- Mizuho analyst James Lee reiterated a Buy rating on the shares of Trip.com Group Ltd TCOM and raised the price target from $45 to $49.
- The analyst said that quarter to date, domestic air travel has recovered to 80% of FY19 levels and hotel RevPar has returned to pre-pandemic levels.
- Outbound travel also started to recover, but flight volume is currently 15% to 20% compared to pre-pandemic.
- The analyst expects the flight capacity to reach 50% by June and 70% to 80% by year-end.
- Q4 operating income was better than expectations due to strong controls in opex. The analyst noted that total expenses grew only 2% while revenues grew 8% YoY.
- For FY23, the analyst expects the operating margin to expand 12 percentage points to 19%, or $6.4 billion operating income, compared to the consensus of $4.2 billion.
- The analyst believes the outsize beat is attributed to outbound travel, which represents 25% of revenues pre-COVID but half of the operating profits.
- With pent-up demand for travel, the analyst has increased confidence in outbound travel with less irrational competition and an optimized cost structure driving FY24E revenue forecast up about 20% above FY19 levels.
- Q4 results came in above expectations despite facing rising COVID-19 cases, said the analyst.
- Heading into FY23, the analyst anticipates a faster rebound in domestic China travel, followed by a meaningful recovery in outbound in the second half.
- Price Action: TCOM shares are trading lower by 2.04% at $36.77 on the last check Wednesday.
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