Tongcheng Earnings: Raising Fair Value by 35% After Strong 2024 Guidance as Travel Remains Resilient

We increase our fair value estimate by 35% to HKD 23 from HKD 17 after Tongcheng Travel reported revenue of CNY 3.14 billion, which is in line with our estimate, but more importantly, guided to 2024 revenue that was better than our forecast. The strong guidance can be attributed to an expected 20%-25% year-on-year revenue increase for each transportation and accommodation business, which is faster than peers. The guidance is driven by higher average room rates and greater international demand. Tongcheng had about 5% revenue exposure to international travel prepandemic, but expects a 10%-15% increase year on year in 2024 given recent approval for visa-free travel to Southeast Asia and it forecasts international travel to account for 10% of revenue in three years. The firm isn't seeing a consumption downgrade currently and domestic and international travel has recovered to 80% and 70% of prepandemic levels, respectively, with further momentum expected. We're also encouraged by management’s more upbeat tone this quarter than previously due to greater visibility for 2024 demand. It is also guiding for a 30%-40% increase in other revenue, which includes hotel management services and business travel demand. Given the lack of a consumption downgrade by China’s travelers, we see companies such as Tongcheng or Trip.com as bright spots among China's macroeconomic headwinds.