TCOM’s 3Q25 earnings beat market expectations as revenue and non-GAAP OP increased by 16%/12% YoY respectively, reflecting its goodprogress of getting more traffic flow in both domestic market andoverseas market (via Trip.com). In 4Q25 so far, despite recentmacroeconomic softness, TCOM still recorded decent growth in its keymarkets, and we expect the stable competitive landscape in Chinacould allow TCOM to focus on its overseas growth. While the recenttension between China and Japan may have some impacts on theoutbound business, the experience from reduced travels to Thailandby Chinese citizens suggested limited impacts on TCOM’s earnings. We reiterate BUY with higher TP of US$82/HK$638.
Key Factors for Rating
3Q25 beat on both operations and investment gains. TCOM’s 3Q25revenue and non-GAAP operating profit increased by 16%/12% to RMB18,367mand RMB6,134m respectively. The non-GAAP OP beat our expectations byaround mid-single digit, reflecting TCOM’s strong sales in both domestic andoverseas markets coupled with disciplined cost control. Non-GAAP net profitjumped 221% YoY to RMB19,156m, as TCOM recorded 856% YoY increase inits other income to RMB17,032m, after recording disposal gain fromMakemytrip (MMYT US, NR) amounted to be >RMB12bn as per our estimates. Excluding this, TCOM still managed to have a decent 3Q25 as it defiedexpectations that travel demand may slow in China while fast-growing Trip.complatform could impact its margin and drag earnings.
Still positive on China travel demand after encouraging 4Q25 signs. Although macroeconomic figures turned softer in 4Q25, TCOM witnessed traveldemand in China remained strong during the national holiday in October, wherethey recorded >30% YoY growth in outbound hotel and air tickets volume. Wesee this could be sustained for the rest of 4Q25, despite recent tension betweenChina and Japan. We expect travel demand would be redirected elsewhere aftercancelled trips to Japan, as this situation resembles reduced travel demand toThailand in 1H25 after safety incidents related to Chinese citizens. Hence, weexpect TCOM would still record mid-teens growth for its outbound travel in 4Q.
Trip.com remained a strong driver to grab market share. The overseasplatform Trip.com recorded 65% YoY revenue growth in 3Q25, thanks to robustmarket share gain in APAC regions and more visibly in Europe and the MiddleEast. We expect the platform could maintain very fast growth at >50% in thecoming quarters as TCOM remains committed to grow its market share. Weestimate Trip.com would start to account for c.20% of the revenue in 2026,which may dilute its group-wide margins. However, we see the impactmanageable, as improving profitability in mainland China should offset this.
Competitive landscape stable to protect its margins. We turn morepositive on TCOM’s near-term earnings despite the increasing contribution fromTrip.com, which arguably dilute margins. Despite increasing competitionobserved in e-commerce platforms, we notice the competition among OTAsremained stable in 3Q25 and 4Q25 QTD. We believe this would allow TCOM’stake rate to remain at a stable range. When this combines with strongeroutbound travel in China, and also AI-enabled cost savings in mainland China,we expect the overall margins for Ctrip (or Chinese operations) would improve,which also allow buffer for Trip.com’s continuous marketing investments. Wenow expect TCOM’s operating margin may contract in 2026 but rebound in 2027as Trip.com may start to achieve breakeven in more countries.
Key Risks for Rating
Downside risks include: (1) weak recovery of tourism, especially outbound; (2)policies on outbound travels may tighten unexpectedly; (3) keen competitionfrom direct booking platforms; (4) higher spending to defend market share, and(5) lower-than-expected share buybacks and dividends.
Valuation
We revised up our non-GAAP NP estimates for FY25 by 29% to account for theone-off disposal gain from MakeMyTrip, while revise up the NP estimates forFY26-27 by 3-4% to reflect the stronger-than-expected profitability of TCOMafter 3Q25 earnings.
ADR: Our target price of US$82.0 is based on SOTP and a USD/RMB rate of7.15. We use DCF to derive the value of the core business first, followed by thepublic 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$638 is based on SOTP and a USD/HKD rate of7.78. We use DCF to derive the value of the core business first, followed by thepublic 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%, and(2) terminal growth rate of 3.0%. (unchanged).