Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Thematic (Sector/Industry)

Before Covid19 shut down outbound Chinese tourism in 2020, there were the mass protests in Hong Kong, which sharply reduced Mainland visits to its largest outbound destination in 2019.Before the Hong Kong protests, there was a drowning incident in Thailand in 2018 that killed dozens of Chinese visitors and sharply reduced travel to another top outbound destination. And before the Phuket accident came political disputes with Taiwan, Korea, and Japan, all of which temporarily reduced Chinese tourist visits to these important regional destinations. Taken together, these disruptions have undermined outbound Chinese travel demand and added to volatility.And what about Chinese domestic travel demand?Pre-Covid19, domestic tourism growth was flagging, and though it's been less volatile than outbound demand, Chinese domestic travel certainly has not been immune to demand shocks either (viruses, the partial displacement of air travel by high speed rail, etc.).We simply don't think investing in the growth of Chinese tourism is the "no-brainer" that many market participants seem to think it is. Between moderating growth rates and a series of external demand shocks, there have been few periods of sustained strong (10%+) demand growth in recent years. In our view, Chinese tourism can no longer be viewed as a growth industry.

Before Covid19 shut down outbound Chinese tourism in 2020, there were the mass protests in Hong Kong, which sharply reduced Mainland visits to its largest outbound destination in 2019.Before the Hong Kong protests, there was a drowning incident in Thailand in 2018 that killed dozens of Chinese visitors and sharply reduced travel to another top outbound destination. And before the Phuket accident came political disputes with Taiwan, Korea, and Japan, all of which temporarily reduced Chinese tourist visits to these important regional destinations. Taken together, these disruptions have undermined outbound Chinese travel demand and added to volatility.And what about Chinese domestic travel demand?Pre-Covid19, domestic tourism growth was flagging, and though it's been less volatile than outbound demand, Chinese domestic travel certainly has not been immune to demand shocks either (viruses, the partial displacement of air travel by high speed rail, etc.).We simply don't think investing in the growth of Chinese tourism is the "no-brainer" that many market participants seem to think it is. Between moderating growth rates and a series of external demand shocks, there have been few periods of sustained strong (10%+) demand growth in recent years. In our view, Chinese tourism can no longer be viewed as a growth industry.  

Is Chinese Tourism Really a 'Growth' Industry?

Equity Bottom-Up

Chinese media reports Chinese tourism activity during the long Golden Week + National Day holiday period declined by about 21% YoY to 637 mn person-visits. Spending on tourism during the period reportedly fell by 28% YoY to 466 bn RMB. 
Some observers are suggesting these numbers show a strong continued recovery in tourism demand since activity collapsed in Q1 this year due to the Covid19 pandemic.
But we disagree.
In our view, the headline 2020 Golden Week+ numbers we have seen so far are not as strong as we would have expected, given a number of factors that actually should have flattered this year's overall activity and spending numbers. 
A closer analysis of the numbers actually suggests tepid tourism demand, in our opinion, and we do not believe the recovery has gained momentum in October.

Chinese media reports Chinese tourism activity during the long Golden Week + National Day holiday period declined by about 21% YoY to 637 mn person-visits. Spending on tourism during the period reportedly fell by 28% YoY to 466 bn RMB. 
Some observers are suggesting these numbers show a strong continued recovery in tourism demand since activity collapsed in Q1 this year due to the Covid19 pandemic.
But we disagree.
In our view, the headline 2020 Golden Week+ numbers we have seen so far are not as strong as we would have expected, given a number of factors that actually should have flattered this year's overall activity and spending numbers. 
A closer analysis of the numbers actually suggests tepid tourism demand, in our opinion, and we do not believe the recovery has gained momentum in October.  

China's 'Golden Week': Headline Tourism Numbers Hardly Shine

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/162/827/original/BANNER-TOURISM.png?1601474994" class="editor-image img-responsive" data-smartkarma-image-id="162827"></figure>
Outbound green shoots? In August, Chinese arrivals to Macau tripled MoM, but they remain far below year-ago levels. A potential re-opening to certain types of international tourism in Thailand is positive, but investors still have to look hard to see signs of a recovery in outbound travel.
Domestic activity getting closer to normal(-ish): Domestic travel activity continued to improve gradually in August, as shown in traffic figures reported by the large state-owned airlines and two prominent Low Cost Carriers (LCCs). We believe domestic traffic could return to growth in Q420.
Recent results &amp; guidance still discouraging: Q220 earnings results and Q320 revenue guidance from OTAs Trip.com and Tongcheng-ELong were unimpressive, in our view. Trip.com's downbeat guidance partly reflects that company's relatively high exposure to moribund outbound travel.
Conclusions: We believe domestic-focused companies will continue to outperform those with high exposure to outbound travel. While eventual easing of restrictions on cross-border travel will give stocks like Trip.com and Air China a chance to shine, we don't believe that time is now.


Outbound green shoots? In August, Chinese arrivals to Macau tripled MoM, but they remain far below year-ago levels. A potential re-opening to certain types of international tourism in Thailand is positive, but investors still have to look hard to see signs of a recovery in outbound travel.
Domestic activity getting closer to normal(-ish): Domestic travel activity continued to improve gradually in August, as shown in traffic figures reported by the large state-owned airlines and two prominent Low Cost Carriers (LCCs). We believe domestic traffic could return to growth in Q420.
Recent results &amp; guidance still discouraging: Q220 earnings results and Q320 revenue guidance from OTAs Trip.com and Tongcheng-ELong were unimpressive, in our view. Trip.com's downbeat guidance partly reflects that company's relatively high exposure to moribund outbound travel.
Conclusions: We believe domestic-focused companies will continue to outperform those with high exposure to outbound travel. While eventual easing of restrictions on cross-border travel will give stocks like Trip.com and Air China a chance to shine, we don't believe that time is now. 

TRACKING TRAFFIC/Chinese Tourism: Outbound 'Green Shoots'? | Domestic Gets Closer to Normal

Leading Chinese online travel agency <a href="https://www.smartkarma.com/entities/trip-com-group-ltd" target="_blank" data-smartkarma-citation="entities:180:1" rel="noopener">Trip.com (TCOM US)</a> will report Q220 (June) results after the US markets close this Thursday, September 24th (Friday morning Hong Kong time).
In this note we talk about what to expect in the Q2 numbers and ask whether Trip.com can match or beat its own downbeat guidance, which the company issued in late May. 
To answer that question, we look at what other companies and organizations in the Chinese travel sector have already reported about Q2 demand. For now we retain our Hold rating on Trip.com.

Leading Chinese online travel agency Trip.com (TCOM US) will report Q220 (June) results after the US markets close this Thursday, September 24th (Friday morning Hong Kong time).
In this note we talk about what to expect in the Q2 numbers and ask whether Trip.com can match or beat its own downbeat guidance, which the company issued in late May. 
To answer that question, we look at what other companies and organizations in the Chinese travel sector have already reported about Q2 demand. For now we retain our Hold rating on Trip.com.

Can Trip.com Meet (Or Beat) Its Own Downbeat Revenue Guidance? Q220 Earnings Preview

Quality-first, Business-perspective Strategy, Urbem (HK) Limited

Steven Chen

Quality-first, Business-perspective Strategy

<ul>
<li>China can be the first market to recover its travel industry post the pandemic;</li>
<li>We scan the industry in the search for decent-quality, decent-yield opportunities;</li>
<li>We limit ourselves to the widest-moat assets, which leaves us only two options in this market.</li>
</ul>


China can be the first market to recover its travel industry post the pandemic;
We scan the industry in the search for decent-quality, decent-yield opportunities;
We limit ourselves to the widest-moat assets, which leaves us only two options in this market.


Valuation Check-Up: Wide-Moat Assets Poised for China's Travel Recovery

China

Spring Airlines Co., Ltd. offers air transportation services. The Company provides domestic air transportation, international air transportation, cargo transportation, and other services. Spring Airlines also offers ticket home delivery, insurance transaction, and other services.

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Spring Airlines (601021 CH)

Is Chinese Tourism Really a 'Growth' Industry?

The effects of the Covid19 pandemic aside, we believe strong (10%+) growth in underlying Chinese tourism demand is becoming more elusive.

Tracking Traffic

China's 'Golden Week': Headline Tourism Numbers Hardly Shine

Contrary to some, we do not believe headline tourism numbers from the recent Golden Week suggest improving conditions in China's domestic travel...

Tracking Traffic

TRACKING TRAFFIC/Chinese Tourism: Outbound 'Green Shoots'? | Domestic Gets Closer to Normal

BANNER

Tracking Traffic

Can Trip.com Meet (Or Beat) Its Own Downbeat Revenue Guidance? Q220 Earnings Preview

Leading Chinese online travel agency Trip.com (TCOM US) will report Q2

Tracking Traffic

Valuation Check-Up: Wide-Moat Assets Poised for China's Travel Recovery

China is hopeful of being the first market to recover its travel industry post the pandemic. Therefore, we are interested in scanning the industry...

Steven Chen

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