Mizuho analyst James Lee reiterated a Buy rating on the shares of Trip.com Group Ltd
The company's Q2 FY23 revenues rose 180% Y/Y to RMB11.2 billion, led by a travel market recovery. Adjusted EPS per ADS of $0.70 beat the consensus estimate of $0.50.
Air bookings in China grew 30% above the 2019 level versus 10% for the industry, driven by increased passenger travel volume, said the analyst.
Despite the soft macro, the company did not see consumers trading down into lower hotel categories or shorter stays. But consumer spending is shifting from products to services due to cautious sentiment, added the analyst.
Outbound has been a key driver, with hotel bookings having recovered to 60% of 2019 level, improved from 40% in 1Q23, remarked the analyst.
Keeping in mind that fewer than 10% of Chinese consumers hold a passport, the analyst believes the outbound opportunity has a long runway. Also, with outbound as a tailwind, the analyst expects FY23 revenue to fully recover and grow 23% vs. FY19, compared to the analyst's prior estimate of 20%.
With the strong results, the analyst has increased confidence in outbound travel, less-irrational domestic competition, and optimized cost structure and thus hiked FY24E revenue forecast up around 40% above FY19 levels.
The analyst increased FY24E EBITDA by 8% to RMB12.2 billion and introduced FY25E EBITDA at RMB13.4 billion.
Heading into 3Q, the analyst expects improving trends in domestic China to be sustained and outbound to further recover by year-end.
Price Action: TCOM shares are trading lower by 5.93% at $37.98 on the last check Tuesday.
