德银-中国-软件与服务业（个股-携程）-短期关注价格，长期看好-20171103-Deutsche_Bank-CtripShort-term_concerns_look_priced_in；Buy_on_long-term_visibility_14页_524kb

Ctrip Summary

Core Content

Ctrip, a leading Chinese travel and online travel agency (OTA) company, reported strong financial results for the third quarter of 2017, with revenue reaching RMB7.9bn, a 42% year-over-year (YoY) increase and surpassing analyst expectations. The non-GAAP operating margin improved to 22%, a 4 percentage points increase YoY. The company's hotel segment was a key driver of this growth, with revenue beating expectations by 7%, attributed to its expansion into lower-tier cities and international markets.

Main Points

• Strong Q3 Performance: Ctrip exceeded revenue expectations for 3Q, with hotel revenue showing robust growth.
• 4Q Guidance: Management expects 25-30% YoY revenue growth for the accommodation segment in 4Q, with the potential for Skyscanner's contribution to boost growth to 29% YoY.
• Product Changes: Ctrip is making changes to its cross-sale products to improve user experience, which may have a short-term negative impact on revenue growth in 4Q17 and 1Q18.
• International Expansion: Skyscanner's direct booking model has driven significant growth in international air ticketing, with triple-digit growth in ticket volume. The company is also expanding its international presence through the acquisition of Trip.com.
• Competitive Landscape: Ctrip maintains a dominant position in the domestic hotel market due to its extensive inventory and service quality. The competitive environment is expected to shift towards user experience and comprehensive product solutions rather than price competition.
• Forecast Revisions: Deutsche Bank has revised its FY18 revenue forecast downward by 4% due to the product changes but raised FY19 revenue estimates by 1% due to improved organic efficiency and user experience.

Key Financial Highlights

Strategic Initiatives

• Hotel Expansion: Ctrip is expanding into lower-tier cities and strengthening its offline franchise model with Bestone.
• Skyscanner Integration: Skyscanner's direct booking model has been a major contributor to growth, and its integration is expected to boost international revenue.
• Product Enhancements: New products such as Ctrip Pilot (10-time express check-in and discounts) and additional services like free receipt delivery and cash rebates are aimed at improving user experience.
• Ground Transportation Growth: Ground transportation has seen triple-digit growth, supported by a comprehensive product package and the integration of Suanya, enhancing Ctrip's capabilities in high-speed rail services.

Risks and Valuation

• Risks: Potential strong competition in the post-paid hotel market and the risk of unsuccessful investment integration.
• Valuation: Deutsche Bank maintains a Buy rating with a target price of USD62, based on a 1.1x PEG multiple against a 56% CAGR in non-GAAP EPS from FY17 to FY19.

Analyst Insights

• Alvin Jiang, Research Analyst at Deutsche Bank, has consistently maintained a Buy rating for Ctrip, with target prices adjusted over time, reflecting confidence in its long-term growth and market leadership.

Conclusion

Ctrip's short-term challenges related to product changes are expected to be offset by long-term benefits from enhanced user experience and international expansion. The company's strong position in the hotel market and its strategic initiatives in product development and market penetration support its continued growth and profitability. Despite the risks, Deutsche Bank remains confident in Ctrip's ability to maintain its market leadership and deliver strong returns over the long term.