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Trip.Com Sees Clearer Skies Ahead - But Investors Already Knew That

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By Doug Young

Investor fatigue was successful nan aerial successful Hong Kong and New York connected Tuesday, arsenic shares of starring Chinese recreation supplier Trip.com Group Ltd. (NASDAQ:TCOM; 9961.HK) grounded to get much assistance aft its latest quarterly report referred to bully times up arsenic China and nan remainder of nan world put nan pandemic down them. Truth beryllium told, nan deficiency of enthusiasm feels a spot for illustration a lawsuit of “the boy who cried wolf,” since recreation stocks person rallied galore times complete past 3 years whenever it looked for illustration pandemic restrictions were being scrapped.

We thin to judge that, this time, nan extremity of Covid has really yet arrived, arsenic astir Asian countries reopened their borders successful nan mediate of past year, and China became nan past to subordinate nan crowd pinch nan charismatic ditching of its “zero Covid” argumentation successful early December. Still, group person predicted rebounds before, only to scrap those forecasts later erstwhile nan pandemic resurged.

The China numbers during nan caller Lunar New Year vacation nicely summarize what’s now happening successful Trip.com’s location China market, which still accounts for up to 85% of its business. Chinese made 1.6 cardinal rider trips during this year’s 40-day vacation play that ran from Jan. 7 to Feb. 15, up 51% from nan erstwhile twelvemonth and nan highest level since nan pandemic began, according to authorities data.

Still, nan latest fig was only astir half nan 3 cardinal trips for nan aforesaid play of 2019, nan past twelvemonth earlier nan pandemic, showing things are still acold from backmost to normal.

Trip.com’s U.S.-listed shares roseate by 1.8% successful after-hours waste and acquisition aft it issued its latest report. Its Hong Kong shares performed similarly, opening unchanged earlier creeping up gradually to station a 1.6% summation midway done nan greeting session. But nary 1 should consciousness excessively sorry for shareholders of this company, since nan banal is up 8% truthful acold this twelvemonth and has doubled complete nan past 52 weeks connected nan benignant of hopes for a beardown rebound that we antecedently referenced.

Analysts polled by Yahoo Finance expect Trip.com’s gross to jump astir 50% this twelvemonth to astir $4.3 billion, while nan company’s profit is expected to leap astir 10-fold to $1.06 per American depository stock (ADS). But we should besides statement nan institution reported gross of $5.2 cardinal and net of $1.66 per ADS successful 2019 earlier nan pandemic, showing nan institution still has a agelong measurement to spell to return to its pre-pandemic business levels.

In fact, nan company’s latest study didn’t talk nan roadworthy up successful awesome detail, astir apt because it has tried to make specified forecasts galore times successful nan past, only to person to revise them sharply erstwhile things quickly changed.

“During nan 4th quarter, nan European and nan U.S. markets made further advancement towards normalcy, while nan Asia marketplace was quickly picking up nan pace,” Chairman James Liang said successful remarks contained successful nan latest report. “We person seen accelerated maturation for China’s outbound recreation since nan opening of 2023, showing a beardown pent-up request for outbound travel.”

Rough road

Like astir companies successful nan recreation business, Trip.com has had a unsmooth clip complete nan past 3 years. Its gross tumbled by half successful 2020, nan first twelvemonth of nan pandemic, arsenic China unopen down astir home recreation successful nan first half of nan year, and slashed world flights entering and leaving nan country, nether its zero Covid argumentation that was taking shape.

The company’s gross recovered somewhat successful 2021 arsenic things stabilized, though nan 10% maturation that twelvemonth came disconnected a very debased base. The recently released yearly fig of 20 cardinal yuan ($2.9 billion) for 2022 was level from nan erstwhile year.

While yearly maturation was flat, nan trends were acold choppier successful nan 4th quarter, arsenic China tried to stamp retired nan latest Covid flareups done galore lockdowns successful October and November earlier yet throwing successful nan towel successful early December. The company’s wide gross really grew 7% year-on-year to 5 cardinal yuan for nan latest quarter. But astir of that was owed to a large summation successful aerial summons bookings extracurricular China, mostly successful Asia, arsenic travelers successful those precocious reopened markets engaged successful “revenge spending.”

But gross from its halfway edifice gross business – which is traditionally nan biggest portion of its pastry and relies heavy connected home travelers – really fell 12% year-on-year to 1.7 cardinal yuan during nan quarter. Revenue from ticketing, its different awesome income source, roseate by 45% year-on-year during nan 4th to 2.2 cardinal yuan owed to surging request from non-Chinese travelers.

Trip.com besides drew attraction to world travel, which is expected to roar this twelvemonth arsenic China allows its citizens to resume world recreation aft a three-year pause. It said its outbound aerial bookings jumped 200% year-on-year during nan 4th quarter. Outbound edifice bookings roseate by 140%, though we should statement that year-ago figures were astir apt some highly low.

The bottommost statement was that Trip.com reported a nett profit for nan quarter, reversing a year-ago loss. On a non-GAAP basis, which excludes non-cash items for illustration employee-related banal incentives, nan institution posted a 498 cardinal yuan profit for nan latest quarter, up from a 309 cardinal yuan profit a twelvemonth earlier. And arsenic we’ve antecedently noted, nan profits are expected to turn sharply this year.

From a valuation perspective, Trip.com is still nan prime of nan litter among some home and world recreation stocks, reflecting its market-leading position successful China and besides its increasing world exposure. Its banal now trades astatine a price-to-earnings (P/E) ratio of 36, based connected profit forecasts for this year. That’s up of guardant P/E multiples of astir 22 for home peers Tongcheng (0780.HK) (OTCPK:TNGCF) and Fosun Tourism (1992.HK) (OTCPK:FSNGF), and triple nan 12 for U.S. elephantine Expedia (EXPE).

While nan manufacture trends are intelligibly positive, nan image is simply a spot muddier for investors trying to determine if there’s immoderate upside near successful these stocks. There’s almost definite to beryllium tons of hype erstwhile Trip.com announces its first post-pandemic study successful 3 months. But that said, its existent P/E ratio looks rather high, meaning astir of nan post-pandemic hype is astir apt already priced into nan shares.

Disclosure: None.

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