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Trip.com (TCOM US) Company Update Summary

Core Content

This document provides an equity research update on Trip.com (TCOM US) from CMB International Securities, focusing on its financial performance in 4Q20, expected recovery in 2Q21, and future growth prospects. It includes earnings summaries, revenue breakdowns, valuation estimates, and peer comparisons to assess the company's performance and market position.

Main Points

4Q20 Performance

• Revenue: RMB5.0bn, a decline of 40.5% YoY
• Adj. Net Profit: RMB1.1bn, a decline of 10% YoY
• Margin Surprise: The company beat expectations on margins, driven by higher gross profit margin (GPM) and reduced sales and marketing (S&M) expenses.
• Hotel Performance: Hotel revenue declined 24% YoY (vs. estimate of 27%), but mid-to-high-end hotels showed double-digit growth in room nights.
• Transportation Ticketing: Declined 51% YoY, with potential pressure from the CNY holiday due to the pandemic.

2021 Outlook

• Domestic Recovery: Management remains confident about full domestic recovery in 2021, with a focus on content and value chain enhancement.
• Low-Tier Cities: Continued efforts to penetrate lower-tier cities through cross-selling, offline synergies, and enriched offerings.
• Revenue Forecast: Expected revenue decline of 39% QoQ in 1Q21E, followed by an 80% QoQ rebound in 2Q21E.
• Margin Volatility: Margins may be volatile in 1Q21E and FY21E, but non-GAAP OPM is expected to exceed 20% in the long run.

Investment Rationale

• Target Price: US$48, up from US$45, reflecting higher investment valuation.
• Catalysts:
  1. Vaccine progress and overseas recovery
  2. 2Q21E rebound
  3. Mid-to-high-end hotel momentum

Earnings Summary

Revenue Breakdown (4Q20)

Valuation

• SOTP Valuation: The total equity value is estimated at US$30,466.1m, with a price target of US$48.
• PE Ratio: FY22E P/E is 21.6x, which is lower than the consensus.
• PS Ratio: FY22E PS is 4.1x.
• Earnings Revision: CMBIS has revised its earnings estimates, slightly lowering the bottom line for FY21E and FY22E, but lifting the price target due to higher investment valuation.

Peer Comparison

Key Information

• Current Price: US$39.1
• Target Price: US$48 (+22.7% upside)
• Shareholding Structure:
  • T Rowe Price: 6.34%
  • Morgan Stanley: 5.49%
  • BlackRock: 3.53%
• Share Performance:
  • 1-month: 24.3% absolute, 26.6% relative
  • 3-months: 20.0% absolute, 10.9% relative
  • 6-months: 30.0% absolute, 17.3% relative
• Financial Highlights:
  • Gross profit margin improved in 4Q20
  • Adjusted net profit for FY21E is RMB1,917m
  • Management is confident about domestic recovery in 2021
  • Company is focusing on content, value chain, and low-tier cities to drive growth
• Valuation Approach:
  • SOTP-based valuation with a price target of US$48
  • Lower market expectations have created potential upside

Analyst Recommendations

• Rating: BUY
• Reasoning: Despite the pandemic impact, the company's performance in 4Q20 was in-line with revenue and showed margin improvement. The stock is undervalued with potential for recovery and growth in 2Q21E and beyond. The price target reflects a higher investment valuation, and the company is expected to benefit from vaccine progress and overseas recovery.

Conclusion

Trip.com is expected to recover from the pandemic impact in 2Q21E, with a rebound in revenue and improved margins. The company is focusing on strengthening its domestic market and expanding into low-tier cities. Despite a temporary decline in earnings, the stock is undervalued, and the price target of US$48 is justified by higher investment valuation and potential recovery catalysts. The company's performance in the hotel segment and its strategic initiatives position it well for future growth.