Matters:
Company announcement: Ctrip Group plans to sell US$1.3 billion of cash-settled convertible senior notes (US$200 million note option), which is expected to be completed on or around June 7. The notes have an annual interest rate of 0.75%, interest is paid every six months, and expires in June 2029. The initial conversion rate is 15.0462 American Depositary Shares for every $1,000 principal amount of notes, or approximately $66.46 per share, and the exercise period is the last 50 trading days before expiration.
Guoxin Social Service Opinions:
1. Note characteristics: 1) Unlike convertible bonds in the traditional sense, the principal amount of the bill is settled in cash, and some companies independently choose cash, stock conversion, or combination payment methods with excessive premiums, and the debt attributes are stronger. 2) The interest on this note is even lower, with an annual interest rate of 0.75%, lower than the interest rate on convertible bonds (1.99%) and exchangeable bonds (1.5%) previously issued by the company.
2. Impact analysis: 1) Stock capital dilution is manageable. Assuming that ① the principal amount is 1.5 billion US dollars, ② all holders of the exercise period transfer shares, ③ the company buys back 300 million US dollars at the stock price of $50.16, according to (conversion value - principal value) /share price at the time of share transfer = repurchase amount/repurchase price, we estimate that if the stock price during the conversion period is within 90 US dollars, the total share capital has basically not changed; if it exceeds 90 US dollars, the overall disturbance of the company's comprehensive cash payment method is also limited.
2) Optimize the financial structure of overseas funds. The company's overseas business accounted for only 13% in 2023, and RMB is expected to account for the majority of cash and equivalents. At the same time, the company's short-term and long-term debt at the end of 2023 was nearly 45 billion yuan. Previously, it had issued exchangeable and convertible US dollar bonds and some US dollar loans, etc., and is expected to have exposure to US dollar debt, and annual interest rates of more than 1%. Considering that the transaction cost of exchanging RMB for foreign exchange is relatively low, the company uses direct US dollar financing methods to help replace US dollar debts.
3) Helping Trip expand overseas. We estimate that in 2023, Trip.com will account for about 7% of total revenue. Combined with the company's public results, we expect to maintain medium double digit growth over the next 3-5 years. Our previous in-depth report analyzed that the broad path of Trip.com's broad market space in the Asian market is clear.
Referring to Euromonitor data, in 2023, the scale of online travel outside of Asia (excluding China) surpassed that of China. There is still room for an increase in online penetration compared to Europe and the US, and there are no players with a share of more than 20%. We estimate that in 2023, Trip.com's overseas market share in Asia is only a single digit. With Ctrip's historical accumulation of the outbound travel supply chain, one-stop app traffic guidance, and cost performance, it is expected to open up the market. Assuming that Trip Asia's overseas market share rises to 15-20% by 2026, it is expected to account for more than 10 billion dollars in revenue, and the profit margin outlook for the midline is also relatively positive under higher commission rates.
3. Investment advice: Overall, we analyzed that the issuance of this note helped optimize the company's overseas financial structure, help expand overseas business, and had a relatively limited impact on share capital dilution. We still maintained the company's 2024-2026 non-GAAP net profit of 155/187/22 billion yuan, and the corresponding dynamic PE was 16/14/12x. The company is a leading one-stop travel service provider at home and abroad, and is a comprehensive weather vane for increasing demand for leisure travel and online penetration.
The short-term upward marginal recovery in the outbound travel business is expected to partially hedge against the high base disturbances in the domestic travel business in the second and third quarter. At the same time, the company's profit margin center has risen markedly since last year, and the outbound business has helped structural improvements. Overall, the basic market business is expected to show greater performance certainty; the continuous expansion and verification of overseas Trip.com in the Asian market opens up a new growth cycle for the company and maintains a “superior to the market” rating.
4. Risk warning: macro-systemic risk, risk of consumption power recovery falling short of expectations, recovery of international flight capacity falling short of expectations, pace of overseas expansion falling short of expectations, risk of shareholder holdings reduction, geopolitical risk