Leading outbound travel company, profit margins increased dramatically after the pandemic
The company is the leading outbound travel agency business. In 2019, the company's revenue was 12.7 billion yuan, of which the outbound travel wholesale business accounted for 71%. The outbound and group travel business stopped during the pandemic. The company increased its domestic travel layout and introduced Ali as a war investment to ease cash flow pressure. The two sides set up a joint venture to establish a 2B distribution platform for travel agencies. In 2023, with the recovery of immigration, the company's profits were gradually released, and the 23Q3 net interest rate was 4%, exceeding pre-pandemic levels.
At the right time for the industry to recover, the market share of leading companies is expected to increase
International flights are gradually recovering. During the 2024 Spring Festival travel season, overall international flights resumed to 67.5% of the same period in 2019, and outbound travel was very popular. The Civil Aviation Administration expects international flights to return to 80% of pre-pandemic levels in 2024. The supply side of the industry is expected to gradually recover.
Travel agencies have been drastically cleared during the pandemic, and the competitive landscape of the industry has improved. Offline stores in the travel agency industry are still an important channel. Ctrip, Zhongxin, and Tongcheng opened stores faster after the epidemic, and the leading market share is expected to increase.
Store expansion+fee control efficiency, flexible performance release can be expected
As of June 30, 2023, the company has reached 1,300 offline outlets, surpassing the 2019 level. The company is currently expanding offline retail channels through franchise stores, with low cost investment and rapid expansion, injecting strong momentum into the high-quality and sustainable development of the “Zhongxin Travel” retail brand.
Employee compensation accounted for nearly 60% of the company's sales expenses in 2019. We believe that the company's future cost side optimization sources are: 1) the transfer of stores from direct management to franchise, reducing staffing requirements; 2) focusing on operating efficiency and making cost control more strict.
The 2023Q3 sales expense ratio is 4.8%, and the net interest rate is 4%. The net interest rate for a single quarter is the highest since 2017. We believe that with the gradual recovery of revenue, the net interest rate has a lot of room for improvement.
The company and Ali complement each other's resource advantages, and the Axin platform is expected to open up a new growth path for the company. According to the company's 2023 semi-annual report, the number of registered travel advisors in the system has exceeded 6,000 and has begun to gradually activate transactions. The total daily order amount has peaked at one million. We believe that as the industry continues to recover, the platform is expected to continue to empower small and medium-sized travel agencies to quickly develop business and bring new growth momentum to the company.
Investment advice
We expect the company to achieve operating income of 51.7, 81.0, and 11.53 billion yuan in 2023-2025, with a year-on-year increase of 920%, 57%, and 42%; net profit to mother of 30, 172, and 308 million yuan, corresponding EPS of 0.03, 0.18, and 0.31 yuan/share, respectively. Based on the closing price of 6.44 yuan on March 11, 2024, the corresponding PE is 214, 37, and 21 times, respectively, covered for the first time, giving it an “increase in holdings” rating.
Risk warning
Competition in the industry intensified, the resumption of international flights fell short of expectations, geopolitical risks, etc.