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Ctrip:Over-concern on short-term policy risk,Recommend to buy

类型:公司研究  机构:德意志银行   研究员:Alvin Jiang,Alan Hellawell  日期:2017-08-30
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Long-term thesis intact; overly concerned on cross sales risk

    Ctrip’s share price fell due to policy risk on air-ticket cross sales. We believecross sales should continue as it is not tied-in sales and helps travelers enjoy abetter experience. Ctrip, as the largest OTA with the richest travel products andbest service quality, should continue to benefit from the cross sales trendregardless of short-term ups and downs. Meanwhile, Ctrip is enhancing itsleadership as the largest air ticket distributing platform and enjoys dominancein mid- to high-end hotel OTA. We expect solid 2Q results and 3Q guidanceand recommend buying when the stock suffers due to short-term news flow.

    We expect solid 2Q despite headwinds in outbound travel; waiting for betteroutbound sentiment in FY18

    Ctrip will announce its 2Q results on August 30(August 31morning HKT) afterthe US market closes. We expect Ctrip to report RMB6,353mn net revenue andRMB950mn non-GAAP operating profit in 2Q, implying 44% YoY revenuegrowth (within company guidance of +40-45% YoY growth) and a 15% non-GAAP operating margin. For 3Q, we expect the company to guide for revenuegrowth of 35-40% YoY. Meanwhile, we believe destination risks on outboundtravel have begun to diminish as evidenced by recovering travel to Europe.Outbound travel sentiment should recover from late FY17and FY18, in ourview, and Ctrip, as the leading OTA, should continue to benefit from this.

    Short-term policy risk is priced in

    We believe the 15% price drop in the past two weeks (vs. NASDAQ -3%) hasalready priced in the worst scenario of the policy risk from CAAC. Cross salesis not tied-in sales and it could help travelers in most scenarios. As the largestair ticket distributing platform, Ctrip should continue to leverage the leadershipin traffic and product inventory to service customers better.No

    price war in hotel market

    Despite various campaigns by peers, Ctrip maintains clear dominance in hoteldistributing, especially mid- to high-end hotels. Owing to the pure travel trafficand best coverage among hotels, Ctrip does not use coupons to stimulate themarket and keeps solid growth. Fliggy and Meituan are leveraging differenttraffic groups that have little overlap with Ctrip. Fliggy and Meituan’spenetration into mid- to high-end hotels continues to struggle in inventoryexpansion as well as ADR improvement. Both companies snub the price warstrategy under the consumption upgrade trend.

    Maintaining Buy rating and target price of USD62

    We maintain our Buy rating on Ctrip and our target price of USD62. We largelyretain our revenue and margin forecasts for FY17E/18E/19E. We use PEG asour primary valuation methodology. Our target price is based on 1.1x PEGagainst FY17-19E EPS CAGR of 51% and USD1.1FY17E non-GAAP EPS. Risks:

    1) strong competition in the hotel market and 2) unsuccessful investmentintegration.

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