Thursday, June 13, 2024

China’s Travelers Are Coming Back in Good News for Trip.com – BNN Bloomberg

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(Bloomberg) — Chinese travel stocks have rallied as more tourists hit the road, and may get a further boost after bookings giant Trip.com Group Ltd. reports earnings on Tuesday.

Trip.com shares hit a record in Hong Kong on Friday, rising for a fifth day, and are up 58% this year. The company is uniquely positioned as both an “enabler and beneficiary” of inbound travel, according to Morgan Stanley analyst Alex Poon. Travel agent Tongcheng Travel Holdings Ltd. reached a new high a week ago.

“People’s overall spend has been relatively cautious because of the property sector, job losses and wage cuts,” said James Kenney, senior investment manager at Pictet Asset Management based in Hong Kong. Moving forward, “we’ll see a two-pronged improvement — numbers in terms of the volume will increase, but also people will spend more as they travel.”

Even as the country struggled and retail spending remained sluggish, travel picked up and is one of the stronger consumption categories, according to Morgan Stanley. Travelers made 28.2% more trips during the Labor Day holiday versus the pre-pandemic level in 2019, according to Bloomberg calculations from Ministry of Culture and Tourism data.

Read more: China Rebound Gets More Lopsided as Factories Hum, Shoppers Lag

The trend looks set to continue. Stronger outbound and inbound international travel is expected after Beijing in January said it has eased visa requirements for 11 countries since July 2023, and as foreign tourists once again warm up to the idea of China as a destination. 

“As people want to go back to China again, we think that will be a driver for travel,” Pictet’s Kenney said. Obvious beneficiaries are players like Trip.com’s Ctrip, “but it should help the hotel industry, restaurants and the services.”

The profitability of bookings overseas is about double domestic ones. Outbound travel numbers are back to 80% of the 2019 level during the Labor Day holiday and continuing to improve, said Kenney.

Trip.com itself is expected to report a 26% increase in revenue for the first quarter, according to data compiled by Bloomberg. Citigroup Inc. analyst Brian Gong expects the company to potentially beat market consensus as investors might have underestimated “decent outbound and international as well as margin improvement.”

Hotel groups including H World Group Ltd. will continue to rally too, said May Zhao, Hong Kong-based managing director at Zhongtai International Securities Ltd.’s research department.

Some categories still appear to be in trouble. Air carriers may struggle as the travel pickup is “partially being driven by declines in pricing as airlines add back capacity on major routes,” said Eric Zhu, Bloomberg Intelligence’s aviation analyst. Air China Ltd. and China Eastern Airlines Corp. in Hong Kong have both underperformed their benchmark year-to-date.

Stocks catering to high-end customers may also take longer to recover. Per-capita travel spending is still down 12% from 2019, according to the Ministry of Culture and Tourism data.

But the catalysts are there, especially with school holidays scheduled for July and August. 

According to a Bloomberg Intelligence survey conducted last month, the number of people indicating they intended to spend more on domestic trips in the next three months climbed nine percentage points to 59% from January, and surged 12 percentage points to 73% for international trips, analysts Angela HanLee and Rebecca Wang wrote.

©2024 Bloomberg L.P.

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