Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Equity Bottom-Up

<ul>
<li>Strong top-line growth in Q126, but also margin compression due to rising OpEx</li>
<li>For Q2, Trip.com guided slower revenue growth and concomitant margin impacts</li>
<li>An antitrust investigation into Trip.com appears to be undermining growth trajectory</li>
</ul>


Strong top-line growth in Q126, but also margin compression due to rising OpEx
For Q2, Trip.com guided slower revenue growth and concomitant margin impacts
An antitrust investigation into Trip.com appears to be undermining growth trajectory


Trip.com Q126 Results | Strong Top-Line, Lower Margins | Ongoing Investigation To Hit Growth in Q226

Thematic (Sector/Industry)

Before Covid19 shut down outbound Chinese tourism in 2020, there were the mass protests in Hong Kong, which sharply reduced Mainland visits to its largest outbound destination in 2019.Before the Hong Kong protests, there was a drowning incident in Thailand in 2018 that killed dozens of Chinese visitors and sharply reduced travel to another top outbound destination. And before the Phuket accident came political disputes with Taiwan, Korea, and Japan, all of which temporarily reduced Chinese tourist visits to these important regional destinations. Taken together, these disruptions have undermined outbound Chinese travel demand and added to volatility.And what about Chinese domestic travel demand?Pre-Covid19, domestic tourism growth was flagging, and though it's been less volatile than outbound demand, Chinese domestic travel certainly has not been immune to demand shocks either (viruses, the partial displacement of air travel by high speed rail, etc.).We simply don't think investing in the growth of Chinese tourism is the "no-brainer" that many market participants seem to think it is. Between moderating growth rates and a series of external demand shocks, there have been few periods of sustained strong (10%+) demand growth in recent years. In our view, Chinese tourism can no longer be viewed as a growth industry.

Before Covid19 shut down outbound Chinese tourism in 2020, there were the mass protests in Hong Kong, which sharply reduced Mainland visits to its largest outbound destination in 2019.Before the Hong Kong protests, there was a drowning incident in Thailand in 2018 that killed dozens of Chinese visitors and sharply reduced travel to another top outbound destination. And before the Phuket accident came political disputes with Taiwan, Korea, and Japan, all of which temporarily reduced Chinese tourist visits to these important regional destinations. Taken together, these disruptions have undermined outbound Chinese travel demand and added to volatility.And what about Chinese domestic travel demand?Pre-Covid19, domestic tourism growth was flagging, and though it's been less volatile than outbound demand, Chinese domestic travel certainly has not been immune to demand shocks either (viruses, the partial displacement of air travel by high speed rail, etc.).We simply don't think investing in the growth of Chinese tourism is the "no-brainer" that many market participants seem to think it is. Between moderating growth rates and a series of external demand shocks, there have been few periods of sustained strong (10%+) demand growth in recent years. In our view, Chinese tourism can no longer be viewed as a growth industry.  

Is Chinese Tourism Really a 'Growth' Industry?

Investment Advisors, JL Warren Capital

Junheng Li

Investment Advisors

JL Warren Capital

JL Warren Capital LLC is a leading independent equity research firm focused on Chinese companies and listed multinationals in China. We employ a bottom-up research approach that takes great care to avoid the acquisition of material non-public information. Through investigative due diligence including channel surveys and interviews, our research helps clients to pinpoint the dislocations in the market.

<div>With only 40+ days left before the Presidential Election in the U.S, China is wisely taking a laissez faire approach to the bilateral issues and conflicts, waiting Trump out until after November. However, Beijing understands the White House’s targeting at China enjoys bipartisan support at this moment, one of the few exceptions of today’s politics in the U.S.</div>

With only 40+ days left before the Presidential Election in the U.S, China is wisely taking a laissez faire approach to the bilateral issues and conflicts, waiting Trump out until after November. However, Beijing understands the White House’s targeting at China enjoys bipartisan support at this moment, one of the few exceptions of today’s politics in the U.S.

Air activity around the region appeared to improve on Friday, October 2nd, with departures from the nine airports we track rising to their highest level since we began monitoring data for this report (early April). As has been the case for the past six months, Mainland Chinese airports continue to lead the recovery, with other origins reporting only modest improvement, if any. 
Weighted average room rates in the cities we track remained well above Spring and Summer lows, but fell by 3% compared to a month ago. This is not surprising; despite the improvement in travel activity over the past few months, we doubt many hotels have regained substantial pricing power. 
Overall, the data we collected this week appears to confirm existing trends: Chinese domestic travel activity continues to improve, but regional activity remains far below year-ago levels. Pure Chinese domestic plays, whether transport or hotels, should continue to recover ahead of names exposed to cross-border travel, which still faces a multitude of Covid19-related restrictions.

Air activity around the region appeared to improve on Friday, October 2nd, with departures from the nine airports we track rising to their highest level since we began monitoring data for this report (early April). As has been the case for the past six months, Mainland Chinese airports continue to lead the recovery, with other origins reporting only modest improvement, if any. 
Weighted average room rates in the cities we track remained well above Spring and Summer lows, but fell by 3% compared to a month ago. This is not surprising; despite the improvement in travel activity over the past few months, we doubt many hotels have regained substantial pricing power. 
Overall, the data we collected this week appears to confirm existing trends: Chinese domestic travel activity continues to improve, but regional activity remains far below year-ago levels. Pure Chinese domestic plays, whether transport or hotels, should continue to recover ahead of names exposed to cross-border travel, which still faces a multitude of Covid19-related restrictions.

TRACKING TRAFFIC's Travel Tracker Dashboard (October 2): Air Activity Improves | Room Rates Stagnate

Quality-first, Business-perspective, Long-term, Urbem (HK) Limited

Urbem Capital

Quality-first, Business-perspective, Long-term

<ul>
<li>China can be the first market to recover its travel industry post the pandemic;</li>
<li>We scan the industry in the search for decent-quality, decent-yield opportunities;</li>
<li>We limit ourselves to the widest-moat assets, which leaves us only two options in this market.</li>
</ul>


China can be the first market to recover its travel industry post the pandemic;
We scan the industry in the search for decent-quality, decent-yield opportunities;
We limit ourselves to the widest-moat assets, which leaves us only two options in this market.


Valuation Check-Up: Wide-Moat Assets Poised for China's Travel Recovery

China

Air China is the flag carrier airline of the People's Republic of China, primarily providing air passenger and air cargo services, including both domestic and international flights. The company also offers a range of airline-related services such as aircraft engineering and airport ground handling. It was founded in 1988 and is headquartered in Beijing, People's Republic of China.

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Air China (753 HK)

Trip.com Q126 Results | Strong Top-Line, Lower Margins | Ongoing Investigation To Hit Growth in Q226

Q126 saw strong revenue growth and some margin erosion. More importantly, weak Q226 guidance appears to highlight the heavy impact an ongoing...

Tracking Traffic

Is Chinese Tourism Really a 'Growth' Industry?

The effects of the Covid19 pandemic aside, we believe strong (10%+) growth in underlying Chinese tourism demand is becoming more elusive.

Tracking Traffic

China Macro and Geopolitical Briefing

With only 40+ days left before the Presidential Election in the U.S, China is wisely taking a laissez faire approach to the bilateral issues and...

JL Warren Capital

TRACKING TRAFFIC's Travel Tracker Dashboard (October 2): Air Activity Improves | Room Rates Stagnate

what happened of note? air activity in china and elsewhere hotel room rates conclusions

Tracking Traffic

Valuation Check-Up: Wide-Moat Assets Poised for China's Travel Recovery

China is hopeful of being the first market to recover its travel industry post the pandemic. Therefore, we are interested in scanning the industry...

Urbem Capital

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