation Re-Rating

The sell-side analysts have raised their respective top line and bottom line projections for Trip.com in recent months, as recent industry and corporate data offer positive read-throughs for the company's outlook. TCOM's consensus fiscal 2024 revenue estimate was increased by +4% from RMB37,120 million as of late-September 2022 to RMB38,994 million now as per S&P Capital IQ data. During this same time frame, the consensus FY 2024 GAAP earnings per share for Trip.com was revised upwards by +14% from RMB7.95 to RMB9.10.

In the past three months, Trip.com's share price went up by +23.8% , which is way better than the S&P 500's +0.2% rise in the same time period. As a result of the good stock performance in recent months, the market currently values TCOM at 6.0 times price-to-sales based on S&P Capital IQ's valuation data. As a comparison, Trip.com's five-year and 10-year average price-to-sales valuation multiples were relatively lower at 4.6 times and 5.3 times, respectively.

In summary, the positive travel industry metrics for the Spring Festival are already incorporated into TCOM's consensus financial projections and its price-to-sales valuation metric.

Potential Competitive Threat From ByteDance In The Spotlight

China's leading food delivery company, Meituan ( MPNGF ) ( MPNGY ) [3690:HK] saw its Hong Kong-listed shares decline by -6.5% from HK$163.70 as of February 7, 2023 to HK$153.10 at the close of the February 8, 2023 trading day. Meituan's stock price fell significantly in early-February because of news relating to ByteDance's ( BDNCE ), best known as the company running TikTok (or Douyin in China), "expanding its food-delivery services to more Chinese cities" as reported by the Wall Street Journal .

A news article published earlier in Chinese state media Global Times on February 1, 2023 highlighted that "China’s largest video sharing platform Douyin" operated by ByteDance recently "launched an online e-commerce service" called Douyin Supermarket.

Recent developments should send alarm bells ringing for Chinese OTAs (Online Travel Agencies) such as Trip.com. ByteDance had previously tried to venture into China's OTA industry with a new platform referred to as "Mangosteen Travel" in 2021. While BDNCE's initial foray into the OTA space didn't work with "Mangosteen Travel" being taken offline in a few months, the company's recent moves suggest that ByteDance has huge ambitions to extend its reach to different business areas by leveraging on its existing user base.

With the travel market expected to witness a meaningful recovery and upswing in 2023 and beyond, it is reasonable to expect that ByteDance will have the intention to compete in the OTA sector in China again. The current sell-side analysts' consensus financial forecasts (source: S&P Capital IQ ) suggest that Trip.com's 2024 revenue should exceed pre-pandemic levels in 2019 by +9% in local currency terms. If ByteDance does successfully enter the OTA segment and gains meaningful market share, the expected timeline for TCOM's revenue recovery might possibly be pushed back.

Concluding Thoughts

My Hold rating for TCOM remains intact. Upside for Trip.com's stock is limited in my opinion, as its valuations have priced in the positives relating to recent travel and tourism data. In addition, there are downside risks for TCOM relating to a potential new entrant. As such, it is fair that a Hold rating is awarded to Trip.com.

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