We keep positive on TCOM’s solid recovery and long-term margin improvement, backed by its sizable users, well-established supply chain, high-tier cities exposure and powerful overseas network. We forecast its domestic business rev up 8% in FY21E (vs. FY19), driven by strong hotel momentum and deeper lower-tier cities penetration. For conservative estimates, we expect international segment still at low-single digit contribution in FY21E. We forecast TCOM to deliver 44% rev CAGR in FY20-22E, and non-GAAP OPM at 20% in FY22E. Initiate with BUY with SOTP-based TP of US$45.0.
- OTA leader with first-mover advantage. TCOM is the world’s largest OTA in terms of GMV in 2019, with well-established platform portfolio to cater to different user groups, including Ctrip, Qunar, Skyscanner. Backed by its sizable users, one-stop service offerings, strong supply chain and big data, we forecast TCOM to deliver 44% revenue CAGR during FY20-22E, thanks to solid domestic recovery, strong hotel momentum and user expansion.
- Riding on the solid domestic recovery. TCOM is well-positioned to capture domestic OTA recovery (forecasting domestic rev -10% YoY in 4Q20E), and we expect it to continuously strengthen its leadership. With right cutting into corporate travel, we see high visibility for TCOM to enjoy increasing high-end travel demand shifted from the outbound travel, especially for mid-/high-end hotel. We forecast its domestic business to grow 8% in FY21E (vs. FY19), amid super conservative overseas contribution estimates (2%). FY22E would see double-digit growth (vs. FY19) for domestic business, with overseas full recovery (vs. FY19). The competition landscape tends to normalize, and we expect TCOM’s powerful supply chain to build high barrier.
- 2021 priority on hotel momentum and low-tier cities penetration. Given muted overseas business, mgmt. put priority on domestic share gain in 2021, including lower-tier cities penetration and hotel recovery. TCOM will step up low-tier cities expansion by leveraging offline synergy. We expect hotel to be key driver in FY21E (forecasting domestic rev +50% YoY), with rising room nights and gradual ADR pick-up.
- Initiate with BUY. We set our SOTP-based TP at US$45.0 (implying 24.1x FY22E P/E), in line with industry average. Key market concerns lie in the domestic competition and overseas uncertainty, but have been well priced in, in our view. Further catalysts: 1) potential solid quarter result; 2) vaccine; 3) lower-tier cities penetration and 4) mid-/high-end hotels momentum.
