Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Equity Bottom-Up

<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/179/973/original/BANNER-TourDec20.png?1608779882" class="editor-image img-responsive" data-smartkarma-image-id="179973"></figure></section>Outbound Chinese tourism activity remained dormant in November. Macau's recovery slowed, and the appearance of a new variant of the Covid19 virus suggests a potential recovery in Chinese outbound travel may be pushed back until at least the middle of 2021, maybe later. To our surprise, the recovery in domestic Chinese tourism also appears to have lost steam in November. Passenger counts at the three major national airlines fell YoY, and overall activity was well below that of October. Chinese consumers remain cautious towards discretionary travel. We believe Chinese travel demand will recover gradually in 2021, and that the recovery could gain momentum in the second half of the year. Still, the emergence of a new strain of the virus will likely cap outbound travel in the near-term, and it also appears the rebound in domestic demand is moderating. For now, we would avoid pricey travel-related stocks like <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>.

Outbound Chinese tourism activity remained dormant in November. Macau's recovery slowed, and the appearance of a new variant of the Covid19 virus suggests a potential recovery in Chinese outbound travel may be pushed back until at least the middle of 2021, maybe later. To our surprise, the recovery in domestic Chinese tourism also appears to have lost steam in November. Passenger counts at the three major national airlines fell YoY, and overall activity was well below that of October. Chinese consumers remain cautious towards discretionary travel. We believe Chinese travel demand will recover gradually in 2021, and that the recovery could gain momentum in the second half of the year. Still, the emergence of a new strain of the virus will likely cap outbound travel in the near-term, and it also appears the rebound in domestic demand is moderating. For now, we would avoid pricey travel-related stocks like Trip.com (TCOM US).

TRACKING TRAFFIC/Chinese Tourism: Domestic Recovery Lost Steam in November

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On December 26th, Beijing’s municipal government responded to a fresh outbreak of Covid19 by ordering residents to stay at home during the upcoming Lunar New Year (LNY) holiday. LNY falls on February 12th next year, barely six weeks from now.  
The bad news out of Beijing highlights an important risk to Chinese travel-related companies: that yet another important holiday period could effectively be lost to Covid19. If the restrictions put in place by local authorities in Beijing extend to other large cities or provinces, it could push back a recovery in Chinese travel demand until Summer 2021 or even Golden Week, in October 2021.
In this note we explain why LNY travel matters, and why we now believe normal levels of LNY travel may again be lost in 2021. We also point to the example of Macau, which continues to see sub-par tourism demand five months after it eased travel restrictions for some Chinese visitors.




On December 26th, Beijing’s municipal government responded to a fresh outbreak of Covid19 by ordering residents to stay at home during the upcoming Lunar New Year (LNY) holiday. LNY falls on February 12th next year, barely six weeks from now.  
The bad news out of Beijing highlights an important risk to Chinese travel-related companies: that yet another important holiday period could effectively be lost to Covid19. If the restrictions put in place by local authorities in Beijing extend to other large cities or provinces, it could push back a recovery in Chinese travel demand until Summer 2021 or even Golden Week, in October 2021.
In this note we explain why LNY travel matters, and why we now believe normal levels of LNY travel may again be lost in 2021. We also point to the example of Macau, which continues to see sub-par tourism demand five months after it eased travel restrictions for some Chinese visitors.

Dreams Deferred: Looks Like Lunar New Year Travel Demand May Be Lost

On Tuesday after the US market close, China's leading 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> reported Q320 results. Net Revenue declined 48% YoY, and Adjusted Operating Income fell 50%.Trip.com's results were largely in-line with guidance and expectations, but we believe the pace of the company's recovery is lagging that of some peers and the industry as a whole, even after adjusting for Trip.com's relatively high exposure to outbound travel, which has collapsed. Trip.com's revenue guidance for Q420 also suggests the pace of its recovery will continue to disappoint in the near-term. We don't see anything to get excited about in Trip.com's Q320 results and Q420 guidance.

On Tuesday after the US market close, China's leading online travel agency Trip.com (TCOM US) reported Q320 results. Net Revenue declined 48% YoY, and Adjusted Operating Income fell 50%.Trip.com's results were largely in-line with guidance and expectations, but we believe the pace of the company's recovery is lagging that of some peers and the industry as a whole, even after adjusting for Trip.com's relatively high exposure to outbound travel, which has collapsed. Trip.com's revenue guidance for Q420 also suggests the pace of its recovery will continue to disappoint in the near-term. We don't see anything to get excited about in Trip.com's Q320 results and Q420 guidance. 

Trip.com Q320 Results Met Guidance, But Q420 Guidance Suggests Very Slow Recovery

<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/124/original/BANNER-TOURISM.png?1606332998" class="editor-image img-responsive" data-smartkarma-image-id="174124"></figure></section>Chinese outbound travel activity remained moribund in October, even after another increase in trips to Macau, which eased some travel restrictions in July. Macau's slow recovery suggests it will take many months for outbound activity to normalize once regional restrictions are lifted. China's 'Golden Week' holiday period was a day longer this year, but by most measures domestic air activity in October remained weak versus 2019. Sequential improvement in RPKs and passenger counts in October was just +5% MoM, roughly in-line with normal seasonality, and travelers are still opting for shorter trips. We believe the pace of recovery in domestic travel is moderating. Can the 2021 Lunar New Year holiday rescue China's travel service providers? Without a relaxation of restrictions in key regional markets, another major holiday travel period could be 'lost', in our opinion. We do not believe improving domestic activity can offset 'lost' outbound travel in Q121.We remain negative on Chinese travel demand. We believe the normalization of domestic and especially outbound activitity will take longer than expected -- no 'snap back' scenario, in other words. Furthermore, we believe underlying demand growth was slowing even before Covid19 hit, and it's become clear that domestic travel activity is unlikely to fully offset 'lost' outbound trips.

Chinese outbound travel activity remained moribund in October, even after another increase in trips to Macau, which eased some travel restrictions in July. Macau's slow recovery suggests it will take many months for outbound activity to normalize once regional restrictions are lifted. China's 'Golden Week' holiday period was a day longer this year, but by most measures domestic air activity in October remained weak versus 2019. Sequential improvement in RPKs and passenger counts in October was just +5% MoM, roughly in-line with normal seasonality, and travelers are still opting for shorter trips. We believe the pace of recovery in domestic travel is moderating. Can the 2021 Lunar New Year holiday rescue China's travel service providers? Without a relaxation of restrictions in key regional markets, another major holiday travel period could be 'lost', in our opinion. We do not believe improving domestic activity can offset 'lost' outbound travel in Q121.We remain negative on Chinese travel demand. We believe the normalization of domestic and especially outbound activitity will take longer than expected -- no 'snap back' scenario, in other words. Furthermore, we believe underlying demand growth was slowing even before Covid19 hit, and it's become clear that domestic travel activity is unlikely to fully offset 'lost' outbound trips. 

TRACKING TRAFFIC/Chinese Tourism: Macau's Slog | Golden Week Fails to Shine | LNY 2021 At Risk?

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Alibaba Health Information Tec / Equity Bottom-Up

<ul>
<li>The National Radio and Television Administration forbids juveniles from paying broadcasters.</li>
<li>It was widely rumored that both Alibaba (BABA) and Tencent (700 HK) stopped negotiating the acquisition of iQiyi (IQ).</li>
<li>The National Medical Products Administration formally allow prescription drug to be sold online.</li>
</ul>


The National Radio and Television Administration forbids juveniles from paying broadcasters.
It was widely rumored that both Alibaba (BABA) and Tencent (700 HK) stopped negotiating the acquisition of iQiyi (IQ).
The National Medical Products Administration formally allow prescription drug to be sold online.


China Internet Weekly (30Nov2020): Approve Online Rx Drug, Ban Juveniles from Paying Broadcasters

China

Tongcheng Travel Holdings Limited operates as an online travel agency. The Company provides transportation ticketing, accommodation reservation, value added travel products sales, and other services. Tongcheng Travel Holdings provides its services throughout China.

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Tongcheng Travel Holdings (780 HK)

TRACKING TRAFFIC/Chinese Tourism: Domestic Recovery Lost Steam in November

It appears the nascent recovery in Chinese domestic tourism activity began to stall in November. Outbound travel activity remains dormant, and even...

Tracking Traffic

Dreams Deferred: Looks Like Lunar New Year Travel Demand May Be Lost

We now believe there is a better than even chance that much of the Chinese travel demand normally associated with LNY will be lost in 2021.

Tracking Traffic

Trip.com Q320 Results Met Guidance, But Q420 Guidance Suggests Very Slow Recovery

Trip.com met Q320 net revenue guidance but offered guidance for Q420 that assumes only modest progress toward recovery in the current period.

Tracking Traffic

TRACKING TRAFFIC/Chinese Tourism: Macau's Slog | Golden Week Fails to Shine | LNY 2021 At Risk?

Chinese travel demand remained weak in October, which included the long Golden Week holiday. Poor outbound travel demand is not a surprise at this...

Tracking Traffic

China Internet Weekly (30Nov2020): Approve Online Rx Drug, Ban Juveniles from Paying Broadcasters

The authorities forbid juveniles from paying broadcasters. The Medical Administration allows prescription drug to be sold online.

Ming Lu

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