TCOM delivered in-line rev and upbeat earnings in 4Q20 results. Despite new COVID-19 wave, its mid-to-high-end hotels performed well. 1Q21E might see epidemic uncertainty (forecasting rev -36% YoY, and net loss of RMB1.0bn), but we expect rev to rebound in 2Q21E. Mgmt. kept confident on 2021 domestic full recovery, with priority on content & value chain enhancement and low-tier cities penetration. We trimmed its bottom line by 3%/5% in FY21/22E to reflect epidemic drag, but lifted our SOTP-based TP to US$48 given higher investment valuation.
- 4Q20 beat on margin surprise. 4Q20 rev/ adj.net profit reached RMB5.0bn/RMB1.1bn, -40.5%/-10% YoY, 0%/466% above consensus. Margin beat on higher GPM (+2ppts YoY) and lighter S&M. We view this result as positive, and we think soft 1Q21E has been well anticipated by the market.
- Hotel recovery track well. 4Q20 hotel rev declined 24% YoY (vs. our estimate of -27% YoY), mainly on above-industry momentum of mid-to-high-end hotels (room nights with double-digit growth). 1Q21E hotel would be still resilient, and continuously gain share. Mgmt stated that domestic hotels and air ticketing rev have achieved positive YoY growth in 4Q20. Transportation rev declined 51% YoY, and might see some pressure from CNY epidemic in 1Q21E (forecasting -71%, vs. 1Q19). Mgmt reiterated confidence on domestic full recovery in 2021E, backed by well-organized epidemic prevention and vaccine progress. With 20%-30% vaccination rate in UK & US and cases downtrend, we think any overseas recovery signs would directly boost its stock price, given already-low market expectation.
- 2021 priority on content & value chain enhancement and low-tier cities penetration. In post-epidemic period, mgmt would focus on domestic share gain through strengthening supply chain (e.g. short-distance travel), content (e.g. live streaming) and technology. TCOM will continue to penetrate into lower-tier cities by cross-selling, offline synergies and enriched offerings, with ROI-driven marketing. We forecast its rev to decline 39% QoQ in 1Q21E, and then rebound 80% QoQ in 2Q21E. 1Q21E & FY21E might see some margin volatility, but >20% non-GAAP OPM is achievable in the long run.
- Maintain BUY. To reflect CNY epidemic impact, we slightly trimmed its bottom line by 3%/5% in FY21/22E, but lifted our TP to US$48 (27.6x FY22E P/E) with higher investment valuation. Further catalysts: 1) vaccine & overseas recovery; 2) 2Q21E rebound and 3) mid-/high-end hotels momentum.
