Although 4Q24 revenue and non-GAAP OP beat our estimates by 3%/5%, TCOM has slightly disappointed the market by only announcing dividends of US$200m, or US$0.3/RMB2.2 per share. The payout ratio is less than 10%, while the dividend yield at current market price is only 0.5%. We understand that the dividend payout is partly constrained by the expansion of international platform Trip.com, which is still in the stage of fast expansion and high investments with forex. With reference to this dividend policy, we now expect TCOM may incur more expenses in 2025 to grab more market share overseas and we trim our estimates on margins accordingly. We believe these signals may weigh on valuation in the near term, but we maintain BUY as we expect the near- term correction could provide some entry points.
　　Key Factors for Rating
　　4Q24 a slight beat. 4Q24 revenue/non-GAAP OP were up 24%/4% YoY to RMB12,768m/RMB2,760m respectively, above market estimates. Such results have demonstrated an all-round resilience of its business segments such as accommodation and transportation. While the growth of non-GAAP OP may seem low, we believe this is already expected, not a major concern as 4Q23 was a rather high base and still benefitted from pent-up demand. After all, we still see 4Q24 a solid quarter after travel pattern and industry spending normalised.
　　Underwhelming shareholder return plan disappointed investors. TCOM announced the 2025 capital return policy: (i) share buybacks for US$400m, and (ii) ordinary cash dividends of US$200m for FY24. We view the plan has fallen short of market expectations, given a payout ratio of only 8%. While the total capital return plan of US$600m or c.RMB4,380m is approximately 30% of FY24 NP, we still believe this is not enough to satisfy investors, given the strong balance sheet with a net cash of RMB11,526m already. To put into perspective, FY24 has been the first year that TCOM achieved a net cash position. Hence, with a rather stable outlook for 2025, we view this capital return plan prudent, but we understand the payout is also constrained by the availability of offshore cash, which is partly dragged by its international platform Trip.com.
　　Trip.com being a double-edged sword and could weigh on valuation. We expect the revenue of Trip.com platform would continue to grow by >50% in 2025, after a strong 2024 (>70% YoY, accounting for 10% revenue already). However, in view of the prudent capital return plan, we expect TCOM would continue to dedicate more resources to taking market share, and given that Trip.com is still operating at losses in many regions, this could be margin dilutive if the revenue contribution of this platform hits around 15%. Hence, we slash our non-GAAP OP forecast by 9-10% for 2025E-27E on a prudent assumption.
　　Some headwinds in near-term outlook but not a big deal. During the Chinese New Year (CNY) holiday, TCOM continued to enjoy growth for all its segments, with this descending order: inbound travel> pure international business (Trip.com) > outbound travel > domestic travel. While volume growth is encouraging, the ASP of its products offered, such as domestic flight tickets, has seen some decline as flight capacity continues to normalise. However, we still expect overall 1Q25 revenue growth to be intact at 16% as we expect volume growth could partly offset the drag from ASP.
Limited impact from fewer trips to Thailand. Given Chinese tourists’ concern on the security of Thailand, travel bookings to Thailand have seen some decline in 1Q25, but TCOM still recorded 20-30% YoY increase in their booking during CNY holiday. We hence expect travellers simply switch their destinations, and have limited impact to TCOM’s outbound travel segment.
　　Key Risks for Rating
　　Downside risks include: (1) weak recovery of tourism, especially outbound; (2) policies on outbound travels may tighten unexpectedly; (3) keen competition from direct booking platforms; (4) higher spending to defend market share, and (5) lower-than-expected share buybacks and dividends.
　　Valuation
　　We cut our FY25E-27E non-GAAP net profit by 8-10% to reflect higher expenses incurred by Trip.com platform.
ADR: Our target price of US$66.0 is based on SOTP and a USD/RMB rate of 7.30 (previous: 7.20). We use DCF to derive the value of the core business first, followed by the public investments held by the company. Our TP is equivalent to 21x/19x non-GAAP 2025/26E diluted EPS.
H-share: Our target price of HK$513 is based on SOTP and a USD/HKD rate of 7.78. We use DCF to derive the value of the core business first, followed by the public investments held by the company. Our TP is equivalent to 21x/19x non- GAAP 2025/26E diluted EPS.
Our DCF is based on the following key assumptions: (1) WACC of 11.8%, and (2) terminal growth rate of 4.5%.