Trip.com: Lowering Fair Value by 15% As China Travel Recovery Is Likely Running Out of Steam

We lower our fair value estimate for Trip.com 09961 by 15% to USD 36 (HKD 290) from USD 42.50 (HKD 339), due to our view that the recovery for travel demand may be fizzling out. We estimate that both ground and air transportation are at significantly lower-than-expected levels and believe that weakness during Golden Week 2023 is likely an inflection point for the deceleration of travel demand. There appears to be a significant decline in the number of travelers compared with 2019, which could signal some upcoming weakness for the fourth quarter. We believe this could linger into 2024 and beyond and could also disrupt margin expansion progress. Therefore, we lowered our revenue in 2024 by 7% to CNY 51.2 billion, based on the reduction of accommodation revenue estimates by 11% and transportation estimates by 3% next year. While long-term revenue would still gradually grow, we take a much less bullish stance in the near term in terms of its growth trajectory, given the recent Golden Week data.

According to China’s Civil Aviation Administration the cumulative number of air travelers as of the fifth day during Golden Week 2023 increased 196% year on year, but only 10.73% compared with 2019. The number of flights increased by 114.7% year on year, but only by 2.45% versus 2019. We also estimate that the cumulative traffic flow for China’s main highways was 49.7% higher year on year, but 38% below 2019 levels.

More importantly, the daily average number of travelers for Golden Week 2023 is only 55.91 million compared with 87.13 million in 2019, which, in our opinion, may contradict the increase in air traffic flow data. We believe there could be some restatement of historical numbers that makes the traffic flow comparison to 2019 seem inflated. But even with restated numbers, the reported improvement is still below our expectations of a 40% increase relative to 2019 numbers—and low compared with the 33% increase in air traffic during the weeklong Labor Day holiday in May.