Overview of Tongcheng Travel Holdings

Tongcheng-Elong, a leading one-stop online travel agency (OTA), is known for its comprehensive suite of travel services. These services span across transportation ticketing, accommodation reservations, and more, catering to the diverse travel needs of users. The company has recently been upgraded to a “BUY” recommendation, reflecting positive market sentiments.

Financial Highlights

In the third quarter of 2024, Tongcheng Travel Holdings reported robust financial results, surpassing market expectations. The company’s revenue soared by 51.3% year-over-year to reach Rmb4.2 billion, which is 3% above the consensus estimate. Adjusted net profit rose by 46.6% to Rmb910 million, marking an 11% beat compared to consensus estimates, showcasing the company’s strong financial management and growth trajectory.

The non-IFRS net margin was recorded at 18.2% in Q3 2024, slightly lower than the 18.8% reported in Q3 2023. This indicates a stable profit margin amidst increasing revenue. Looking forward, the company expects its Q4 2024 revenue to grow between 25-30% year-over-year, with adjusted net profit guidance set between Rmb580 million and Rmb630 million.

Segment Performance

The transportation ticketing segment experienced a 21% year-over-year growth, driven by a significant increase in ticketing volume and enhancements in value-added services. The accommodation segment saw a 22% increase, attributed to improved cross-selling strategies and a substantial rise in international room nights. Other revenue segments, including online packaged tours and hotel management, also demonstrated solid growth.

Notably, the newly integrated tourism segment saw sequential growth of 36% in Q3 2024, reflecting the company’s successful expansion into tourism services.

Market Outlook and Strategic Focus

For Q4 2024, Tongcheng Travel Holdings projects a continued upward trajectory. Accommodation reservation revenue is expected to grow 20-25% year-over-year, with hotel rates remaining stable and take rates improving. Transportation ticketing is forecasted to grow 15-20%, supported by a stable take rate and a significant boost from international air ticketing revenue. Other revenue streams are also anticipated to expand, driven by hotel management and OTA operations.

Looking ahead to 2025, the company aims to capture 5-10% of its revenue from international travel, with OTA revenue contributing 10-15% over the next three years. Emphasizing first-tier markets and the hotel segment, Tongcheng Travel Holdings plans to significantly outpace industry growth, focusing on increasing market penetration and maintaining stable take rates across segments.

Financial Projections and Risks

The company’s financial projections for 2024 include a 47% increase in revenue from the previous year, with the adjusted net profit margin expected to stabilize at 14.2-15.7%. Despite the acquisition-related margin drag, the company remains optimistic about its financial outlook for 2025.

Potential risks include intensified competition and price wars, as well as the normalization of domestic travel demand. These factors could impact the company’s growth and profitability. However, Tongcheng Travel Holdings remains well-positioned to leverage its strategic initiatives and market opportunities.

Valuation and Recommendation

UOB Kay Hian has upgraded Tongcheng Travel Holdings to a “BUY” recommendation, with a higher target price of HK\$20.00, reflecting the company’s promising growth prospects and strategic initiatives. Currently trading at 14x 2025F PE, the stock is considered undervalued compared to its historical mean of 25x, presenting a compelling investment opportunity.