China’s consumers are spending on experiences. Travel stocks to watch

China’s biggest food delivery platform is seeing a trend: more spending on experiences. “More and more consumers are willing to allocate a larger portion of their budget to travel,” Wang Xing, CEO of Hong Kong-listed Meituan , said Thursday during a first-quarter earnings call, according to a FactSet transcript. “Their demand is not only growing, also probably more diverse, which brings substantial opportunity for us,” he said. Meituan operates a hotel bookings and travel-related business, albeit far smaller than its food delivery operation. HSBC analysts on Friday raised their price target on the stock by 5 Hong Kong dollars (64 cents) to 170 Hong Kong dollars after an improved earnings outlook across all of Meituan’s segments. Mimicking U.S. The tourism industry’s growth, despite a more sluggish macro backdrop in China, is similar to what happened in the U.S. after the pandemic. American consumers have kept spending on experiences, including concerts and cruises . In a report last week about China’s consumer market potential, Bank of America Securities analysts chose hotel operator H World as one of its top picks. “We believe H World is best positioned to capture long-term growth in the China hotel industry given best-in-class execution,” the analysts said. “While RevPAR (revenue per available room) growth could remain under pressure near-term due to slower business travel recovery and high base of leisure travel, we believe its long-term unit growth story remains intact.” BofA rates H World a buy, and expects its U.S.-listed shares can reach $47. That’s 30% above where H World shares closed Thursday. The company’s brands include hotels with sleek, modern styles at a relatively affordable price. In China, H World also owns master franchisee rights for Mercure, Ibis and Ibis Styles, and co-development rights for Grand Mercure and Novotel. Goldman Sachs’ latest Asia Pacific conviction list, published last week, lists H World as its only travel stock pick with an even higher price target of $52 a share. The analysts rate the stock a buy and expect it to benefit from “value-focused consumption trends” and industry consolidation. Inbound visits Travelers are also coming to mainland China from Hong Kong, Macau, Taiwan and the rest of the world. Morgan Stanley expects that inbound tourism revenue has “meaningful upside potential” and can grow by around 11% a year through 2033, according to a mid-year outlook last week. China’s retail sales grew by 7.2% in 2023, and slowed to 2.3% growth in April 2024 from a year ago. Gross transaction value for Meituan’s in-store, hotel and travel businesses grew by more than 60% year-on-year in the first quarter. Average order value in each category declined as consumers have become more price sensitive, CEO Wang said. But he noted that “some young people are willing to allocate more budget for experience in travel.” Despite a high base, domestic hotel room nights booked grew year-on-year and exceeded pre-pandemic levels, the company said. Meituan counts famed Chinese early-stage investor Neil Shen as a non-executive director. According to the company’s 2023 annual report, Shen is also an independent non-executive director of China-based travel site Trip.com and a non-executive director of BTG Hotels Group . Shanghai-listed BTG Hotels closed at 14.10 yuan ($1.95) on Friday, leaving upside of nearly 35% to Jefferies’ price target of 19 yuan set in late April. The report followed BTG’s first-quarter results that showed the company opened 205 hotels — including 66 mid-to-upscale ones — and closed 173. As of the end of the quarter, BTG had more than 1,700 mid-to-upscale hotels, operating about 40% of the company’s total number of rooms. “The company is investing in mid-and-upscale segment development, while maintaining its market position in the economy hotel segment,” the Jefferies analysts said. They rate the stock a buy. Mainland China and Hong Kong stock markets are closed Monday for the last public holiday on the mainland until September. But public schools typically close for the summer holidays by the end of the month. High school students began the annual multiday college entrance exam on Friday. As of June 6, Trip.com said domestic summer vacation bookings so far have increased significantly versus a year ago. Summer 2023 had seen nearly 1.84 billion domestic tourist trips , more than the same period in 2019. — CNBC’s Michael Bloom contributed to this report.