On November 19, Ctrip Group released its 2024 Q3 financial report. During the reporting period, it achieved operating income of 15.9 billion yuan/ +15.6%, and achieved NON-GAAP net profit of 5.96 billion yuan/ +21.8%. Revenue was in line with expectations, and operating performance exceeded market expectations. In the medium to long term, with the restoration of outbound travel and the gradual improvement of the company's overseas layout, Trip.com and Skyscanner are expected to become the driving force for the company's revenue growth. It is recommended to focus on the company's outbound travel restoration process and overseas market expansion, and maintain a “highly recommended” rating.

Revenue growth was steady, moderate and positive, and operating performance exceeded market expectations. During the reporting period, the company achieved operating revenue of 15.9 billion yuan/ +15.6%. As domestic demand for summer leisure tourism continued to be released in Q3, outbound travel was accelerated, and trip.com continued its high growth trend, the revenue side was basically in line with expectations. By business type, the company achieved revenue of 68.0/5.65/1.56/0.66 billion yuan respectively, with year-on-year changes of +21.7%/+5.3%/+17.3%/+11.0%, respectively. 24Q3 achieved NON-GAAP net profit of 5.96 billions/ +21.8%, exceeding market expectations (Bloomberg's estimate of 4.77 billion yuan), mainly due to improved profitability and other revenue (return on investment) growth.

Gross margin increased slightly, and the cost side was significantly optimized. The company's consolidated gross margin during the reporting period was 82.4% /+0.3pct. The 2024Q3 company's cost rate for the period was 50.8% /-2.8pct, of which the R&D/sales/management expenses ratio was 22.9%/21.3%/6.6%, respectively, with year-on-year changes of -3.1 pct/+1.2pct/-0.9 pct. During the reporting period, the company's non-GAAP net profit margin was 37.6% /+1.9pct. Profitability improved significantly, mainly due to revenue growth and slight cost optimization.

Outbound machine wine reservations exceeded 120% in the same period in 2019, and international OTA platform reservations in Q3 increased by more than 60% year over year.

Thanks to the strong recovery of outbound travel and the rapid growth of trip.com, 24Q3 outbound hotel and air ticket reservations have fully recovered to 120% in the same period before the pandemic in 2019. Hotel and air ticket reservations on international OTA platforms have increased by more than 60% year over year, and the recovery of outbound reservations is significantly better than the recovery of international flight capacity (estimated to be about 80%).

Investment advice: Since Q4, as the domestic hotel industry gradually enters a low base and the increase in commission rates due to the elimination of the impact of single tickets in the transportation business, the continuous restoration of international capacity, and the continuous increase in marketing investment in overseas markets, I am optimistic that the company's Q4 revenue side will continue to grow at a high level. In the long run, with the restoration of outbound travel and the gradual improvement of the company's overseas layout, Trip.com and Skyscanner are expected to become the driving force for the company's revenue growth. It is recommended to focus on the company's outbound travel repair process and overseas market expansion. The company is expected to achieve an adjusted net profit of 17.6/20.4/23.6 billion yuan in 24-26, giving a target price of HK$653.5 for 20 times PE over 25 years, maintaining the “Highly Recommended” rating.

Risk warning: repeated global epidemics; risk of declining economic consumption; risk of changes in travel policies.