At a glance:
- China travel titan Trip.com is set to raise US$1.1bn in a secondary listing in Hong Kong on 19 April, offering shares at HK$268 a share.
- Trip.com is one of the biggest one-stop global travel platforms with a 2.3% market share. It is also the largest online travel agency in China, with a 13.7% market share.
- Effective containment of COVID-19 and vaccine rollout have kickstarted the global recovery and China’s travel business. Trip is expected to benefit.
Nasdaq-listed and Shanghai-based China travel firm Trip.com is en route to a secondary listing in Hong Kong, backed by China’s Internet behemoth, Baidu (BIDU.com). With an IPO valuation of more than US$1bn, Trip will be offering 31.6m shares at HK$268 each to raise US$1.1bn. Proceeds will be used to fund business expansion and technology improvements. Trading will start on 19 April under the stock code “9961”.
Here’s the lowdown on Trip.com #PhillipIPOWatch:
1. Largest online travel agency in China, one of the largest one-stop travel platforms globally
Trip.com operates online travel agencies such as Trip.com, Qunar, Skyscanner and Ctrip. Listed on Nasdaq in 2003, Trip.com has a Nasdaq market cap of around US$23.8b. With more than 400m members, it is one of the leading online travel service providers in the world. It accounts for 2.3% of the global online travel service market and 13.7% of China’s travel agency market. Services include the booking of flights, accommodation, car rental, airport transfers, train tickets, packaged tours and other forms of transportation and travel-related services. Trip provides access to more than 1.4m hotels in 200 countries and regions and more than 2m flight routes connecting over 5,000 cities around the world.
Trip.com primarily targets the Chinese market, both domestic and international travellers. The bulk of its sales are from Shanghai, Beijing, Shenzhen and Guangzhou. In recent years, Trip.com has forged strategic partnerships to extend its global reach and enrich its offerings to outbound Chinese customers, including TripAdvisor.
2. Return of travel, kickstarted by China
The Chinese government and rest of world are optimistic about the pace and scope of the economic recovery, given the unprecedented speed of COVID-19 vaccine development. China staged an impressive recovery in 2020, growing 2.3% despite long lockdowns in the first quarter. Its recovery is V-shaped and the IMF is projecting that its economy will grow by 8.1% in 2021.
Source: National Bureau of Statistics of China
As a sign of the recovery, Trip.com’s recent travel data shows total bookings on its platforms increasing 300% YoY during the Qingming Festival. Bookings in multiple business areas spiked for the first time this year.
China has become the biggest global travel market by number of domestic and inbound trips. The total deal value amounted to US$6.3bn in 2019 when the market size of domestic and inbound travel in China was US$1tr, which accounts for 18% of the global travel market.
The China Tourism Academy expects China’s domestic travel to rebound by 42% to 4.1bn domestic tourist trips this year. Domestic tourism revenue is expected to increase 48% to RMB3.3tr or US$511bn. The Academy also expects international travel to recover to about 30% of pre-pandemic levels in the second half of 2021. Although outbound travel is expected to restart, Chinese tourists still appear to prefer domestic travel.
3. Steady financial progress, before COVID-19
Before 2020, Trip.com was making steady financial progress. Revenue grew 60% from US$2.9bn in 2016 to almost US$4.5bn in 2018. This was largely powered by three divisions: accommodation reservation, transportation ticketing and packaged tours. By 2019, Trip.com’s revenue had reached US$5.12bn. Before trouble struck, it was forecast to grow over 30% YoY to US$6bn in 2020.
COVID-19 plunged the entire travel industry into the doldrums. Trip.com reported revenue of US$2.8bn in 2020, down 40% from 2019. Its package-travel segment was the worst hit, with a 73% drop in revenue to US$40mn from 2019. Accommodation reservation, which accounted for 38% of revenue, was down 47%. Transportation ticketing, which accounted for 39% of revenue, skidded 49%. All in, Trip.com lost US$501m in 2020.
Source: Trip.com’s 2020 Annual Report
- COVID-19 pandemic
As global travel nosedived last year, both international and domestic travel industry ground to a halt. Additional costs were also incurred when customers cancelled their bookings or requested for refunds. As a result, Trip.com suffered a loss of US$503.8m in 2020 vs. a profit of US$1.1bn in 2019. Effective containment of the virus in China, however, plus vaccine rollout and pent-up demand for travel are expected to lead to an industry recovery in 2022.
- COVID-19 pandemic
- Risk of expulsion from US exchange
The Trump administration signed into law a Holding Foreign Companies Accountable Act in December 2020, primarily targeting Chinese tech companies. Under the Act, Chinese companies will be delisted from US exchanges if they do not comply with US auditing standards. As a Chinese tech company, Trip.com joins the recent exodus of Chinese companies heading for secondary listings in Hong Kong to hedge against possible expulsion from the US.
Why watch this IPO?
The global travel market contracted by more than 50% in 2020, to US$2.6tr from US$5.8tr in 2019. But the industry is expected to rebound to pre-pandemic levels in 2022.
The 17-year-old Trip.com is betting that it will be one of the beneficiaries, as a leading one-stop travel shop and one of the largest travel service providers.
A potential return to profitability and plans to improve its technology and service offerings make this one of the IPOs to watch out for in 2021.
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