Intelligent Wealth APP learned that recently, top-level bullish policies have been frequently introduced, including supporting the development of ice and snow tourism + extending public holidays, among other significant measures. With the tourism economy as the starting point, the policy direction to promote consumption, expand domestic demand is discernible. The emerging strategic pillar position of the tourism industry is further clarified. In the new round of expansion cycle of the underlying supply, the destination service system, transportation network infrastructure, online booking/traffic channel, and other upstream and downstream links are constructing a new supply system to meet the diverse tourism consumption demands. According to Fliggy, the number of merchants and products participating in the "singles' day sales" event in 2024 hit a historical high, with enhanced trends in fragmentation, diversification, and cost-effectiveness. Looking ahead, with efficient two-way supply and demand matching combined with a relatively low base, Q4 fundamentals are expected to maintain a robust growth rate.

In 2024 Q3, top platforms continued their strong growth, with operational efficiency showing continuous improvement on a quarter-on-quarter basis.

Benefiting from the strong resilience of the tourism large caps and the penetration rate of online services, in 2024 Q3, Ctrip/tongcheng's core OTA business achieved revenues of 15.9/4 billion yuan respectively, with year-on-year growth rates of +16% / +21.6%. Operating profits reached 5/1.25 billion yuan, with year-on-year growth rates of +28.1% / +50.4%, corresponding to OPMs increasing by +3.1/+6 percentage points year-on-year.

Breakdown: Ctrip/tongcheng's lodging booking revenue both increased by 22% year-on-year, outpacing the overall growth rate of transportation ticketing. This is mainly due to the strengthened advantages of the platform's one-stop transportation traffic diversion, the continuous reinforcement of cross-selling strategies, and the significant improvement in ARPU. Meanwhile, amid mild competition in the domestic industry, platforms are flexibly adjusting subsidy levels, with monetization rates expected to stabilize and rise year-on-year. The platform's international business is advancing rapidly, consistently outperforming the industry. According to the earnings conference, Ctrip's outbound flight and hotel orders in 2024 Q3 have recovered to 120% of the 2019 level, while Trip.com's revenue growth exceeded 60%. In 2024 Q3, tongcheng's international flight and hotel orders grew by +110%/+130% year-on-year, with the expected proportion of annual revenue increasing to 5%. The platform's monetization strategy, marketing expenditure, and personnel expansion now focus more on balancing scale and efficiency, with all three cost rates of Ctrip/tongcheng narrowing year-on-year, leading to a continuous quarter-on-quarter increase in profitability.

Industry medium-term beta: Enjoying the structural dividends of population/ regional changes, online penetration is expected to continue evolving.

As of 2024 H1, China's online travel user penetration rate among internet users is 45.2%, up 3.1 percentage points year-on-year, still lower than online car-hailing (45.7%), food delivery (50.3%), online music (66.3%), etc. Comparatively, there is still room for improvement in online penetration rates. Open Source Securities stated that the earlier indication of the structural upgrading dividend of population/regional changes is the core support for the mid-term upward trend in online travel demand.

First, the tourist flow tends to concentrate on both ends of the age group (00s student group and high-end silver-haired group), with more optimistic consumption willingness and payment ability compared to other customer groups. The former drives the expansion of peak-season parent-child trips and study tours, while the latter supports the off-peak travel market. Second, China's unique urban-rural dual structure has nurtured a large sinking market, where lower-tier residents' upgrading demand for entertainment, travel, and other services is released. Data from various OTA platforms during the National Day holiday show a continuous increase in the share of orders from non-first-tier residents, indicating that the urban structural upgrade dividend is still evolving.

Through precise consumer insights, OTA platforms have responded to trends by designing and developing adaptive travel product combinations (introducing the 'Elderly Friends Club' brand in 2024, with orders from users aged 50 and above increasing by 26% year-on-year in the first three quarters; Tongchengtravel deepened its presence in scenarios for lower-tier residents' trips), gradually seizing new cyclical industrial opportunities and taking the lead.

Beneficiary symbols: Tongchengtravel (00780), Trip.com Group-S (09961).

Risk factors: Macroeconomic recovery falls short of expectations, empowerment of direct sales channels, intensified industry competition, etc.