Trip.com Earnings: Continued Margin Expansion Is a Positive but We Await More Attractive Entry Point

We maintain our fair value estimate of USD 42.50 (HKD 339) for Trip.com after it reported better-than-expected second-quarter revenue of CNY 11.2 billion, which was 5% better than the Refinitiv consensus estimate. The company continued to expand its operating margin to 26.5%, an increase of 150 basis points sequentially, as previously expected, and we are encouraged that it believes 25%-30% operating margins can be maintained in the long term given industry consolidation and better per unit economics. We expect Trip.com to see further margin expansion and secular demand, given its international business that represents another catalyst for long-term growth—and which still hasn't yet returned to prepandemic levels. We believe it remains one of the few companies still seeing pent-up demand within the China internet sector but we also expect its recovery story to be priced in already, given only a 5% upside to our fair value estimate from the Sept. 1 closing price. However, if its share price pulls back, we suggest investors capitalize on more attractive entry points and accumulate a position for the long term.