Initiating Tongcheng, HKD 21 FVE; Strong Ties, Low Market Saturation, but Low Monetization a Worry

We are initiating coverage of no-moat Tongcheng Travel with a fair value estimate of HKD 21 based on expectations that revenue modestly increases in the near term due to further easing of traveling restrictions in China. The slight valuation upside to the market value as at the close of trading on Jan. 5 reflects our optimism that travel will become normalized long-term, but we believe upside may be limited given the company lacks major catalysts that could propel the stock to trade at higher multiples in the long term. Our fair value implies 24.5 times P/E forward multiple on 2024 earnings, which is similar to its prepandemic 2019 P/E forward multiple of 25 times. With the recent runup in China travel stock valuations, we believe there is now less upside, but any pullbacks to Tongcheng's share price could be an attractive entry for moderate risk/reward.