To The Moon

$Trip.com Group Limited(TCOM)$ 

Trip.com's 2Q23 results exceeded expectations, with total revenue up 180% year-on-year to RMB11.2 billion! Adjusted EBITDA was RMB3.5 billion. All businesses saw strong growth, thanks to continued strong domestic travel demand and a recovery in outbound travel. Both the domestic and outbound travel segments exhibited strong growth, with revenues reaching 150% and 50% of their 2019 levels respectively. Most importantly, there is no indication of a decline in travel activity!

Domestic travel exceeded 2019 level!

Accommodation revenue surged 216% year-on-year to Rmb4.3 billion, surpassing 2019 figures by an impressive 26%, while transportation revenue saw a remarkable increase of 173% year-on-year to Rmb4.8 billion, 41% higher than the 2019 level. This exceptional growth was fuelled by robust domestic demand and the ongoing recovery in outbound travel.

Domestic travel not only exceeded 2019 levels but also showcased impressive statistics in specific segments. Hotel bookings, for instance, were 70% higher than those in 2019, and air ticketing reached 80% of the 2019 level. Outbound travel also made significant progress, reaching 60% of the 2019 level, surpassing the industry's average of around 40%. The Civil Aviation Administration of China has projected that flight capacity in China will reach 60-65% of the 2019 level in the second half of the year. Global revenue recorded triple-digit growth when compared to 2019 figures.

Package tour and corporate travel demand recovery on the way!

Furthermore, package tours experienced a notable rebound, and corporate travel showed signs of recovery as well.

Package tour revenue surged 491% year-on-year to Rmb722 million, equivalent to 70% of the revenue achieved in 2019. While domestic package tours fully rebounded, the performance of outbound package tours remained relatively subdued. However, it is worth noting that government-approved group tours expanded to cover 138 destinations, which is expected to provide a significant boost to outbound travel in the near future.

Corporate travel also witnessed substantial growth, with a 178% year-on-year increase to Rmb584 million. This figure exceeded 2019 levels by a remarkable 89%, driven by a doubling in air ticketing revenue and a fivefold increase in hotel bookings compared to 2019. While corporate travel remains sensitive to macroeconomic factors, corporations are adopting a more cautious approach to managing their travel budgets, leading to a surge in Trip.com's corporate travel clientele.

Operating Margin Leverage kicks in!

Adjusted EBIT recorded RMB3.5 billion, accompanied by a record-breaking margin of 30.9% which is a substantial increase of 27.5 percentage points compared to the previous year and a notable 2.4 percentage points increase quarter-over-quarter. While the gross margin remained stable quarter-over-quarter at 82.2%, there was a further 2.5 percentage points decline in the operating expense (opex) ratio. Outbound travel demonstrated the ability to command high margins due to its higher Average Daily Rate (ADR) and longer duration of stays, despite incurring similar operational costs as domestic travel.

Conclusion: Likely to outperform again in 3Q23

The extended national holiday in September/October 2023 during this period is likely to significantly boost leisure travel demand, further contributing to the growth of domestic travel. Furthermore, management have guided that performance for Accommodation and Air Ticketing Industry is strong during the summer vacation. I have confidence that Trip.com will outshine the competition due to its unique position as a midrange to high-end Online Travel Agency (OTA).

@Daily_Discussion @TigerStars