Tongcheng Travel Holdings Ltd_First Take_ 3Q24 – Yet another solid quarter

Summary of Tongcheng Travel Holdings Ltd 3Q24 Earnings Call Company Overview - Company: Tongcheng Travel Holdings Ltd - Ticker: 0780.HK - Current Price: HK$17.70 (as of 19 Nov 2024) - Price Target: HK$19.00 (by Jun-25) [1] Key Industry Insights - Industry: Online Travel Agency (OTA) sector in Asia, particularly in China - Market Context: The company has shown a strong performance compared to the Hang Seng Index (HSI), with a 37% share rebound in the last three months, while HSI increased by 12% [2] Core Financial Highlights - Revenue Growth: Revenue increased by 51% year-over-year (y/y) to RMB 5.0 billion, exceeding market expectations by 3% [2] - Core OTA Revenue: Excluding the offline tourism segment, core OTA revenues grew by 22% y/y, indicating resilience despite tough comparisons [2] - Profitability: Non-IFRS net profit surged by 47% y/y to RMB 910 million, significantly above the previous record and consensus estimates [2] - Net Margin: Achieved a net margin of 18.2%, outperforming the consensus of 17% [2] Segment Performance - Hotel Booking: Grew by 22% y/y, up from 13% in the previous quarter [2] - Transport Ticketing: Increased by 21% y/y, compared to 17% in the previous quarter [2] - Tourism Segment: Offline tourism business showed low-single digit margins, impacting overall profitability [2] Key Concerns - Cash Flow Issues: The company reported negative cash flow, with net cash declining by RMB 1.4 billion to RMB 5.2 billion. This was attributed to negative cash flows across operations, investments, and financing, potentially reflecting seasonality in the offline tourism business [3] - User Growth: Monthly Active Users (MPU) remained flat at 44.2 million, slower than the 2% growth in the first half of 2024. Gross Merchandise Value (GMV) growth also decelerated to 2% y/y from 10% in the first half [6] Management Outlook - Future Guidance: Attention will be on management's comments regarding forward demand and sales & marketing (S&M) spending for the fourth quarter and fiscal year 2025 during the earnings call [8] - Market Reaction: Anticipated positive stock reaction unless unexpected comments arise during the call [9] Additional Notes - Valuation Comparison: Tongcheng's forward P/E ratio is 12-13x, compared to Trip.com’s 18x, suggesting potential undervaluation [2] - Analyst Ratings: J.P. Morgan maintains an "Overweight" rating on Tongcheng Travel, indicating confidence in the company's growth trajectory [1][2] This summary encapsulates the key points from the earnings call, highlighting the company's strong performance, concerns regarding cash flow, and future outlook.