China Galaxy Securities released a research report saying that the recovery in outbound travel is marginal, focusing on gaming, OTA, and outbound travel agencies. From a marginal perspective, it is expected that starting from 4Q23, the recovery slope for outbound travel will begin to be better than domestic travel.
The main reason is the shift in compensatory demand from domestic travel to outbound travel. Since this year, residents' travel spending has been strong, and there is still no sign of slowing down during the 11th holiday season. Among them, comparable passenger traffic in civil aviation and railways is expected to increase by 17% and 15% compared to 2019; international flight capacity has recovered, driving down outbound travel costs; and popular destinations such as Thailand are visa-free for Chinese tourists. Section recommendation ranking: Gaming > OTA > Outbound Travel Agencies. Target suggestions focus on MGM China (02282), Sands China Limited (01928), Galaxy Entertainment (00027), Ctrip Group-S (09961), and Zhongxin Travel (002707).
The main views of China Galaxy Securities are as follows:
Sector performance: The social services industry rose and fell by -2.8% this week, falling 3.6 pct behind the Shanghai and Shenzhen 300 Index, ranking 30th among all 31 industries in terms of monthly gains and losses. Among them, the ups and downs of each segment were: professional services (-0.9%), education (-2.5%), hotels and restaurants (-4.2%), and tourism and scenic spots (-4.4%).
Key Announcements & Events: (1) The new tax-free “buy now, pick up” regulations on the outlying islands of Hainan have been implemented for 5 months, with sales amount reaching 1,462 billion yuan; (2) the number of hotel reservations in the “11” popular cities exceeded 2019, and the Asian Games led to an increase in hotel bookings in surrounding cities; (3) The number of first-day tickets sold during the Mid-Autumn Festival holiday was 22.877 million in a single day.
Sector tracking:
Tax exemption: Daily sales are expected to decline during the off-season in September. Focus on the Q4 peak season plus supply-side expansion. September was affected by off-season factors, and it is expected that the improvement in duty-free sales data on the outlying islands will remain weak. However, entering the fourth quarter, the agency believes that the industry will have many short-term catalysts: 1) the fourth quarter will be the peak tourist season in Hainan, and the return in tourists is expected to support the improvement in daily sales; 2) On the supply side, China Free Sanya Phase 1 and 2 will open in the fourth quarter, and the entry of brands such as LV will help attract and convert traffic. Furthermore, China's tax exemption policy is still being prepared and implemented. We recommend China Central Exemption and Hainan Airport. We recommend focusing on Wangfujing, Haiqi Group, Hainan Development, Shanghai Airport, Baiyun Airport, and Bailian Co., Ltd.
Tourism: Domestic cursors focus on growth and valuation matching. Considering that most domestic travel companies will enter the off-season after the 11th Golden Week, compounded by the high base pressure of the number of domestic tourists in the first quarter of next year, it is recommended to select those with incremental post-epidemic projects, improved transportation, and safety margins. Fengshang Culture, Dafeng Industrial, Mount Emei A, and Tianmu Lake are recommended. Furthermore, we continue to be optimistic about the booming outreach sector, recommend Miao Exhibition, and recommend paying attention to Lansheng shares.
Hotels: Focus on sector valuation restoration in the context of improved economic expectations. Since entering September, the volume and price of hotels have all declined month-on-month, but OCC has increased significantly compared to the same period in '19, which is expected to be driven by residents traveling at the wrong peak. Residents' demand for leisure travel during the 11th Golden Week is strong. The hotel sector's performance is expected to continue to improve. A combination of superimposed policies has been introduced one after another, and economic expectations may improve. The valuations of hotel groups that have been drastically adjusted are already cost-effective. We recommend Huazhu Group, Jinjiang Hotel, First Travel Hotel, and Junting Hotel, which has been catalyzed by the Asian Games.
Catering: Focus on functional catering tracks. The overall food and beverage market growth rate declined in August, which is expected to be mainly affected by the weather and overall consumption environment. In line with the current trend of affordable and rational consumption, it is recommended to focus on fast food and coffee tracks where demand rigidity and penetration rate have room to improve, and it is recommended to pay attention to Yum China and Dash shares.
Risk warning: risk of the spread of the epidemic; risk of macroeconomic downturn.