Ctrip: Low Price and Strong Fundamentals - Value Buy
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Ctrip (NASDAQ: CTRP) is currently trading at 52 week lows and the market seems to be underappreciating the long term strategies the company has in the works. As Ctrip continues to increase its growth in the Chinese travel booking market, its initiatives in hotel products and high end leisure travel services will most likely increase its revenues further. The company reported solid top line growth and better than expected margins in 1Q12, and we expect positive sales trends in the coming months as well.
1) Solid Performance in hotel reservations likely to continue: Hotel reservations, contributing to 39% of total revenues, rose 18% Y/Y in Q1 compared to 11% in Dec. quarter. The costs associated with the coupon promotion program were ~8% of its total hotel booking revenues. According to the company, Ctrip’s hotel numbers grew to around 30,900 by the end of Q1, up 72% Y/Y, with over 70% of hotel partners offering Ctrip guaranteed room allotments. Ctrip has been continuously expanding its scope in hotel services by introducing new products to target different demographics. For Example-Tujia.com provides vacation apartment rentals for high end customers while Songguo.com works for younger crowds to provide them low cost hostel services. We expect that such pointed focus on different demographics will help Ctrip increase its customer base and capture more market share in the hotel booking business.
2) Air ticketing, packaged tours and corporate travels may continue showing strong results: Air Revenue, which generated 37% of total revenue, was up 10% Y/Y in 1Q2012. The increased air ticket revenue was primarily driven by a 17% increase in the number of air tickets sold and a decline of 5% in commission per ticket. Sales from packaged tours and corporate travel, which combined contributed 21% of total revenues, also rose by 33 and 23% Y/Y. This was mainly driven by increased leisure travel margins in the case of packaged tours and increased corporate travel demand. Ctrip currently plans to expand its corporate travel services in tier 2 cities that may drive higher demand, adding more revenues in the long term.
3) Progress in Mobile and online booking: Online booking accounted for 45% of total transactions in 1Q2012, growing 4% Y/Y. The mobile division caught reasonable traction generating 2-3% of total booking volume. The mobile application has had more than 10 M downloads according to Ctrip, making it the most popular travel booking app in China. The increased momentum of its mobile app could help Ctrip to penetrate into a younger demographic comprised of heavy mobile internet users.
Ctrip is currently trading at a 52 week low, with a PE valuation of 14.5. Although Ctrip faces risks from competitors like eLong (NASDAQ: LONG), which provides booking in around 28,000 hotels in over 700 cities across China, its scale as the biggest online travel agency in China will help it defend its position. Further, the company is traveling at a significant discount to eLong on an earnings basis. With a cumulative user base of around 16.4 million, Ctrip currently accounts for only around 3% of the total Chinese online population, implying ample opportunity to scale. With hotel and mobile booking revenues looking to increase in the long term and ample upscale opportunities, Ctrip is a value buy.
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