Tongcheng Earnings: Greater Scale Should Benefit Margin Expansion but Demand Uncertain in 2024

We maintain our fair value estimate of HKD 17 for Tongcheng Travel after third-quarter revenue of CNY 3.3 billion was 5% above our estimate and represented a 60% increase year on year, but was offset by demand uncertainty and lack of visibility into 2024 amid commentary from Tongcheng’s peers. Hotel bookings increased 70% while transportation saw 47% revenue growth, compared with same-period 2019 levels. Tongcheng expects next quarter's revenue to increase 45% compared with fourth-quarter 2019—we forecast this to be driven by a 66% increase in hotel bookings compared with the same period in 2019. However, we expect air and ground transportation gross merchandise volume, or GMV, to only grow 10%-15% and flat, respectively, compared with the fourth quarter of 2019. We are slightly concerned as to whether moderation in GMV growth represents an inflection point where pent-up demand is fizzling out.