2025-08-05 03:19Summary of Conference Call Notes Company and Industry Overview - Company: Tongcheng Travel Holdings (0780.HK) - Industry: China Internet and Other Services Key Points and Arguments 1. Investment in Dalian Sunasia Tourism: Tongcheng's subsidiary will subscribe to a private placement at Rmb24.75 per share, totaling Rmb956 million, acquiring 23% of Sunasia's stakes and 31% voting power, making Tongcheng the final controller [1][2] 2. Financial Performance of Sunasia: Sunasia has operated at a net loss for the past two years due to asset impairment but was slightly profitable when excluding that impairment [2] 3. Market Reaction: Following the announcement, Tongcheng's share price declined by 11%, resulting in a market cap decrease of Rmb5.5 billion [2] 4. Concerns on M&A Strategy: The investment in a not very profitable, asset-heavy state-owned enterprise (SOE) raises concerns regarding Tongcheng's M&A strategy [2] 5. Stock Rating and Price Target: Morgan Stanley rates Tongcheng as "Overweight" with a price target of HK$27.00, indicating a potential upside of 33% from the closing price of HK$20.35 on July 28, 2025 [4] 6. Financial Projections: - Revenue Growth: Expected revenue growth from Rmb17,341 million in FY 2024 to Rmb22,736 million by FY 2027 [4] - Net Income: Projected net income growth from Rmb2,785 million in FY 2024 to Rmb4,199 million by FY 2027 [4] - EPS Growth: EPS expected to increase from Rmb1.22 in FY 2024 to Rmb1.78 by FY 2027 [4] 7. Valuation Metrics: - P/E Ratio: Expected to decrease from 14.1 in FY 2024 to 10.4 by FY 2027 [4] - ROE: Projected to improve from 11.2% in FY 2024 to 14.9% by FY 2027 [4] 8. Risks Identified: - Upside Risks: Strong pent-up demand and moderating competition in lower-tier cities could lead to margin upside [7] - Downside Risks: Softer macroeconomic growth in China and intensifying competition in lower-tier cities could negatively impact price-sensitive users [7] Additional Important Information - Market Capitalization: Current market cap is Rmb42,576 million [4] - Average Daily Trading Value: Approximately HK$242 million [4] - WACC and Growth Assumptions: WACC is set at 11.5% with a terminal growth rate of 3%, aligned with long-term GDP growth targets [6] This summary encapsulates the critical insights from the conference call, highlighting the strategic investment by Tongcheng, its financial outlook, and the associated risks and market reactions.