Regulation Result Appears in Line with Market Expectations

Research evidence excerpt

Regulation Result Appears in Line with Market Expectations

nce call at 8:00am EPS (Rmb)§ 45.38 24.76 28.50 32.36

Revenue, net (Rmb mn) 62,409 67,815 73,847 79,927

EST on July 27 (link). EBITDA (Rmb mn) (2,433) 18,575 20,888 22,907

ModelWare net inc 14,243 16,899 20,144 22,011

We believe the regulatory outcome is largely in line with market expectations for a (Rmb mn)

P/E 24.7 12.0 10.1 9.2

sizable one-off fine and the removal of the current special- and gold-tier P/BV 2.1 1.1 1.0 1.0

arrangements. In our view, this eliminates concerns about more far-reaching ROE (%) - 9.9 11.0 11.1

EV/EBITDA NM 4.6 3.5 2.6

outcomes, such as mandated changes to overall hotel take rates or market share. FCF yld ratio (%) 1.5 8.4 7.8 8.8

The future financial impact of the rectification measures will be the key focus of the Unless otherwise noted, all metrics are based on Morgan Stanley ModelWare

framework

conference call. P/E is calculated based on reported income which includes share-based

compensation, and other income/loss which may not be recurring.

** = Based on consensus methodology

The rectification measures may put some pressure on TCOM's effective take rate, § = Consensus data is provided by Refinitiv Estimates

e = Morgan Stanley Research estimates

though new traffic distribution mechanisms, such as advertisement bidding, could

provide a partial offset. We do not expect the future earnings impact to be

commensurate with the cumulative gains that SAMR identified as being in breach of

its regulations since 2020 (Rmb1.66bn), given that the regulator defines unlawful

gains as commission revenue from hotel bookings where TCOM has altered prices.

Separately, we have seen a meaningful improvement in China's air traveler volumes Morgan Stanley does and seeks to do business with