ZheShang Securities 25-Year Mid-Season Report Preview for the Social Services Industry: Offline Adjustment and Upgrade, Local Life Competition Accelerates

According to Zhitong Finance APP, Zhejiang Merchants Securities released a research report stating that the offline big cycle is approaching, with macroeconomic factors, price levels, and consumption policies providing support. Innovation drives this round of transformation, and the upgrade of experiences drives both sales efficiency and profits beyond expectations; leisure prosperity continues, with traffic converging on platforms, the OTA landscape stabilizing, and growth and profitability continuing to be realized; attention should be paid to project expansion and traffic improvements in scenic areas in 2025; the hotel sector has entered a cyclical bottom, with optimism about strategic adjustments and efficiency improvements from existing stock adjustments; competition in local life intensified in the second quarter, with the instant retail sector welcoming expansion. E-commerce platforms are emerging from the off-season with a market rebound, while increased investment in local businesses disrupts profits.

The main points of Zhejiang Merchants Securities are as follows:

Travel Chain: Travel volume in Q2 2025 meets expectations, with a surge in cross-border tourism demand

From the travel data, the travel figures for Q1 2025 basically met expectations. In Q1 2025, domestic travel volume reached 1.794 billion, an increase of 375 million compared to the same period last year, a year-on-year growth of 26.4%. Among them, urban residents' domestic travel volume was 1.318 billion, a year-on-year increase of 22.4%; rural residents' domestic travel volume was 476 million, a year-on-year increase of 39.2%.

The number of trips and revenue have fully recovered to 2019 levels. In Q2 2025, the growth rate during several major holidays was stable, with travel volume for Qingming/May Day/Dragon Boat Festival increasing by 6.3%/6.4%/5.7% year-on-year. Overall tourism in 2025 still emphasizes cost-effectiveness, with the sinking market and county tourism thriving, diverting traffic from top destinations. Cross-border travel is rapidly recovering, with 160 million inbound and outbound trips in Q1 2025, a year-on-year increase of 15.3%, recovering to 95.6% of 2019 levels, including 80 million mainland residents, a year-on-year increase of 15.4%, and a 33.4% year-on-year increase in foreign visitors. It is expected that in 2025, as capacity supply recovers, the growth rate of inbound and outbound tourism is likely to remain above double digits.

Resonance of demand from young people and seniors, with contributions from the sinking market, and cross-border travel growth exceeding expectations. A survey by Mafengwo's "Young Traveler Observation Report" indicates that 81% of respondents refuse to blindly follow trends to popular destinations; tourists aged 45 and above account for 36.81%, with the new generation of seniors averaging 8 domestic trips per year, and 84% of senior tourists hoping to enjoy better travel products and services.

OTA Outlook: Competitive landscape remains unaffected, with monetization rates expected to exceed expectations

JD.com has entered the hotel and travel sector, increasing investment in Q3, with inventory still gradually improving, having little impact on Q2. TONGCHENGTRAVEL is tapping into the sinking market for growth, with cross-selling + APP + AI empowerment driving ARPU value enhancement, and outbound travel continuing to reduce losses, with adjusted profits expected to grow by double digits in Q1 2025; Ctrip's pure overseas trip price advantage and fulfillment advantage are significant, entering a rapid expansion phase, which is expected to drag down overall profits, with adjusted profits expected to grow in single digits.

Core Scenic Area Outlook: Q1 Visitor Flow Diversification

Visitor demographics are becoming more diverse, with destinations becoming niche and sinking, leading to some dispersion of visitor flow in top scenic areas, with Changbai Mountain experiencing a 10% year-on-year decline in visitor flow in Q2 2025. The demand for pilgrimage and improved passenger transport penetration is expected to drive Jiuhua's revenue growth in double digits. Tianmu Lake, CYTS, and SanTe are expected to remain flat. Xiangyuan's newly added scenic areas are incorporated, with performance continuing to grow significantly Offline Retail: The Offline Big Cycle Has Arrived, Q4 Same-Store Sales Expected to Recover

With macroeconomic growth slowing, the gap between online and offline retail is narrowing, and the growth rate of retail by format is rebounding, but the average transaction value still faces pressure. From January to May 2025, the year-on-year growth of social retail is +5%, which is weaker than in 2023. The cumulative year-on-year growth of physical online retail sales is +6.4%, and the year-on-year growth of the online-offline gap has begun to slow down. By retail format, the year-on-year growth rate of major formats rebounded in Q2, with department stores and specialty stores all turning positive in Q2 growth. CPI determines retail prices, thereby affecting same-store sales; in Q2 2025, CPI turned negative, while goods consumption was weaker than service consumption.

The transformation of new offline formats involves upgrading products and experiences. Offline retail is shifting from traffic to stock, and innovation is a necessary condition for this round of the offline cycle. Pang Donglai's support for Yonghui and Bubugao has comprehensively improved the product quality-price ratio and service quality, doubling customer flow, and store sales continue to exceed expectations; Jiajiayue and others have also fully launched reforms, shifting from KA to direct procurement and increasing the bakery category; Chongqing Department Store focuses on a dual reform approach of quality supermarkets and fresh discounting.

Dining and Hotels: Supply Side Still Under Pressure, Expecting Operational Reforms

In Q2 2025, hotel demand began to recover, estimating a 10% growth in overall GMV for Q2. However, due to the impact of supply expansion, hotel RevPAR in Q2 2025 remained basically flat, with economy hotels performing better than mid-to-high-end hotels, related to the supply rhythm, and the logic of economy hotels upgrading to mid-to-high-end remains unchanged.

Local Life: Local Competition Accelerates in Q2 2025, Instant Retail Format Welcomes Expansion

The competition in Meituan, JD.com, and Alibaba's takeaway and instant retail businesses continues to intensify, also entering the OTA field to effectively promote local business cross-coordination and capture user mindshare. On June 18, JD.com announced that hotel merchants joining the JD Hotel PLUS membership program could enjoy up to three years of 0 commission. On June 23, Alibaba announced that starting today, Ele.me and Fliggy would merge into Alibaba's China e-commerce business group. Additionally, in 2025, JD.com and Taobao will for the first time include takeaway services in the 618 promotion, providing significant subsidies to drive traffic back to the main e-commerce business. On July 2, Alibaba announced it would continue to subsidize users and merchants with 50 billion in the next 12 months.

Under the trend of far-field e-commerce seeking incremental growth locally, the penetration of instant retail formats is accelerating. The scale of China's instant retail market is expected to reach 780 billion yuan in 2024, with a year-on-year increase of 20%, and a CAGR of 15.9% from 2025 to 2030. Zheshang Securities believes that the takeaway war has activated the home delivery business market, and considering the rise of instant retail channels may take away some online e-commerce market share, forcing e-commerce platforms to continuously increase their layout in instant retail, driving the acceleration of instant retail format penetration. We are optimistic about self-operated platforms focusing on differentiated product competition, while platform-type businesses improve operational efficiency driven by increased order volume.

Target Aspects

Recommended targets: Offline Retail: Yonghui Supermarket (601933.SH), Chongqing Department Store (600729.SH), Jiajiayue (603708.SH), Suning.com (002024.SZ), Hongqi Chain (002697.SZ); Local Life: Meituan-W (03690); E-commerce: Alibaba-W (09988); Dining and Hotels: Tongqinglou (605108.SH), Shoulv Hotel (600258.SH), Jinjiang Hotel (600754.SH), Huazhu Group (01179); OTA platform: Trip.com Group-S (09961), TONGCHENGTRAVEL (00780); Scenic spots: Xiyu Tourism (300859.SZ), Changbai Mountain (603099.SH); Performing arts: Songcheng Performance (300144.SZ).

Risk Warning

Consumer recovery is less than expected; intensified industry competition; exchange rate and interest rate risks