Guotai Junan International maintains a "buy" rating on TRIP.COM-S (09961) with a promising future performance outlook.

Guo Zheng International released a research report stating that it maintains a "buy" rating on TRIP.COM-S (09961). The 3Q25 performance slightly exceeded expectations, with net income increasing by 16% year-on-year to 18.4 billion yuan, and the operating profit margin remaining stable at 30%. Outbound and international business showed strong growth, with outbound business recovering to 140% of pre-pandemic levels and maintaining growth of over 60%, while inbound tourism doubled year-on-year. Key points from Guo Zheng International: 3rd quarter performance slightly exceeded expectations Net income was 184 billion yuan, a 16% year-on-year increase, slightly exceeding the bank/market expectations of 2%/1%. Accommodation bookings increased by 14% year-on-year, while transportation ticket revenue increased by 9% year-on-year, accounting for 44% and 34% of total revenue, contributing 51% and 27% to the net revenue increase. Gross profit increased by 15% year-on-year, with a gross profit margin of 82%, remaining stable year-on-year and quarter-on-quarter. Operating profit was 5.6 billion yuan, an 11% year-on-year increase, surpassing the bank/market expectations of 4%/5%, with the operating profit margin increasing to 30%. Adjusted net profit attributable to shareholders was 19.2 billion yuan, compared to the market's expectation of 5.6 billion yuan, mainly reflecting investment income from the disposal of overseas MakeMyTrip. Operating data 1) Domestic: The year-on-year decline in hotel ADR and air ticket prices in Q3 narrowed to single digits. For comparison, according to data from the Ministry of Culture and Tourism, domestic tourism revenue/visits increased by 5%/13% year-on-year in Q3, while average spending per person decreased by 7% (compared to decreases of 6%/3% in Q1/Q2). 2) Outbound: Outbound hotel and air ticket bookings increased by 20% year-on-year, compared to a 40% increase over 3Q19, outperforming international civil aviation passenger volume, which increased by 7% over 3Q19 (CAAC data). 3) International: International OTA hotel and air ticket booking volume maintained year-on-year growth of over 60%, with the Asia-Pacific market still the largest market. 4) Inbound tourism: Inbound tourism bookings increased by more than 100% year-on-year. 5) TripGenie now covers over 200 countries, with user size doubling year-on-year. Financial forecasts and valuation According to company disclosure, during the National Day holiday, outbound tourism hotel and air ticket bookings increased by 30% year-on-year, with Europe showing impressive growth, long-distance orders increasing in proportion, and hotel ADR remaining stable; inbound tourism bookings increased by more than 100%. The bank expects total revenue to increase by 16% year-on-year in the 4th quarter, with accommodation bookings/transportation bookings increasing by 15%/12% year-on-year. The bank forecasts total revenue to increase by 14% year-on-year in 2026, with adjusted net profit estimated at 20.8 billion yuan and a profit margin of 29.6%. The bank is optimistic about the company's long-term profit margin surpassing 30%, mainly considering the release of supply advantages and improvements in the profitability of overseas businesses. The bank has adjusted its valuation benchmark to 2026, considering historical valuation, valuation comparisons with peers, leading positions in Trip.com Group Ltd. Sponsored ADR shares, giving a valuation of 20 times the 2026 P/E ratio, raising the target price to 693 Hong Kong dollars (9961.HK)/89 US dollars (TCOM.US), up from the previous value of 659 Hong Kong dollars (9961.HK)/84 US dollars (TCOM.US). The company is currently increasing investment in AI and overseas markets while maintaining good investment ROI and financial discipline. Domestic business, consumer expectations are the most important factor affecting performance, with differentiated business layout for new players, currently having limited impact on the performance of Trip.com Group Ltd. Sponsored ADR; the trend of revenue expansion and profit improvement in international business remains unchanged. TripGenie is expected to improve user service, enhance user stickiness, and have potential to reduce costs and increase efficiency. Maintain a buy rating. Risk Warning Weak consumer spending affecting travel expenditure; International business progress falling short of expectations; Extreme weather affecting travel.