China’s largest food delivery platform is seeing a trend: more spending on experiences. “More and more consumers are willing to devote a larger portion of their budget to travel,” Wang Xing, CEO of Hong Kong-listed Meituan, said Thursday on its first-quarter earnings conference call, according to a FactSet transcript. “Their demand is not only growing, but it is also likely to become more diverse, which presents significant opportunities for us,” he said. Meituan operates a hotel booking and travel business, although much smaller than food delivery. Analysts at HSBC on Friday raised their share price target by HK$5 (64 cents) to HK$170 after upgrading their profit forecast for all of Meituan’s segments. Imitating the US The growth of the tourism industry, despite a weaker macroeconomic backdrop in China, is similar to what has happened in the US since the pandemic. American consumers continue to spend money on entertainment, including concerts and cruises. In a report last week on China’s consumer market potential, Bank of America Securities analysts picked hotel operator H World as one of their top picks. “We believe H World is best positioned to drive long-term growth in China’s hotel industry, supported by best-in-class execution,” the analysts said. “While RevPAR (revenue per available room) growth may remain under pressure in the short term due to a slower recovery in business travel and a strong leisure travel base, we believe the divisions’ long-term growth story will remain intact.” BofA rates H World a buy and expects its US-listed shares could reach $47. That’s 30% higher than H World shares closed on Thursday. The company’s brands include hotels with an elegant, modern style at relatively affordable prices. In China, H World also holds master franchisee rights to Mercure, Ibis and Ibis Styles, as well as co-development rights to Grand Mercure and Novotel. Goldman Sachs’ latest Asia-Pacific conviction list, released last week, listed H World as the only travel company pick, with an even higher price target of $52 per share. Analysts have a buy rating on the stock and expect it to benefit from “value-driven consumer trends” and industry consolidation. Inbound Visits Travelers also come to mainland China from Hong Kong, Macau, Taiwan and the rest of the world. Morgan Stanley expects inbound tourism revenue to have “significant growth potential” and could grow by about 11% a year until 2033, according to a mid-year forecast released last week. China’s retail sales grew 7.2% in 2023 and slowed to 2.3% in April 2024 from a year earlier. Gross transaction value in Meituan’s stores, hotel and tourism businesses rose more than 60% year-on-year in the first quarter. According to CEO Wang, the average order value in each category has decreased as consumers have become more price-sensitive. However, he noted that “some young people are willing to allocate more budget for travel experiences.” Despite the high base, the number of domestic hotel room nights booked increased year over year and exceeded pre-pandemic levels, the company said. Meituan counts famed Chinese early-stage investor Neil Shen as a non-executive director. Shen is also an independent non-executive director of Chinese travel site Trip.com and a non-executive director of BTG Hotels Group, according to the company’s 2023 annual report. BTG Hotels closed at 14.10 yuan ($1.95) on the Shanghai Exchange on Friday, giving it upside of nearly 35% from Jefferies’ 19 yuan price target set in late April. The report follows BTG’s first-quarter results, which showed the company opened 205 hotels, including 66 mid- and high-end hotels, and closed 173. BTG had more than 1,700 mid- and high-end hotels at the end of the quarter. upscale hotels serving about 40% of the company’s total room stock. “The company is investing in the development of the mid- and upper-class segment, while maintaining its market position in the economy class hotel segment,” Jefferies analysts say. They rate the stock a Buy. Stock markets in mainland China and Hong Kong are closed on Monday for the mainland’s last public holiday until September. But public schools usually close for summer holidays towards the end of the month. On Friday, high school students began their annual multi-day college entrance exams. As of June 6, Trip.com reported that domestic summer vacation bookings had increased significantly compared to a year earlier. There were almost 1.84 billion domestic tourism trips in summer 2023, more than the same period in 2019. — CNBC’s Michael Bloom contributed to this report.
