Soochow: The rapid growth of inbound and outbound tourism, the prosperity of the domestic tourism base, and the continuous benefits of OTA platforms.

Soochow released a research report stating that residents' willingness to travel is high, and the continuous promulgation of policies is driving the continuous improvement of the cultural and tourism industry. OTA platforms will continue to benefit from the high growth of inbound and outbound tourism as well as the prosperity of domestic tourism. The stable pattern is conducive to maintaining the OTA platform's conversion rate. It is estimated that the overall traffic volume growth rate of OTA platforms will be in the range of 10-15% in 2024, with a transaction scale growth rate of around 15%; and in 2025, the traffic volume growth rate will be around 9%, with a transaction scale growth rate slightly higher than 10%. Main points of Soochow are as follows: Online Travel Agency (OTA) is an internet platform that aggregates travel resources and information comprehensively and connects them to end consumers from all angles. After more than 20 years of development, the transaction scale of China's online travel market has reached 1.1 trillion yuan, with a penetration rate of over 60%, and the competition structure has evolved to an oligopoly. Scale: In 2023, China's total tourism revenue is about 5.3 trillion yuan, recovering to 80% of 2019 levels, and still in a growth channel. OTA platforms deeply participate in various economic activities in the mainland tourism market in addition to shopping. Transportation booking: The transaction scale of domestic passenger transportation is about 1.4 trillion yuan, with railways and civil aviation accounting for over 70%. The online rate of traffic booking is about 54% calculated by transaction scale. Railway passenger traffic has a 10-year CAGR of 6.2%, with the resources led by China Railway Group, and the online ticket sales ratio being around 85%. Civil aviation passenger turnover has a 10-year CAGR of 6.2%, with high concentration of civil aviation companies, over 90% highly online. Upstream resources are dominated by state-owned enterprises and have to some extent carried out direct retail channel layout, forming a relatively low proportion of OTA platforms in the transportation part of the industrial chain value. Online traffic booking, as an essential part of residents' travel needs, means stable traffic sources and possible conversion of other travel categories for OTA platforms. Accommodation booking: In 2023, China's accommodation industry revenue scale is at the level of 800 billion yuan, with an annual night volume of nearly 3.5 billion and an online rate in the range of 30-40%. From the perspective of upstream concentration, the CR3 and CR5 of the hotel industry account for 15.7%/18.8% by room quantity, basically in a state of full competition, where OTA platforms have significant bargaining power. Looking at the current hotel industry structure in China, it is still in the middle stage of increasing chainization. We believe that the "endgame" chainization rate could be in the range of 60-70%. OTA platforms have a better flow pattern and will long-term occupy a bargaining power advantage in the accommodation booking sector. Tourism products booking: The scale of online tour group products in China in 2019/2023 was 489.7/263.1 billion yuan, and based on this estimation, the online rates in 2019/2023 were approximately 23%/30%. Post-pandemic, the proportion of residents booking tour group tours for leisure travel has decreased. Both the supply side of scenic spots/products and travel agencies have low concentration levels, with product and sales capabilities being key. Market pattern: The current flow pattern is already quite stable. The industry leader's advantage lies in resource accumulation and delivery capabilities, while other players focus on high-frequency payments or social media traffic. We believe that the stability of the competition pattern of OTA platforms is backed by the stable flow pattern of mobile internet applications. Taking Ctrip as an example to illustrate the development path of OTA platforms, the cross-flow and resource consolidation are common choices. We believe that with the influx of cash flow from mobile internet platforms, under the regulatory environment of merger and reorganization, the deepening layout of upstream resources will continue in an orderly manner. Investment recommendation: It is recommended to pay attention to TONGCHENGTRAVEL (00780), TRIP.COM-S (09961), and TRAVELSKY TECH (00696) and other related targets in the OTA industry sector. Risk warning: Macroeconomic recovery is less than expected, residents' willingness to travel decreases, geopolitical relations fluctuate, and market competition intensifies.