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

Leading Chinese online travel agency <a href="https://www.smartkarma.com/entities/trip-com-group-ltd" target="_blank" data-smartkarma-citation="entities:180:1" rel="noopener">Trip.com (TCOM US)</a> will report Q220 (June) results after the US markets close this Thursday, September 24th (Friday morning Hong Kong time).
In this note we talk about what to expect in the Q2 numbers and ask whether Trip.com can match or beat its own downbeat guidance, which the company issued in late May. 
To answer that question, we look at what other companies and organizations in the Chinese travel sector have already reported about Q2 demand. For now we retain our Hold rating on Trip.com.

Leading Chinese online travel agency Trip.com (TCOM US) will report Q220 (June) results after the US markets close this Thursday, September 24th (Friday morning Hong Kong time).
In this note we talk about what to expect in the Q2 numbers and ask whether Trip.com can match or beat its own downbeat guidance, which the company issued in late May. 
To answer that question, we look at what other companies and organizations in the Chinese travel sector have already reported about Q2 demand. For now we retain our Hold rating on Trip.com.

Can Trip.com Meet (Or Beat) Its Own Downbeat Revenue Guidance? Q220 Earnings Preview

Quality-first, Business-perspective Strategy, Urbem (HK) Limited

Steven Chen

Quality-first, Business-perspective Strategy

Thematic (Sector/Industry)

<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

Tongcheng Travel Holdings  / Equity Bottom-Up

Not surprisingly, online travel agency (OTA) <a href="https://www.smartkarma.com/entities/tongcheng-elong-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27363:1" rel="noopener">Tongcheng-Elong Holdings Ltd (780 HK)</a> reported substantial YoY declines in revenue and earnings in Q220, though market conditions and results were better than in Q120, when Covid19 and the government's response brought travel to a halt.
Tongcheng-ELong's revenue mix has changed as a result of the pandemic, in both positive and negative ways. While it's positive to see increased revenue from advertising and continued strength in its position in smaller cities, we believe the cessation of international travel hurts profitability. In addition, high fixed operating expenses also hit earnings in the second quarter.
As domestic travel normalized in the months following the peak of the pandemic in China, Tongcheng-ELong's shares have rallied by over 60%. Given the moderating pace of the recovery in Chinese travel demand, and stubbornly high operating expenses, we do not expect Tongcheng-ELong's earnings to suddenly 'snap back' in H220.

Not surprisingly, online travel agency (OTA) Tongcheng-Elong Holdings Ltd (780 HK) reported substantial YoY declines in revenue and earnings in Q220, though market conditions and results were better than in Q120, when Covid19 and the government's response brought travel to a halt.
Tongcheng-ELong's revenue mix has changed as a result of the pandemic, in both positive and negative ways. While it's positive to see increased revenue from advertising and continued strength in its position in smaller cities, we believe the cessation of international travel hurts profitability. In addition, high fixed operating expenses also hit earnings in the second quarter.
As domestic travel normalized in the months following the peak of the pandemic in China, Tongcheng-ELong's shares have rallied by over 60%. Given the moderating pace of the recovery in Chinese travel demand, and stubbornly high operating expenses, we do not expect Tongcheng-ELong's earnings to suddenly 'snap back' in H220.

Tongcheng-ELong (780 HK) Q2 Results Reflect Changing Travel Patterns, Stubbornly High OpEx

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/156/498/original/BANNER-TOURISM.png?1598998817" class="editor-image img-responsive" data-smartkarma-image-id="156498"></figure>
Chinese outbound travel remained stagnant in July. We will watch closely to see if relaxed travel restrictions in a few markets result in a surge in outbound travel activity. 
Meanwhile, Chinese domestic travel demand continued to recover in July, though activity remains far below 2019 levels. There is evidence consumers are opting for cheaper modes of travel, and this appears to benefit rail, highway, and Low Cost (air) Carriers. 
Given the July numbers and our admitedly pessimistic outlook, it's difficult to get excited about shares of most Chinese travel service providers. We remain negative on Trip.com but think stocks of hotel chain Huazhu Group and the LCCs could outperform peers in the near-term.


Chinese outbound travel remained stagnant in July. We will watch closely to see if relaxed travel restrictions in a few markets result in a surge in outbound travel activity. 
Meanwhile, Chinese domestic travel demand continued to recover in July, though activity remains far below 2019 levels. There is evidence consumers are opting for cheaper modes of travel, and this appears to benefit rail, highway, and Low Cost (air) Carriers. 
Given the July numbers and our admitedly pessimistic outlook, it's difficult to get excited about shares of most Chinese travel service providers. We remain negative on Trip.com but think stocks of hotel chain Huazhu Group and the LCCs could outperform peers in the near-term. 

TRACKING TRAFFIC/Chinese Tourism: Outbound Still Stagnant | Domestic Rebound Suggests Wary Consumer

Meituan-Dianping's headline Q2 numbers (out Friday August 21st) looked good, with reported Operating Profit rising 96% YoY on Covid19-hit Revenue growth of just 9%. These numbers suggest extremely strong operating leverage in the period.
However, adjusting Q2 OP for non-cash and non-recurring items reveals lackluster operating leverage for the entity as a whole.
Besides analyzing the company's operating leverage, we also identified several unusual items and trends in the period, some of them positive, some negative. 
Finally, we identify three areas to watch in coming quarters. We believe these areas will largely determine the pace of earnings growth over the next few quarters.

Meituan-Dianping's headline Q2 numbers (out Friday August 21st) looked good, with reported Operating Profit rising 96% YoY on Covid19-hit Revenue growth of just 9%. These numbers suggest extremely strong operating leverage in the period.
However, adjusting Q2 OP for non-cash and non-recurring items reveals lackluster operating leverage for the entity as a whole.
Besides analyzing the company's operating leverage, we also identified several unusual items and trends in the period, some of them positive, some negative. 
Finally, we identify three areas to watch in coming quarters. We believe these areas will largely determine the pace of earnings growth over the next few quarters. 

Meituan-Dianping: Cleaning up Q2 Results Reveals Lackluster Operating Leverage, Other Challenges

China

Spring Airlines Co., Ltd. offers air transportation services. The Company provides domestic air transportation, international air transportation, cargo transportation, and other services. Spring Airlines also offers ticket home delivery, insurance transaction, and other services.

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Spring Airlines (601021 CH)

Can Trip.com Meet (Or Beat) Its Own Downbeat Revenue Guidance? Q220 Earnings Preview

Leading Chinese online travel agency Trip.com (TCOM US) will report Q2

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...

Steven Chen

Tongcheng-ELong (780 HK) Q2 Results Reflect Changing Travel Patterns, Stubbornly High OpEx

point 1 point 2 point 3 conclusions

Tracking Traffic

TRACKING TRAFFIC/Chinese Tourism: Outbound Still Stagnant | Domestic Rebound Suggests Wary Consumer

Chinese outbound travel remained stagnant in July. We will watch closely to see if relaxed travel restrictions in a few markets result in a surge...

Tracking Traffic

Meituan-Dianping: Cleaning up Q2 Results Reveals Lackluster Operating Leverage, Other Challenges

Meituan-Dianping's headline Q2 numbers (out Friday August 21st) looked good, with reported Operating Profit rising 96% YoY on Covid19-hit Revenue...

Tracking Traffic

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