Results for the 2nd quarter of 2024: Revenue of 12.8 billion yuan (RMB, same below), up 14% year over year, basically in line with our /Bloomberg market expectations, including +20% /transportation +1% /travel and vacation +42% /business travel +8%. Adjusted net profit increased 45% year over year to 5 billion yuan, with a net profit margin of 39%. Compared with 30% in the same period last year, it exceeded our/Bloomberg market expectations by 34%/39%. Thanks to scale effects, cross-selling optimization, increased share of high-margin businesses, and profits of associated companies exceeded expectations. Investment in marketing activities was maintained under market recovery. Adjusted marketing expenses increased 20% year over year, accounting for 22% of revenue. They were basically stable year over year, in line with our expectations.

Highlights of the 2nd quarter results: 1) Hotel bookings on the Chinese site increased 20% year-on-year, and the number of nights in the mainland increased by about 15%, 10 percentage points higher than the industry's growth. Market share continued to expand, thanks to improved user mentality and cross-sales efficiency. Mainland ADR is still under pressure, but as competition eases, the decline in the subsidy rate mitigates the pressure on ADR. 2) Outbound wine bookings have fully recovered to 2019 levels, leading the recovery rate of 70% + for overall international flights. Ticket prices are becoming normal, 5-10% higher than in 2019, with a slight increase over the previous month (summer). 3) Trip.com's revenue increased by ~ 70% year over year, contributing 10.5% of total revenue.

Outlook: We fine-tuned our revenue forecast and increased our 2024 adjusted net profit by 7% based on better-than-expected profit for the 2nd quarter. It is expected that ADR pressure will improve marginally in the second half of the year, the competitive environment will ease, and revenue growth in the mainland hotel business will recover from the second quarter. Mainland business revenue is expected to grow in single digits throughout the year, with outbound exports returning to 90% in 2019, and Trip.com maintaining rapid growth. The operating profit margin is expected to improve by 2 percentage points year-on-year in 2024. The increase in Trip.com investment in the second half of the year is expected to be offset by an increase in the efficiency of mainland business operations.

Valuation: Based on 20 times the 2024 price-earnings ratio, we maintain our target price of HK$509/$66 (TCOM US). Demand for mainland hotel reservations remains resilient. The pressure on ADR was partially offset by easing subsidies. The company's mainland hotel business growth was volume-driven, and the growth rate outperformed the market. As the high price base in 2023 is digested, healthy growth will resume in 2025. The outbound business still has ~ 20% growth potential in the medium to long term. The international business drives long-term revenue growth, the double-digit increase in the company's revenue is certain, and in a moderate competitive environment, the trend of improving operational efficiency continues to maintain purchases.