A tale of two travel businesses: China business weakens further, while international growth remains robust

Trip (TCOM) reported in-line 2Q revenue (6% y-y growth) while its non-GAAP operating profit (OP) fell 6% y-y, was largely in-line with our forecast but was 8% above the Bloomberg consensus estimate. We expect TCOM's China business, including domestic and outbound travel, to weaken further in 2H26F, with revenue declining 6% y-y in 3Q26F and 9% y-y in 4Q26F, versus -3% in 2Q26. We believe domestic hotel and air-ticketing revenue are likely to be the main drags. The key offset is TCOM's international business, which remains robust. Trip.com revenue grew more than 50% y-y in 2Q26, while operating losses continued to narrow, supported partly by strong inbound travel demand. We believe the international business has the potential to develop into a meaningful new growth and earnings driver over time. However, at this stage, international operations remain insufficient to offset the slowdown in TCOM's much larger and higher cash-generative China business. We therefore remain cautious on the n