Tongcheng Travel (780 HK) Company Update Summary
Core Content
This report provides an equity research update on Tongcheng Travel (TC), a leading online travel agency in China. The analysis highlights the company's improved recovery trajectory due to the faster-than-expected reopening of the Chinese market and its strong performance in various segments. The report also outlines the updated earnings forecasts, target price, and financial metrics.
Main Points
4Q22E Performance Outlook
- Topline and Bottom Line Recovery: TC is expected to deliver a positive topline and bottom line in 4Q22E, with revenue declining by -21% YoY (vs. prior -24% YoY) and adj. net profit reaching RMB12mn (vs. prior net loss of RMB51mn).
- Segment Recovery:
- Transportation ticketing: Revenue decline of 33% YoY (vs. prior guidance of 30-35% decline), with better recovery in air ticketing and long-haul travel.
- Hotel: Revenue decline of -10% YoY (vs. prior guidance of -10 to -15% decline), room nights down -20% YoY, ADR < RMB200, but take rate >9%.
- Others: Revenue growth of +10% YoY, driven by resilient PMS and M&A activities.
FY23E Recovery Outlook
- Positive Outlook: TC is expected to outperform peers due to the CNY Festival and travel rebound.
- Recovery Trends:
- Transportation: Rebounds ahead of hotel, with railway ticketing at 2019 levels and air ticketing surpassing 2019 levels YTD.
- Hotel: Expected to rebound from March, with a strong recovery anticipated.
- Earnings Forecast Adjustment: FY23E revenue is forecasted to grow by +32.5% YoY, with adj. net profit up 137% YoY.
Margin Improvement
- Margin Trends: Despite market concerns about rising competition and S&M costs, the margin improvement trend remains intact.
- Adj. Net Margin: Expected to rise to 17% in FY23E, up 7.5ppts YoY.
- Marketing Strategy: TC is expected to maintain ROI-driven marketing despite higher S&M budgets, with limited threat from Douvin due to supply chain barriers.
Target Price and Rating
- Maintain BUY Rating: The company's rating is maintained as BUY.
- Target Price: Updated to HK$23.1 (from HK$17.1), reflecting a 31.8x FY23E P/E and 26.4x FY24E P/E.
- Valuation Justification: The multiple is still below that of TCOM (32.6x), but higher than the industry average (24x), justified by its above-industrial growth and margin outlook.
Key Financial Data
| Metric |
FY21A |
FY22E |
FY23E |
FY24E |
| Revenue (RMB mn) |
7,538 |
6,545 |
8,674 |
10,175 |
| YoY growth (%) |
27.1 |
-13 |
+32.5 |
+17.3 |
| Adj. net profit (RMB mn) |
1,296 |
621 |
1,472 |
1,776 |
| Adj. EPS (RMB) |
0.59 |
0.28 |
0.66 |
0.80 |
| YoY growth (%) |
35.9 |
-52 |
+137.1 |
+20.6 |
| P/E (x) |
30.1 |
62.8 |
26.5 |
21.9 |
| P/S (x) |
4.9 |
5.7 |
4.3 |
3.7 |
Shareholding Structure
| Shareholder |
Percentage |
| Tencent |
21.26% |
| Trip.com |
20.74% |
| T Rowe Price |
4.97% |
Share Performance
| Period |
Absolute (%) |
Relative (%) |
| 1 month |
4.2 |
-7.1 |
| 3 months |
31.2 |
0.1 |
| 6 months |
22.9 |
14.8 |
Market Cap and Stock Data
| Metric |
Value (HK$ mn) |
| Market Cap |
41,299 |
| Average 3 months t/o |
104.19 |
| 52 weeks High/Low |
20.05 / 9.00 |
| Total Issued Shares |
2,240 |
DCF Valuation Summary
| Metric |
FY23E (RMB mn) |
FY24E (RMB mn) |
| Equity Value |
45,222 |
51,979 |
| Target Price (HK$) |
23.1 |
- |
Key Assumptions in DCF
| Metric |
Value |
| WACC |
14.8% |
| Tax rate |
17.0% |
| Risk free rate |
3.95% |
| Beta |
1.20 |
| Market risk return |
13.0% |
| Long term growth rate |
3.0% |
Conclusion
The report concludes that TC is well-positioned for continued recovery as China reopens, with improved financial performance and margin trends. The updated target price and positive outlook reinforce the BUY rating, reflecting the company's strong position and growth potential in the travel sector.
