As a domestic OTA leader, Ctrip Group is significantly ahead of its peers in the supply chain, brand power, and operational capabilities, and has deep barriers to competition. With the accelerated recovery of international transportation capacity and the implementation of the visa-free policy since 24, May Day may become an inflection point for domestic outbound travel recovery. In the medium term, we are optimistic that domestic and outbound travel will continue to grow steadily as demand for leisure continues, and the leader Ctrip is expected to enjoy the dividends of the industry. In the long run, Trip.com has broad prospects in overseas markets. In the future, international business is expected to continue to contribute incrementally to the company's performance growth, and I would like to reiterate my strong recommendation.
The restoration of capacity and visa-free travel promoted the recovery of outbound travel, and Ctrip enjoyed industry dividends. Over the past 24 years, international flight capacity has recovered at an accelerated pace, and visa-free policies have been implemented one after another in Singapore and Thailand. In the short term, May Day may become an inflection point for outbound travel recovery. In the medium to long term, as consumer demand changes from product demand to experiential service demand after the pandemic, leisure demand can be expected to continue, and the scale of domestic and outbound travel is expected to grow steadily. As a leader in the OTA industry, Ctrip has deep barriers and is significantly ahead of its peers in the outbound supply chain, brand power, etc., and is expected to enjoy industry dividends in the long run.
The industry pattern is stabilizing and improving, and cost optimization drives the release of profits at an accelerated pace. In recent years, major OTA leaders have shared industry growth through misplaced competition. Consumer awareness of major brands deepened during the three years of the epidemic, and the industry pattern has remained relatively stable for a long time. Over the past 24 years, as Douyin and Meituan continue to compete in local life, and the profit margin of wine tourism is relatively low in the in-store sector, it is expected that wine tourism is not the core business of the two local lifestyle sectors. Looking at historical competition, Meituan and Douyin have relatively few layouts in the transportation sector, making it difficult to form cross-sales; Douyin shows high traffic but low conversion rates in the wine travel sector; and there is not much external competitive pressure from players such as Flying Pig. They are optimistic that the OTA industry pattern will further improve, and the market share of Ctrip and Tongcheng may continue to increase in the future. Furthermore, due to the strong desire of residents to travel, the formation of brand potential, and the improvement of the competitive landscape, Ctrip's sales expenses ratio was significantly optimized in '23, and profits are expected to be released at an accelerated pace.
The overseas OTA market has broad prospects, and the international business is expected to continue to contribute to increased performance. In its early years, the company deepened its global layout through mergers and acquisitions, and formed an international business composed of two major brands, the flight search engine Skyscanner and Ctrip's overseas version of Trip.com. In the future, Trip.com will become the core of the company's overseas development strategy. It has now achieved a broad layout in the Asia-Pacific region such as Hong Kong, Macao, Taiwan, and Singapore, and is expected to penetrate the Southeast Asian market. The size of the Asian online travel market exceeded 100 billion US dollars in 2019, and there is plenty of room for long-term growth. Considering Trip.com's broad prospects in the Asia-Pacific market, international business is expected to become the core driving force for the company's performance growth in the future.
Investment advice: It is recommended to focus on May Day holiday catalysis in the short term, focus on steady growth in the domestic and outbound travel market in the medium term to drive profit release. Looking at the broad space in overseas markets in the long term, I am optimistic that international business will drive long-term growth in the company's performance. The company's adjusted net profit for 24-26 is estimated to be RMB149/177/21 billion, with a target price of HK$471.5 based on 20 times PE over 24, maintaining the “Highly Recommended” rating.
Risk warning: repeated risk of the epidemic; risk of declining economic consumption; risk of travel policy changes; overseas business development falling short of expectations; geopolitical risk.