China's travel and tourism market has been on a roll this year and the upcoming May Day golden week is expected to reap huge rewards for businesses as millions of holidaymakers loosen their purse strings and head out of town over the five-day break.
Early reports from online travel platforms indicate that airline and hotel bookings have been robust, with impressive growth in both outbound and inbound tourism in China.
Trip.com (9961) says medium and long distance travel is dominating this year's holiday, and searches for domestic hotels and flights has slightly increased compared to last year, while searches for outbound flights has significantly risen by 56 percent year-on-year.
Dickie Wong Tak-kei, the director of research at Kingston Securities, says there's been a change in spending trends among young mainlanders, and that's a good enough reason to bet on travel and tourism stocks.
Youngsters these days are not very keen on buying homes or getting married early in life but are more willing to spend money on travel, he says.
Tourism boomed in the mainland during this year's Spring Festival in February and three-day Ching Ming festival - also known as the Tomb Sweeping Day - in early April, surpassing pre-pandemic levels.
As many as 119 million domestic tourism trips nationwide were recorded over the tomb sweeping holiday, 11.5 percent higher than the same period in 2019, while domestic tourist spending also rose 12.7 percent to 53.95 billion yuan (HK$59.57 billion), official data showed.
Trip.com's May Day holiday data also reveals that inbound bookings have increased by 130 percent compared to 2023, with most of the bookings coming from Japan, the US, South Korea and Canada.
Make my Trip
Analysts agree that travel platform and gambling stocks are the best bets but are divided on the outlook for airline and consumption stocks.
Trip.com is the largest online travel agency in China and its shares once surged 10 percent after the Easter holiday, following a massive influx of Hong Kong residents to the mainland and higher bookings for the Ching Ming festival compared to last year.
Trip.com is nearly 36 percent up this year at HK$379.40 and investment banks and analysts are projecting higher target prices.
CICC has an outperform rating with a target price of HK$451.2, citing the resilience of domestic tourism while Jefferies has kept its buy rating on the stock with a HK$479 target.
UOB Kay Hian advises to buy the stock with a target price of HK$433, while Bocom International also suggests buying the stock with HK$440 as the target.
Dickie Wong expects Trip.com's shares to hit a new high of HK$400, while Anli Group chairman and chief executive Andrew Wong Wai-hong also projects a target price of HK$400.
The travel platform was also on the recommended list of DBS after its net profit surged sixfold to 9.92 billion yuan in 2023 from a year earlier, and its revenue rose 122.2 percent to 44.6 billion yuan.
Roll the dice
Gambling stocks have also been on the upswing and are likely to bring better returns.
CLSA has raised its forecast for Macau's gaming revenue this year by 4 percent to US$30.3 billion (HK$236.34 billion) and maintained its forecast for next year's revenue at US$31.9 billion, citing robust visitor numbers and revenues.
Macau attracted 1.05 million visitors over the Easter and Ching Ming holidays and officials predict more visitors during the upcoming golden week.
The Macao Government Tourism Office director Maria Helena de Senna Fernandes says 130,000 visitors will arrive each day over the five-day holiday. This would be 82 percent of the number recorded for the Labour Day holiday in 2019 and 32 percent higher than last year.
CLSA is bullish on MGM China (2282), giving it a buy rating and raising the target price to HK$16.8 per share.
Kenny Ng Lai-yin, a securities strategist at Everbright Securities International, also recommends MGM China, pointing out that the operator's mass table revenue outperformed the industry, and its market share expanded to a record 15 percent last year.
Citi has a buy rating with HK$16 as the target price, and Macquarie gives it an outperform rating with a target of HK$15.2.
Macquarie, which predicts Macau's gaming revenue will rise to between 75 and 79 percent of pre-pandemic levels, is betting on Galaxy Entertainment (0027), with a target price of HK$63 and an outperform rating.
And Citi suggests buying the stock with HK$64.5 as the target price.
Among major players, SJM (0880) is up nearly 5 percent this year and MGM China by 23.8 percent, but Galaxy Entertainment is down by 24 percent.
Airlines taking off
Airline stocks have a mixed outlook amid volatile oil prices.
Hong Kong's flagship carrier Cathay Pacific Airways (0293) hopes to increase its number of destinations to 90 within the next nine months and plans to return to full pre-pandemic capacity no later than the first quarter of next year.
But Andrew Wong believes geopolitical risks and fluctuations in oil prices will put the airline under pressure and add uncertainties to the performance of its shares.
Dickie Wong, however, is more optimistic. He says Cathay's passenger numbers have rebounded, adding that hedging could offset higher oil costs.
China's major airlines, meanwhile, narrowed their losses by about 80 percent last year but are still pressured by the slow recovery on international routes.
Huatai Research, however, expects them to swing back into profit and recommends China Eastern Airlines (0670) and Air China (0753) with targets of HK$3 and HK$6.9 respectively.
All analysts are pessimistic on Hong Kong-based consumption stocks, with the northbound wave surpassing the number of inbound tourists over major holidays this year.
As many as 1.75 million Hong Kong residents left the city over the four-day Easter break, while only about 396,000 visitors entered Hong Kong. And on the last day of the tomb sweeping holiday, departures exceeded arrivals by 476,000.
Sa Sa (0178) is languishing at a 10-year low of HK$0.69 , while Wharf Real Estate Investment (1997), the owner of the upmarket Harbour City, has hit rock bottom at HK$22.40.
JP Morgan has downgraded Wharf REIC from neutral to reduce, and cut the target price from HK$28.50 to HK$22.
Short-term investors could consider Chow Tai Fook Jewellery (1929) and Luk Fook (0590), says Ng, as gold prices are expected to continue rising, boosting the value of their inventories.
Mainland food and beverage stocks also have a positive outlook.
Haidilao (6862) and Jiumaojiu (9922) are expected to benefit over the May Day holidays, but any gains may be limited amid fierce competition, says Andrew Wong.
CMB International Securities maintains a buy rating for Haidilao but has cut its target price to HK$21.52, saying the lack of growth drivers is still a concern, but the downside is protected by its dividend.
DBS recommends the stock with a target down to HK$23, while Morgan Stanley has an overweight rating with a target of HK$20.
Haidilao is up 14 percent this year at HK$15.96.
Investors can also take heart from the World Travel & Tourism Council's latest projection, which says 2024 will be a record-breaking year for travel and tourism, with the sector's global economic contribution set to reach an all-time high of US$11.1 trillion.
According to the global tourism body's 2024 Economic Impact Research, travel and tourism will contribute an additional US$770 billion over its previous record, stamping its authority as a global economic powerhouse, generating one in every 10 US dollars worldwide.
