We are optimistic about Tongcheng Travel, which presents a 30% upside potential, as spending in China's service sector continues to outpace that in the retail goods sector. In our analysis of the China travel market, we find that Tongcheng is often overlooked in comparison to Trip.com, primarily because it lacks an ADR secondary listing and has lower brand recognition, despite offering similar domestic travel options. Our fair value estimate suggests a price/earnings ratio of 27 times, while the shares are currently trading at a high-teens P/E. We believe Tongcheng has limited exposure to international revenue, which is on the rise and is expected to triple its contribution to total revenue to 15% over the next three years, indicating faster growth compared to Trip.com. Furthermore, we anticipate that Tongcheng will benefit from operating leverage, as strong revenue growth leading into 2025 should enhance operating margins.
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