While OP level is mostly in-line, TCOM’s 2Q25 non-GAAP NP of RMB5.011bn (+1% YoY) is 14% above our estimate, which showed TCOM’s gain from its strategic investments and initiatives. Even with industry figures somewhat softening, and more competitors waging subsidy wars, we expect TCOM’s market position would remain unchallenged in major markets in 3Q25, and it should support its continuous investment on Trip.com to expand in new overseas market for 2H25. TCOM also announced a US$5bn shares repurchase plan after a big realised gain from the share sale of MakeMyTrip, which we expect could be a strong boost to the valuation in the near term. We reiterate BUY with a higher TP of US$80.9/HK$630 as we turn more positive on TCOM’s monetisation strategy.
　　Key Factors for Rating
　　2Q25 beat on NP level while OP mostly in-line. While 2Q25 revenue/non- GAAP OP YoY growth of 16%/10% are mostly in-line with our expectations, non- GAAP NP of RMB5.011bn (+1% YoY) was 14%/15% above our estimates / consensus, which reflects: (1) TCOM’s accounting gain from its public equities holdings, and (2) a rather robust subsidy income & incentives from the Chinese government and overseas tourism authorities. For its core business, 2Q25 performance suggests TCOM’s spending is still on track with its planning, without being affected by weaker momentum in Chinese domestic flight volume, hotel RevPAR, and also a seemingly worse competitive environment in both China and international OTA scenes.
　　The US$5bn buybacks scheme could be supportive to valuation. On 16 Jun 2025, TCOM announced that it would sell a portion of the shareholding of Indian OTA MakeMyTrip (MMYT US, NR). TCOM’s holdings is now reduced to 16.9% after the transaction was completed in July 2025. We estimate the gain by TCOM is around US$1.7bn, or RMB12bn, and this could be reflected in 3Q25 earnings. With such gain, TCOM announced a US$5bn share repurchase programme. While there is no concrete timeline for such buyback, we believe this is a strong positive signal, as US$5bn is equivalent to 11.6% of its market cap as of 28 Aug 2025, and we expect TCOM would also remain committed to its original dividend plan, a strong boost to shareholder return, Competitions not shaking the position of TCOM. While there are concerns that other internet players could take more market share from TCOM, TCOM was in fact not shaken by these initiatives, as the product offerings by the peers focus more on price level. TCOM is now differentiating itself with more dedicated products, such as travel products for retired, senior travelers, and also inbound travel. Hence, we do not expect TCOM would need to engage in price war in 2025, as seen in other internet service areas.
　　Some room for expenses control despite industry headwinds. We expect TCOM would continue to record low-mid teens revenue growth for 3Q/4Q25 as this could be driven by teens-level outbound travel and c.4-50% YoY growth from Trip.com. While we see there could be risks that TCOM’s 4Q25 may see more earnings pressure due to higher contribution from the loss-making Trip.com as it enters the peak season, we believe the impact would be manageable, as the competitive environment for international OTA remains relatively benign. As Trip.com platform continues to gain traction in APAC region with market share gain, this should allow some room for TCOM to revise its budget in 2H25, and allows more OP to be generated, in our view.
　　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 adjust our FY25E non-GAAP net profit slightly by -1.3%, but lift our FY26/27E forecasts by 3-4% as we turn more positive on Trip.com’s progress in overseas and expect less financial drag.
　　ADR: Our target price of US$80.9 is based on SOTP and a USD/RMB rate of 7.15 (previous: 7.30). 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 27x/23x non-GAAP 2025/26E diluted EPS.
　　H-share: Our target price of HK$630 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 27x/23x non- GAAP 2025/26E diluted EPS.
　　Our DCF is based on the following key assumptions: (1) WACC of 10.9% (previous: 11.5%), and (2) terminal growth rate of 3.0% (previous: 4.5%).