Chinese travel stocks to watch as the world reopens
The COVID-19 pandemic has weighed heavily on the travel and tourism industry for close to two years. As borders were shut and lockdowns imposed all over the world, flights were grounded at an alarming pace in 2020.
However, the accelerated rollout of vaccinations and stringent lockdown measures in China have enabled the country to limit the number of infections in recent months. Further, experts believe the travel sector could benefit from pent-up demand once the pandemic is brought under control.
Keeping these factors in mind we try to analyze two Chinese travel stocks in Trip.com (NASDAQ:TCOM) and Melco Resorts and Entertainment (NASDAQ:MLCO) to see why they need to be on top of your shopping list for 2022.
Trip.com (NASDAQ: TCOM)
A company valued at a market cap of $15.6 billion, Trip.com is a travel service provider that has a presence across verticals including hotel reservations, packaged tours, corporate travel management, and transportation ticketing, among others.
Trip.com’s Q3 sales were impacted due to the Delta variant which disrupted the vacation season, resulting in suppressed travel momentum. While net revenue was stable year over year, it fell by 9% on a sequential basis to $831 million. However, international air ticket booking offset a portion of this decline as they rose 40% quarter over quarter, led by a 140% increase in bookings arising out of Europe.
Trip.com emphasized that 85% of the Chinese population will be fully vaccinated by early 2022 which will be a key driver of top-line growth for the travel company. It also continues to enhance product offerings to diversify its revenue base over time.
For example, Trip.com is leveraging content strategy to attract younger travelers. In the first nine months of 2021, over 200 million users viewed its content increasing its content to transaction conversion rate higher.
Analysts tracking Trip.com remain bullish on the stock and have a 12-month average price target of US$38.33 which is 60% above its current trading price.
Melco Resorts & Entertainment (NASDAQ: MLCO)
Valued at a market cap of more than $5 billion, Melco Resorts & Entertainment develops, owns, and operates casino gaming and resort facilities in Asia and Europe. Shares of the casino heavyweight have grossly underperformed the broader markets and are down over 30% in the last five years.
Several casino and gaming companies with a presence in Macau were negatively impacted in the last four months after it was revealed the Chinese government might look at add restrictions to these gambling entities. The government was expected to change concession rules that might hurt top-line growth as well as profit margins of Melco Resorts and peers. However, the new rules were fairly similar to the ones already existing which resulted in a 16% increase in share prices for MLCO stock last Friday.
Melco Resorts & Entertainment managed to report groupwide property EBITDA of $32 million in Q3 of 2021, on the back of robust cost control measures. The company also ended Q3 with a cash balance of $1.5 billion while its available liquidity is much higher at $3.5 billion, allowing it to tide over an uncertain macro environment.
Want to invest in Chinese travel stocks in 2022? Read Asia Markets’ guide to investing in Chinese stocks.