Ctrip: Can Domestic Stability Be Maintained in 2024, and Can Overseas Take the Baton?

On the morning of February 22nd, the US stock market announced TRIP.COM-S's financial performance for the fourth quarter of the 23rd fiscal year after the market closed. In summary, the revenue basically met expectations, and the profit release was also good. Here are the key points:

This quarter, Trip.com's total revenue reached 10.3 billion yuan, a 124% increase compared to the same period in 2019, which is a slight decrease from the 131% growth during the summer season in the third quarter. There were no surprises compared to market expectations, confirming the market's judgment that travel demand has declined after the National Day.

In terms of the two main pillar businesses, ticket revenue for flights/trains was 118% of the same period in 2019, a significant decrease from the 144% in the previous quarter. Dolphin Research believes that this may be due to the earlier Chinese New Year in 2020 and the decrease in airfare prices during the fourth quarter.

Accommodation booking revenue was 3.9 billion yuan, 132% of the same period in 2019, a slight decrease from the 136% in the previous quarter, likely due to a decrease in occupancy rates and premiums.

In other businesses, unlike the relative decline in core domestic ticketing and hotel businesses, business travel services and advertising revenue continued to grow in the fourth quarter, reaching a new historical high, exceeding market expectations by 5% to 11%, which was a surprising result. However, due to their small revenue contribution, their impact on the company's overall revenue growth remains relatively limited.

Furthermore, the company's packaged tour products have not yet returned to the level of 2019. Dolphin Research speculates that this may be due to the increasing popularity of independent travel and the diversion of tourism products by platforms like Douyin and Meituan.

Regarding the improvement in operating leverage and profit, the gross profit margin declined slightly to 80.5% compared to over 82% in the first three quarters of this year, but it is still higher than in 2019. Dolphin Research believes that the decline in the gross profit margin in the fourth quarter may be due to a slight decrease in demand, leading to a decrease in airfare and hotel price premiums.

However, the reduction in operating expenses still helped Trip.com achieve impressive profits. Compared to overly aggressive expectations, the absolute amount of expenses in this quarter still decreased seasonally. Although the three expense ratios increased slightly compared to the previous quarter due to the seasonal decline in revenue scale, the overall expense ratio decreased by 13% compared to the same period in 2019.

Trip.com's operating profit margin this quarter (excluding equity incentives) reached 25.7%, slightly lower than the previous quarter but still higher than the 12% in the same period of 2019. Ultimately, achieving an operating profit of 2.6 billion yuan is still a remarkable performance, and the nearly 10 billion yuan in net profit for the year has also met market expectations.

Dolphin Research Viewpoint:

From the Earnings Report of Trip.com this quarter, the performance in terms of revenue and profit is generally in line with expectations ( the market's profit expectations were significantly underestimated ). Overall, there is a slight slowdown in revenue growth, but it is still in a high prosperity cycle; profits have also significantly increased compared to 2019, indicating a continuous improvement in profit margins. In other words, although there are no more significant surprises exceeding expectations, the company's performance is still in a good cycle of resonance in both revenue and profit.

Although the past four quarters' performance did not show significant deviations from expectations, the market is more concerned about the upcoming Spring Festival period and how the domestic and international travel industry will evolve throughout 2024. The key questions lie in whether domestic demand can maintain a high level of prosperity despite a slight decline, whether outbound travel and overseas business can continue to rapidly recover and grow, and whether the company's operating leverage and profit margins can further improve based on 2023. Attention will be on the management's explanations during the conference call.

In terms of valuation, Trip.com delivered a net profit attributable to the parent company of 99% for the full year 2023, corresponding to a current market PE ratio of 19x, which is neither expensive nor undervalued. The stock's future performance will mainly depend on the situation of revenue and profit growth.

I. Outbound Travel & Overseas Business for Future Growth

On the revenue side, Trip.com achieved a net income of 10.3 billion yuan this quarter, with a year-on-year growth rate higher than the previous quarter due to a lower base in the same period last year. However, compared to a 124% growth in the same period in 2019, the growth has slightly declined from the 131% during the summer season in the third quarter. This basically confirms the market's judgment of a slight decline in travel demand after the National Day holiday.

The two main pillars of revenue sources: 1) Ticket booking revenue such as flights and train tickets amounted to 4.1 billion yuan, which is 118% of the same period in 2019, showing a significant decrease in growth rate from the previous quarter (144%). Dolphin Research believes that this may be due to the earlier Chinese New Year in 2020 and the decline in airfare prices during the fourth quarter.

2) Accommodation booking revenue reached 3.9 billion yuan, 132% of the same period in 2019, showing a slight decline from the 136% in the previous quarter, likely due to a decrease in hotel occupancy rates and premiums.

In terms of business growth on the operational side, in the fourth quarter:

The amount of domestic hotel orders increased by 130% compared to the same period in 2022, with the growth rate compared to 2019 not disclosed by the company, presumably indicating a significant decline.

Outbound travel hotel and flight bookings have recovered to 80% of the same period in 2019, and the recovery is ongoing.
Meanwhile, the booking amount for pure overseas business (mainly Trip.com and Skyscanner) has increased by 70% year-on-year, with overseas business continuing to grow at a high double-digit rate.
Combining the two, domestic business remains in a high level of prosperity after the peak summer season, while outbound and pure overseas businesses are still experiencing rapid growth or recovery. The growth of overseas business in the future will be the main driving force for incremental growth.

II. Other Businesses: Business travel and advertising businesses are on the rise against the trend, a pleasant surprise

Apart from the two main pillars of business, Trip.com's other three businesses - packaged travel products, business travel, and primarily advertising-based businesses - are as follows:

In contrast to a slight decline in core domestic ticketing and hotel businesses, revenue from business travel services and advertising businesses continued to grow in the fourth quarter, reaching a new historical high. It also exceeded market expectations by 5% to 11%, continuing to rise against seasonal trends.

However, while domestic hotel and travel businesses are thriving, the company's packaged travel products have not yet returned to the level of 2019. Dolphin Research speculates that this may be due to the increasing proportion of independent travelers and the diversion of travel products by platforms such as Douyin and Meituan.

In summary, domestic ticketing and hotel revenue slightly declined in the fourth quarter, with actual revenue matching expectations, while business travel management and advertising revenue provided a small pleasant surprise by outperforming expectations.

III. Slight decrease in gross profit, but reduced expenses lead to impressive profit release

From a profitability perspective, firstly, the gross profit margin has slightly declined to 80.5% on a month-on-month basis, stepping down from over 82% in the first three quarters of this year. However, it is still slightly higher compared to the 79%+ platform in 2019. Dolphin Research believes that the slight decline in gross profit margin in the fourth quarter may be due to a slight decrease in demand, leading to a drop in premium prices for flights and hotels.

Although the gross profit margin has declined, the decrease in the three operating expenses still helped Trip.com deliver impressive profits. Initially, sellers expected further growth in research and development and marketing expenses in the fourth quarter (which was clearly a somewhat aggressive misjudgment given the decline in revenue on a month-on-month basis). However, in reality, the absolute amount of expenses still decreased on a month-on-month basis in line with seasonal effects.

From the perspective of the expense-to-income ratio, due to the seasonal decline in revenue scale, the ratio of the three expenses increased slightly on a month-on-month basis. However, the overall ratio decreased by 13 percentage points compared to the same period in 2019. Therefore, Trip.com's operating profit margin for this quarter (excluding equity incentives) still reached 25.7%, although it declined MoM, it is still higher than the 12% in the same period of 19. Ultimately achieving an operating profit of 2.6 billion, which is still a remarkable performance.

Dolphin Research's Previous Research on Trip.com

November 21, 2023, conference call "Trip.com: 15% Growth Next Year, Outbound & Overseas as the Driving Force"

November 21, 2023, financial report review "After the Violent Recovery, How Far Can Trip.com Go?"

September 5, 2023, conference call "Trip.com: Leisure Travel Trend Will Continue, Incremental Growth Overseas"

September 5, 2023, financial report review "Trip.com: Another Explosive Performance! Is it a Rainbow or a Long Rainbow After the Rain?"

June 8, 2023, conference call "Trip.com Minutes: 'Trends Remain Unchanged, Demand Recovery Still Strong'"

June 8, 2023, financial report review "Trip.com: Surviving the Great Difficulties, Good Fortune Will Follow"

March 8, 2023, conference call "Trip.com: Where is the Tourism Recovery Heading?"

March 8, 2023, financial report review "Trip.com's 'Spring' Has Finally Arrived, But Stock Prices Have Run Ahead Too Fast"

Risk Disclosure and Statement of this Article: Dolphin Research Disclaimer and General Disclosure