While China’s broader stock market has seen steep declines in the past two years, recently there have been some areas of optimism. That’s because China’s government is signalling it may end its Covid-Zero policy. If it does loosen restrictions, that should allow the Chinese economy to reopen more easily.
For investors, that means there could be an opportunity to benefit from several long-term trends that were already playing out before the Covid-19 outbreak.
One of them is travel, which was booming pre-Covid amid record numbers of Chinese tourists and their propensity to venture overseas. Now that worldwide travel looks possible again in the foreseeable future for Chinese residents, here are three stocks that could benefit from this.
Trip.com (HKEX: 9961) (NASDAQ: TCOM)
Large online travel agency (OTA) Trip.com Group Ltd (HKEX: 9961) (NASDAQ: TCOM) has operations that cater to both Chinese tourists and global tourists. It was founded in 1999 and initially listed on the NASDAQ exchange before also floating its shares on the Hong Kong Stock Exchange in 2021.
Via its vastly popular Ctrip and Qunar platforms in China, it provides one-stop travel services for Chinese tourists looking for accommodation and flights. Meanwhile, for non-Chinese customers, the company’s eponymous Trip.com platform and Skyscanner which we are all familiar with provide options covering 52 countries and regions globally, in over 30 languages.
Trip.com’s business has been hit hard by the Covid-19 restrictions in China, as shown by its latest Q2 2022 earnings.
During the three months, the company posted revenue of RMB 4.0 billion (US$598 million), which was down 32% year-on-year. Management attributed this to the continued disruptions from the resurgence of Covid-19 in China.
The company did note that the staycation travel market is continuing to serve as a major contributor to its business in China, with local hotel bookings increasing by over 30% for the second quarter versus the same period in 2019. Elsewhere, its air ticket and hotel bookings on its global platforms are booming, with both up over 100% year-on-year in the second quarter.
Trip.com did see its net income turn positive in the second quarter, from a loss a year earlier, although it’s understandably still far short from the profitability it had pre-Covid.
However, it’s likely its business will gradually recover as the Chinese economy starts to reopen and Chinese tourists start to travel overseas again.
Currently, the company is trading at HKD 259.20, up about 36% since the start of the year.
Cathay Pacific (HKEX: 293)
Hong Kong’s flagship carrier Cathay Pacific Airways Ltd (HKEX: 293) is a well-known airline in the Asia Pacific region.
It’s been around for over 70 years, having been first founded in 1946. Cathay Pacific is actually a subsidiary of a large local conglomerate Swire Pacific Limited (HKEX: 19), which owns 42% of the airline. Cathay Pacific also owns and operates its regional brand Cathay Dragon, which serves destinations in Mainland China and Southeast Asia.
Unsurprisingly, Cathay Pacific’s business has suffered during Covid-19 due to Hong Kong’s position as a regional aviation hub given local quarantine restrictions on travellers arriving in Hong Kong.
Although it has eased somewhat more recently, Cathay Pacific’s business will take a while to recover. In its H1 2022 earnings (for the six months ending 30 June 2022), the airline reported a loss of HK$5 billion (US$636 million). While that was better than the HK$7.56 billion loss in the first half of 2021, the company is still struggling to retain and train staff.
During its first-half 2022 earnings briefing, management revealed plans to raise capacity and benefit from any potential acceleration of Hong Kong’s reopening. The airline said it would bring back aircraft stored overseas (which number 68) and would also hire over 4,000 staff over the next 18-24 months.
For the airline, the saving grace throughout this period has been its cargo business. That continued to carry it in the first half, generating HK$13.8 billion in revenue during the period, up 8.9% year-on-year.
Cathay recently announced that it would boost the number of flights to regional Asian cities as Hong Kong continues to open up. For example, in December it is going to fly to Bangkok four times a day versus the previous two.
Currently, the company is trading at HKD 8.61, up about 35% since the start of the year.
Samsonite (HKEX: 1910)
Anyone who’s travelled and has a suitcase is most likely familiar with Samsonite International SA (HKEX: 1910), the luggage and bag manufacturer. Besides its eponymous brand, the company also owns illustrious luggage names like Tumi, American Tourister, and Hartmann.
While it was founded in the US and is headquartered in Luxembourg, it was listed on the Hong Kong Stock Exchange in 2011.
The company has experienced a strong rebound from the depths of the Covid-19 pandemic. However, the turnaround is still yet to be complete given travel isn’t back to pre-pandemic levels.
In its latest Q3 2022 earnings, Samsonite saw its net sales rise by 59.5% year-on-year to US$791 million. Overall, that saw the company actually recorded positive comparable sales growth of +0.6% versus Q3 2019 (see below).
Source: Samsonite International Q3 2022 earnings presentation
The company said that if it excluded China in those figures – which was in lockdown – the Q3 2022 comparable sales growth (vs Q3 2019) would have been +4.2%.
Sales growth in Europe and Latin America (versus 2019) have been positive for the company for a few quarters now while Asia is also recovering fast. Meanwhile, North American sales growth (vs 2019) for Samsonite should turn positive next month.
The company foresees a continued recovery in the global travel market and has been upping its spending on marketing campaigns. While overall net sales are still below their 2019 level, Samsonite should continue to benefit from the strong rebound in global travel.
One of Samsonite’s most successful ones this year was a meeting between two of its brand ambassadors – Tottenham Hotspur’s Korean forward Son Heung-Min and Formula 1 driver Lando Norris – in a new Tumi store in London.
Currently, the company is trading at HKD 19.88, up about 27% since the start of the year.
Looking At China Travel Stocks
The desire to travel is one that everyone possesses. Given this natural tendency to want to see the world, the gradual opening up of China and continued strength in the global travel market should benefit certain companies.
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4 Stocks This Week is not a recommendation from us to buy or sell any of these stocks. For investors who are keen to find out more, you should continue researching about them before making your investment decisions.
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