20210303-招银国际-同程艺龙-00780.HK-Moving_into_2021_recovery_5页_825kb

Tongcheng-Elong (780 HK) Company Update Summary

Core Content

Tongcheng-Elong ("TC") is a company operating in the Chinese internet and travel services sector. The report provides an update on its financial performance and outlook for the fourth quarter of 2020 (4Q20E) and the following years, factoring in the impact of the ongoing COVID-19 pandemic. The key focus is on its recovery trajectory, financial metrics, and the analyst's recommendation for the stock.

Key Financial Performance

Revenue and Earnings

4Q20E Forecast

• Revenue: Expected to decline by 8% YoY to RMB 1,810 mn, 2% below consensus.
• Adj. Net Profit: Forecasted at RMB 287 mn, with an adj. net margin of 16%, down 1pct YoY.
• Hotel Segment:
  • Revenue: Expected to increase by 2% YoY, in line with guidance.
  • Room nights: Projected to grow 20% YoY.
  • Take rate: To remain strong at 9%.
  • ADR: To decline by 20% YoY.
• Transportation Segment:
  • Revenue: Expected to drop by 15% YoY due to the recurrence of the pandemic.
• Geographic Recovery:
  • Lower-tier cities are anticipated to recover faster than higher-tier cities.
  • The 1Q21E may still see some drag due to increased government restrictions.

Earnings Revisions

• Revenue: Earnings forecast reduced by 4% in FY20E, 20% in FY21E, and 13% in FY22E.
• Adj. Net Profit: Revised down by -2.9% in FY20E, -10.1% in FY21E, and -5.4% in FY22E.
• Adj. EPS: Revised down by -5.3% in FY20E, -12.2% in FY21E, and -5.9% in FY22E.

Strategic Focus in 2021

• Prioritizing MPU and Hotel Growth: TC is focusing on domestic hotel recovery, targeting a 40% increase in domestic room nights compared to FY19.
• User Acquisition: TC is increasing its efforts through:
  • Offline promotions, such as QR code and bus ticketing.
  • Branding initiatives, including sponsorships for hot variety shows and dramas.
• APU (Annualized Paid Users): Aiming for 200 million APU in FY21E, a 30% increase from FY19.
• S&M/Rev Ratio: Targeting a reduction of 3-4ppts.
• Adj. Net Margin: Expected to be slightly lower in FY21E than FY19, but is projected to increase to 20% in FY22E.

Valuation and Recommendation

• Target Price (TP): Raised to HK$21.0, up from HK$19.0.
• Current Price: HK$17.3.
• Up/Downside: +20.7%.
• Valuation: At 15x FY22E P/E, the valuation is considered attractive.
• Recommendation: Maintain BUY.

Peer Comparison

TC's FY21E P/E is 21.0, and FY22E P/E is 14.9. Its P/B ratio is 2.4 in FY22E.

Key Ratios

• Gross Margin: Expected to increase to 71.5% in FY22E.
• Adj. Net Margin: Projected to reach 20.0% in FY22E.
• ROE: Expected to rise to 8.9% in FY22E.
• ROA: Anticipated to increase to 6.0% in FY22E.

Analyst Certification and Disclaimer

• The analyst certifies that the views expressed in the report reflect personal opinions and are not influenced by compensation.
• No trading was done by the analyst or their associates within 30 days prior to the report.
• The report is not a recommendation to buy or sell, but an information supply for clients.
• The information is based on public data and is not guaranteed to be accurate or complete.
• CMBIS does not provide individually tailored investment advice and recommends consulting a financial advisor.

CMBIS Ratings

• BUY: Potential return of over 15% over the next 12 months.
• HOLD: Potential return of +15% to -10% over the next 12 months.
• SELL: Potential loss of over 10% over the next 12 months.
• OUTPERFORM: Industry expected to outperform the relevant market benchmark.
• MARKET-PERFORM: Industry expected to perform in line with the relevant market benchmark.
• UNDERPERFORM: Industry expected to underperform the relevant market benchmark.

Conclusion

Tongcheng-Elong is expected to experience a slow recovery in 4Q20E and 1Q21E due to the ongoing impact of the pandemic. However, the company is focusing on domestic hotel recovery and user acquisition to drive growth in 2021. The analyst has maintained a BUY rating, increasing the target price to HK$21.0, citing an attractive valuation and potential for recovery. The report highlights improvements in margins and a strategic shift to MPU and hotel growth.