Citi: Worst Case May Be Over for TRIP.COM-S (09961), Expected to Outperform the Market Next Year

Citi issued a research report maintaining a "Buy" rating on Trip.com Group Ltd. Sponsored ADR (TCOM.US) with a target price of US$61. The bank held a post-earnings conference call with TRIP.COM-S (09961)'s investor relations manager, discussing further details on hotel partner rectification, further elaboration on the domestic transportation business, Trip.com's strong momentum and narrowing loss ratio, as well as management's views on profit margins. The bank believes the worst case may be over and expects Trip.com Group Ltd. Sponsored ADR to outperform the market in 2027, as the base effects of industry demand and commission rates will begin from the second quarter of 2027, while domestic hotel commission rates are expected to gradually recover. Regarding hotel partner rectification, as the fourth quarter of 2026 will reflect the full-quarter impact, management expects hotel commissions in the fourth quarter to see short-term fluctuations compared to the partial impact in the third quarter. Under the new commission policy, Trip.com Group Ltd. Sponsored ADR will charge a base commission rate and provide upsell monetization based on hotel partners' demand for traffic and exposure, while balancing hotel partner rankings across more dimensions such as hotel information quality, user reviews, images and text, and transaction volume. Management stated that due to increased flexibility for hotel partners, it will take time to observe the full impact on commission rates including seasonality, but it remains confident in maintaining stable commission rates over the long term. Regarding the domestic transportation business, management stated that air ticket commission rates have been affected by major domestic airlines reducing fixed commissions. On value-added services, Trip.com Group Ltd. Sponsored ADR continues to adjust revenue sources based on user demand, but growth has narrowed due to declining demand for travel insurance, especially post-pandemic. The train business is similar, with value-added service operations tightening. Management will focus on directing domestic transportation business traffic to other cross-selling opportunities, especially the hotel business, to offset the related operating costs of the domestic transportation business amid overall narrowing commission rates. Regarding international business, despite a high base, international platform revenue grew over 50% year-on-year in the second quarter of 2026, mainly driven by stronger business in the Asia-Pacific region. Management will focus on revenue growth and market share to expand scale, while gradually improving profitability under ROI-oriented investments, and has recorded narrowing loss ratios in multiple markets since the second quarter. Regarding overall profit margins, management believes multiple factors affect short-term visibility: the increasing proportion of the domestic hotel business is favorable to profit margins, and Trip.com Group Ltd. Sponsored ADR will also maintain discipline on AI investments and operating costs; the international business is in a high-growth phase, and even as loss ratios gradually narrow, it may dilute group profit margins. Management will strictly control costs over the long term.