Raising Trip.com FVE to USD 36; Recovery of International Revenue Remains Key to Further Valuation

While we raise our fair value estimate to USD 36 (HKD 287) from USD 31 (HKD 249) for Trip.com on more robust travel demand recovery assumptions, we think the shares are already fairly valued. We think the market is already baking in an optimistic recovery as: 1) international travel, which will be Trip.com’s main valuation driver, is unlikely to fully recover until 2024; 2) domestic travel in China during COVID-19 lockdowns was already relatively high compared to international travel as hotel occupancy rates were 86% of 2019 levels in the third quarter of 2022, according to industry data, which may imply a smaller magnitude of rebound for domestic revenue; and 3) recovery may be hindered by capacity constraints. PitchBook consensus estimates indicate that Trip.com is currently trading on a 2023 forward P/E multiple of 36 times and 2024 P/E of 22 times. This is already comparable to the prepandemic 2019 P/E of 24 times. Our current base-case forecast already assumes that Trip.com will hit a record high net profit of CNY 6.3 billion in 2024 on an operating margin of 24.3% that is well above 2019’s 14.3%.