Tongcheng Travel's 2Q26 profit was in line with expectations and margins continued to expand, but weaker demand prompted a cut to full-year revenue guidance

Overview

The report reviews Tongcheng Travel's 2Q26 results, segment performance, and management's outlook for the second half. Although weaker travel demand pressured revenue and GMV growth, the company still achieved margin expansion through an improved revenue mix and cost control. Goldman Sachs consequently made modest cuts to its earnings forecasts and target price, but believes the low valuation, accommodation and hotel management businesses, outbound travel, and new businesses continue to provide medium- to long-term support.

Core views

2Q26 results were broadly in line with expectations, but the growth mix indicated mounting demand pressure. The company recorded net profit of RMB851mn, up 10% yoy and slower than the 19% growth in 1Q26, but within the RMB840mn-RMB850mn range expected by Goldman Sachs and consensus. Revenue increased 7% yoy to RMB5.0bn, in line with the company's 3%-8% guidance but below the 14% growth in 1Q26. Core OTA revenue rose 8% yoy to RMB4.3bn, while tourism business revenue declined 3% to RMB643mn, both within their respective guidance ranges. Total GMV shifted from mid-single-digit yoy growth over several consecutive quarters to a mid-single-digit decline, mainly because higher airfares and regulatory adjustments to railway ticketing suppressed transportation traffic. Paying users over the past 12 months remained at 253.9mn, up 1% yoy, while ARPU increased 10% yoy to RMB80.1, accelerating further from 6% and 9% in 4Q25 and 1Q26, respectively, reflecting the company's current emphasis on monetization rather than expanding user scale. Despite slower revenue growth, profitability continued to improve. The net margin increased 0.2ppt yoy to 18.5%, following a 0.8ppt yoy increase to 20.8% in 1Q26. The main drivers were a revenue mix shift toward higher-margin accommodation reservations and a 0.3ppt yoy decline in the selling and marketing expense ratio to 32.6%. However, one-off employee costs arising from workforce adjustments drove a 39% yoy increase in administrative expenses, partially offsetting these improvements. Accommodation reservation revenue increased 8% yoy to RMB1.5bn, slowing from 15% in 1Q26 but in line with the 5%-10% guidance. Domestic room-night growth slowed to the mid-single digits, while average room rates maintained low-single-digit growth, broadly consistent with the approximately 3% industry increase indicated by STR and supported by a higher share of bookings at three-star and higher-rated hotels. Transportation ticketing revenue declined 2% yoy to RMB1.8bn, in line with guidance ranging from a 5% decline to flat. Air and railway ticket volumes both fell by approximately 10% yoy. By optimizing its monetization strategy, the company slightly increased the take rate to approximately 4%, partially offsetting the decline in transaction volume. Following tighter regulation of the railway "ticket-snatching" business, railway's share of OTA revenue has fallen to approximately 18%, and management expects the related impact to gradually fade from the following year onward. The expected impact of hotel commission rectification following the antitrust investigation is limited because "Gold/Special-Label Hotels" account for only a small portion of hotel inventory, and the company expects the net hotel take rate to remain at approximately 9.5%-10%. Other revenue increased 36% yoy. Excluding Wanda Hotel, which was consolidated from 4Q25 and contributed approximately RMB200mn, growth was 9%, below the 26% growth in 1Q26 excluding the consolidation impact. The slowdown mainly came from the advertising business, which accounts for approximately 20% of other revenue. The hotel management business, which represents approximately 40% of other revenue, continued to benefit from network expansion. As of the end of 2Q26, the eLong platform had more than 3,500 hotels in operation and another 2,000 in the pipeline, compared with 3,000 operating hotels and 2,800 pipeline hotels at the end of 1Q26. The company has more than 35mn eLong Club members and approximately 24mn Wanda Club members. It plans for eLong to continue pursuing high-quality network expansion and for Wanda to strengthen its presence in the upscale and luxury hotel segments, viewing hotel management as one of its principal growth drivers. Management remains cautious about 2H26. From late July to early August, traffic recovered healthily as airfares normalized, but adverse weather in certain regions and tourist destinations caused a relatively large number of order cancellations. The company will focus on monitoring the National Day Golden Week. Hotel demand was relatively more resilient over the same period. The report cited comments from covered hotel operators indicating that RevPAR trends were stable in late July and August to date. Cumulative summer passenger volume increased 4.6% yoy, with domestic and outbound volumes rising 4.6% and 4.5%, respectively. In week 8, domestic fares increased 2% yoy but declined 4% yoy excluding fuel surcharges. Outbound and international businesses recorded historically high volumes in recent quarters, with their shares of transportation ticketing and accommodation reservation revenue rising to 8.6% and 4%, respectively, from 6.3% and 2.8% in 2Q25. The company believes their importance will continue to increase. The company guided for 3Q26 revenue to increase 2%-7% yoy to RMB5.6bn-RMB5.9bn, including core OTA revenue of RMB4.7bn-RMB5.0bn, up 3%-8% yoy, and tourism business revenue of approximately RMB900mn, ranging from a 5% yoy decline to flat. By segment, accommodation reservation revenue is expected to rise 3%-8% yoy to RMB1.6bn-RMB1.7bn, transportation ticketing revenue to range from a 5% decline to flat at RMB2.1bn-RMB2.2bn, and other revenue to grow 32%-37% to RMB1.0bn-RMB1.1bn. Goldman Sachs assumes gross margin will rise to 66.8% and the selling and marketing expense ratio will decline from 31.1% in 3Q25 to 30.7%, forecasting 3Q26E adjusted net profit of RMB1.12bn. The company lowered FY26 revenue growth guidance by approximately 2ppts from 6%-11% to 4%-9%, reduced core OTA revenue growth guidance from 8%-13% to 6%-11%, and revised full-year net margin guidance to flat yoy. Goldman Sachs expects FY26 revenue and earnings both to grow by approximately 8% yoy, with adjusted net profit of approximately RMB3.7bn, while 2H26 earnings growth is expected to slow to 3%, below the 19% and 10% recorded in 1Q26 and 2Q26. Long-term incremental opportunities also include the hotel ecosystem, outbound travel, and artificial intelligence. The company upgraded the memory capabilities of its proprietary AI agent, DeepTrip, enabling it to provide more personalized responses based on users' historical preferences. It has also become one of the first OTAs to complete integration with Tencent's WeChat AI assistant and has entered the optimization stage. Management believes AI could become an important long-term traffic gateway and create opportunities for customer acquisition, engagement, and transaction conversion. Goldman Sachs' original investment thesis also includes the company's relatively high exposure to lower-tier cities, short-haul domestic travel, and value-for-money consumption trends, as well as improved accommodation cross-selling and monetization and the enhancement of its travel ecosystem through online-offline integration and vertical expansion. Considering 3Q26 travel trends and company guidance, Goldman Sachs lowered its FY26E-FY28E adjusted EPS forecasts by approximately 2%. Diluted adjusted EPS in the forecast table was revised from RMB1.56/1.79/2.04 to RMB1.53/1.73/1.97, and the 12-month target price was lowered from HK$24.50 to HK$24.00. The target price comprises two weighted components: 85% based on fundamental value of HK$22.70 per share, corresponding to 14x FY26E P/E, and 15% based on M&A value of HK$32.10 per share, corresponding to 22x FY26E P/E. The share price fell 12% over the past three months. In addition to the impact of high ticket prices on travel demand, the market is concerned that the company's continued acquisitions across Wanda Hotel, Dida, hotel management, and travel agencies may reflect a dispersed capital allocation strategy. Despite the expected slowdown in earnings growth, Goldman Sachs maintains its Buy rating because the stock trades at approximately 7x P/E, a historical low. The current P/E discount to Trip.com is approximately 20%, compared with a historical discount of 20%-30%, while incremental earnings from new businesses could still provide upside.

Analysis framework

The report first compares actual 2Q26 revenue, profit, and segment performance with company guidance, Goldman Sachs forecasts, consensus expectations, and 1Q26 growth rates. It then explains profit changes through transaction volumes, take rates, user numbers, ARPU, revenue mix, and expense ratios. Next, it combines summer passenger traffic, ticket prices, hotel RevPAR, weather conditions, and management guidance to formulate 3Q26 and full-year forecasts and assess the impact of regulation, the hotel network, outbound travel, and AI. Finally, it derives the target price through a weighted combination of fundamental value and M&A value and maintains the Buy rating based on earnings revisions and relative valuation.

Methodology notes

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Decomposition by transaction volume, average price, take rate, and ARPU

  The report decomposes changes in OTA revenue into ticket or room-night volumes, average prices, take rates, and user monetization to explain the sources of declining transportation revenue, growing accommodation revenue, and higher ARPU.

• Valuation MethodPE/PEG valuation

  FY26E target P/E multiple

  Fundamental value is calculated at HK$22.70 per share based on 14x FY26E P/E, while M&A value is calculated at HK$32.10 per share based on 22x FY26E P/E. These are also compared with the current historical-low valuation of approximately 7x P/E.

• Event Strategies and Behavioral FinanceEvent-driven analysis

  M&A ranking and probability-weighted target price

  Goldman Sachs assigns the company an M&A Rank of 2 based on qualitative and quantitative factors, corresponding to a potential acquisition probability of 15%-30%, and incorporates the M&A value into the target price at a 15% weight under its divisional methodology.

• Quantitative/Factor/Portfolio TheoryMulti-factor model

  GS Factor Profile

  This framework measures growth using forward sales, EBITDA, and EPS growth; financial returns using ROE, ROCE, and CROCI; and combines valuation metrics such as P/E, P/B, and EV/EBITDA to derive growth, return, valuation, and composite percentiles for comparing the company with the market and industry peers.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Tongcheng Travel Holdings (0780.HK)

  A Chinese online travel service provider; the report maintains a Buy rating and lowers the 12-month target price to HK$24.00.

  Strengths

  High exposure to lower-tier cities and short-haul domestic travel, improving accommodation cross-selling and monetization capabilities, expansion of the hotel management network and outbound business, and margin support from ARPU growth and cost control.

  Weaknesses

  Slowing core OTA revenue growth, declining transportation ticket volumes, and total GMV turning negative; 2H26 earnings growth is expected to decelerate significantly, while continued acquisitions across multiple fields raise concerns over capital allocation and business focus.

  Comparison

  The current P/E is at an approximately 20% discount to Trip.com, compared with a historical discount range of 20%-30%. Hotel RevPAR trends are corroborated by management comments from covered companies H World and Atour.

  Risks

  The company faces competition from platforms such as Douyin, declining transportation take rates, dependence on Tencent and the WeChat ecosystem, a weakening macroeconomic environment, and capital allocation risks related to new businesses.

Key data

• 2Q26 net profitRMB851mnUp 10% yoy, in line with Goldman Sachs and consensus expectations of RMB840mn-RMB850mn
• 2Q26 revenueRMB5.0bnUp 7% yoy, slowing from 14% in 1Q26
• 2Q26 net margin18.5%Up 0.2ppt yoy
• 2Q26 total GMVMid-single-digit decline yoyTurned negative after mid-single-digit yoy growth for several consecutive quarters
• Paying users over the past 12 months253.9mnUp 1% yoy
• ARPURMB80.1Up 10% yoy
• Accommodation reservation revenueRMB1.5bnUp 8% yoy in 2Q26
• Transportation ticketing revenueRMB1.8bnDown 2% yoy in 2Q26, with both air and railway ticket volumes declining by approximately 10%
• Transportation business take rateApproximately 4%Monetization optimization partially offset the decline in transaction volume
• Net hotel take rateApproximately 9.5%-10%Management expects no significant change following the antitrust rectification
• eLong hotel networkMore than 3,500 operating hotels and 2,000 pipeline hotelsAs of the end of 2Q26; 3,000 and 2,800, respectively, at the end of 1Q26
• Outbound and international business revenue contributionTransportation 8.6%, accommodation 4%6.3% and 2.8%, respectively, in 2Q25
• 3Q26 revenue guidanceRMB5.6bn-RMB5.9bnUp 2%-7% yoy
• 3Q26E adjusted net profitRMB1.12bnGoldman Sachs estimate based on a 66.8% gross margin and a 30.7% selling and marketing expense ratio
• FY26 revenue growth guidanceUp 4%-9% yoyPreviously 6%-11%
• FY26E revenue and adjusted net profitRMB20.8683bn; RMB3.6845bnGoldman Sachs expects both to increase by approximately 8% yoy
• FY26E-FY28E diluted adjusted EPSRMB1.53/1.73/1.97Previous forecasts were RMB1.56/1.79/2.04
• FY26E-FY28E revenue forecastsRMB20.8683bn/23.0444bn/25.0880bnPrevious forecasts were RMB20.9182bn/23.1450bn/25.1923bn
• FY26E-FY28E P/E7.3x/6.5x/5.7xBased on the forecasts and pricing stated in the report
• 12-month target priceHK$24.00Lowered from HK$24.50; implies 83.2% upside from the current price of HK$13.10

Impact & implications

The report believes short-term travel demand, transportation traffic, and regulatory factors will constrain revenue and earnings growth, but a higher accommodation business contribution, improved marketing efficiency, and higher ARPU can continue to support margins. The hotel management network, outbound travel, and AI traffic gateways may become long-term incremental growth drivers, although concerns over capital allocation arising from continued acquisitions need to be assessed alongside the actual earnings contributions from new businesses. After lowering its forecasts, Goldman Sachs still believes the valuation of approximately 7x P/E does not fully reflect these growth opportunities.

Risks

• Competition may intensify more than expected, particularly from Douyin.
• The transportation business take rate may decline more than expected, and OTAs may be unable to share in the benefits of potential increases in average selling prices.
• The company is highly dependent on Tencent and the WeChat ecosystem, which may trigger market debate over the appropriate valuation multiple.
• The macroeconomic environment may be weaker than expected.

What to watch

• Monitor the impact of adverse weather, airfare normalization, and the National Day Golden Week on booking volumes and order cancellation rates.
• Monitor whether 3Q26 accommodation, transportation, and other revenue can meet the company's segment guidance.
• Monitor changes in hotel RevPAR, domestic room nights, and the share of bookings at three-star and higher-rated hotels.
• Monitor whether the contribution of outbound and international businesses to transportation and accommodation revenue can continue to increase.
• Monitor whether the impact of railway ticketing regulation gradually fades from the following year onward as management expects.
• Monitor the expansion of the eLong and Wanda hotel networks, member cross-selling, and the earnings contribution from the hotel management business.
• Monitor progress in customer acquisition, engagement, and transaction conversion following DeepTrip's integration with the WeChat AI assistant.
• Monitor capital allocation discipline and incremental earnings performance following acquisitions of Dida, Wanda Hotel, and other new businesses.