Incidents:

On November 19, 2024, the company announced its 2024Q3 financial report. Overall, it achieved net operating income of 15.9 billion yuan (YoY +16%), net profit to mother of 6.8 billion yuan (YoY +47%), and non-GAAP net profit to mother of 6 billion yuan (YoY +22%). Among them, transportation ticketing achieved net revenue of 5.7 billion yuan (YoY +5%), accommodation reservations achieved net revenue of 6.8 billion yuan (YoY +22%), travel and vacation achieved net revenue of 1.6 billion yuan (YoY +17%), and business travel management achieved net revenue of 0.66 billion yuan (YoY +11%).

Our point of view:

Overall performance: The company achieved rapid growth in net revenue and profit in 2024Q3, with impressive performance, mainly due to high consumer travel sentiment driving domestic and international travel to maintain a strong growth momentum, and the company's continuous optimization on the cost side. Along with the restoration of outbound travel over a long period of time, the company continues to improve the business layout on the global OTA platform and the combined application of AIGC in cultural tourism, which is expected to drive continuous growth.

Domestic business: Hotel reservations outperformed the industry's growth rate and continued to grow even after the National Day holiday.

2024Q3 China's tourism market has recovered significantly, with strong domestic and cross-border travel performance. According to the company's disclosure during the earnings conference call, during the National Day holiday, the number of travelers and travel bookings both exceeded pre-epidemic levels. Industry data after the National Day holiday showed that recently the hotel occupancy rate had exceeded the same period last year, and Ctrip remained higher than the industry's growth rate. The platform launched the “Ctrip Friends Club” to meet the travel needs of the elderly silver-haired user group. In the first three quarters of 2024, travel bookings for users aged 50 and above increased 26% year-on-year, exceeding that of other age groups. The year-on-year growth rate for users aged 61 to 65 reached 58% year-on-year. Of these, 70% of orders were directly booked by elderly users through the “Ctrip Friends Club” channel.

Outbound business: Outbound travel has maintained strong growth and continues to lead the recovery of the industry. In 2024Q3, the company's outbound hotel and air ticket reservations have fully recovered to 120% of the same period before the 2019 epidemic. According to the company's earnings call, the recovery rate exceeded the industry average by 40 percentage points, mainly driven by the expansion of the travel radius of users in high-tier cities and the increase in travel demand from users in low-tier cities; during the National Day holiday, travel bookings for users in fourth- and fifth-tier cities increased by more than 100% and 300%, respectively. In terms of destination distribution, Japan is still the first choice for Chinese tourists to leave the country, followed by other Asia-Pacific regions. Users' interest in long-distance destinations such as Europe, America, Oceania, and the Middle East has increased significantly. 2024Q3 outbound flight capacity has reached 80% of 2019 level, and 2024Q4 capacity has exceeded 80%. The 2024Q3 outbound travel and vacation business achieved three-digit year-on-year growth, driving the company's overall travel and vacation business revenue to increase 17% year over year.

Global OTA business: Trip.com's revenue continues to grow at a high level, and inbound travel performance is impressive. According to the company's earnings call, 2024Q3 Trip.com's revenue grew strongly year-on-year, accounting for 9% of the group's revenue. 1) Trip.com hotel and air ticket reservations increased by more than 60% year on year, with the Asia Pacific region accounting for more than 70%, corresponding to a year-on-year increase of more than 70% in hotel and air ticket reservations, which is higher than other regions; 2) With the increase in cross-sales ratio, 2024Q3 Trip.com's accommodation revenue accounts for more than 40%; 2) inbound travel increased significantly, and 2024Q3 inbound hotel bookings increased by about 100% year on year; 4) Continued focus on mobile investment, with 2024Q3 accounting for 65% of global mobile bookings - 70%

As a leader in the OTA industry, profit forecasting and investment rating companies continue to benefit from the release of domestic travel demand, the recovery of outbound travel, and the in-depth layout of the global OTA business, and superimposed continuous cost-side optimization and AI innovation. We adjusted the company's net operating income for 2024-2026 to 52.9/61.7/70 billion yuan, respectively, and net profit to mother to 16.9/17.2/19.4 billion yuan respectively. The corresponding diluted EPS was 26.0/26.3/29.7 yuan. The corresponding P/E is 18/18/16 times; we gave Ctrip Group a target market value of RMB 398.2 billion in 2025, corresponding to a target price of HK$626, maintaining a “buy” rating.

Risks suggest that immigration recovery and overseas layout fall short of expectations; domestic consumption recovery falls short of expectations; market competition intensifies and industry growth falls short of expectations; cost reduction and efficiency performance falls short of expectations; and application effects of AIGC in cultural tourism fall short of expectations.