Macro headwinds dampen ST demand

Macroheadwinds dampen ST demand Target PriceUS$71.60(Previous TPUS$83.00)Up/Downside76.8%Current PriceUS$40.49 Trip.com Group (TCOM) released (25 Jun) 1Q26 results: total revenue wasRMB16.2bn, up 17.2% YoY, 2% better than both our estimate and Bloombergconsensus estimates, and non-GAAP operating income (OP) was RMB4.6bn,4%better than consensus, thanks to the beat in revenue. However, the soft2Q26guidance impacted market sentiment:management expects 2Q26revenue to grow 3-8% YoY (vs consensus at 14% YoY), and attributes the QoQslowdown in growth to direct and indirect impacts from macro headwinds suchas elevated energy pricing and geopolitical volatility, as well as operationaladjustmentsthat TCOM has implemented to align with evolving industrystandardsand compliance frameworks.Accounting for the industry-wideheadwind, we lower our 2026-2028E revenue/non-GAAP OP forecastsby 5-6%/11-13%,and cut our DCF-derived target price by 14%to US$71.6,translating into 18.7x 2026E PE (non-GAAP). TCOM's competitive advantagesremain intact compared to its peers, in our view, whileavaluation rerating mayhinge on the normalization of macro headwinds,and greater visibility onearnings growth once the operational refinement is fully completed. MaintainBUY. China Internet Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Ye TAO, CFA(852) 3850 5226franktao@cmbi.com.hk Wentao LU, CFAluwentao@cmbi.com.hk Shuyin GUO(852) 3916 3716guoshuyin@cmbi.com.hk Both domestic and outbound travel demand were impacted by macroheadwinds in the short term...In 2Q26,amidstsoftenedtravel demanddue toelevated energy pricing, we are forecasting: 1) 6% YoY growth fordomestic hotel booking volume, down fromthe low-teens levelin 1Q26; 2)4% YoY growth for outbound hotel booking volume, largelyin linewiththegrowthinoutbound travel ticketing volume, also down fromthe teens-levelYoYgrowthin1Q26.Forthepureinternationalbusiness,Trip.com/Skyscanner&others accounted for 18%/7%of group-levelrevenue in 1Q26, and revenuegrowthatTrip.com stayedabove60% YoYin the quarter. Weanticipatethe growthwilldecelerate toabove50% YoYin 2Q26, as the overseas ticketing business also seessome impact fromelevated energy pricing. Overall, we expect total revenue growth of 5.6%YoY in 2Q26, with total revenuereachingRMB15.7bn in 2Q26E,of whichwe are looking for +10.4%/-2.4% YoY growthinthe overall accommodationreservation/transportation ticketing businesses(vs+17.5%/+11.7%in1Q26). Stock Data ...While TCOM's competitive advantages remain intact.TCOM'scompetitive advantagesover its industry peers remain intact, in our view, ashealthy volume growth is still driving healthy revenue growth inthe domesticaccommodation reservation business in 2Q26 QTD. Robust supply chaincapabilities, high service quality, comprehensive product offerings, andglobal coverage remain TCOM's competitive advantages that support itslong-term revenue and earningsgrowth. Greatervisibility on earnings growth is a vital factor in drivingvaluation rerating.We are now looking forflat YoY non-GAAP OPfor2026, and estimate a YoY deteriorationinnon-GAAP OPM to 26.6% in2026E (2025: 28.9%). Weremainpositive on TCOM's long-term revenueandearnings growth potential,supported by its overseas expansionprospects.We believe the normalization of macro headwinds, as well asgreater visibility on earnings growth, should serve as key driversof avaluation rerating for TCOM. Source: FactSet Results comparison and changes in forecast Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3)serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies covered in this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 monthsHOLD: Stock with potential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected to perfor