The company's recent situation
Recently, we invited Tongcheng's management to conduct a non-transactional roadshow with investors after the 4Q23 results. The company shared domestic and international development strategies for the core OTA in 2024, as well as plans for incremental business.
reviews
Domestic OTA business will grow on a regular basis in 2024, and other businesses will contribute more. 1) Hotels: The company expects to continue to benefit from an increase in the penetration rate of the low-tier market, and the annual revenue growth rate may be similar to overnight volume growth; 2) Transportation: The company expects train tickets to focus on revenue growth from VAS products such as Huixing systems and insurance, and the commission rate is expected to rise; under the low price subsidy strategy, ticket volume growth is expected to reach 2-3 times the industry growth rate, revenue growth rate or lower than ticket volume growth; 3) Others: The company expects the size to double year-on-year in 24, and revenue growth is mainly driven by scale; considering the base effect last year, we expect 1Q24 Core OTA revenue also increased 23%, and core OTA business revenue also increased 26% throughout the year. Looking ahead to 2024, the company expects to increase customer acquisition efficiency in the WeChat ecosystem while increasing customer acquisition through app channels, and the international business is expected to accelerate expansion on the basis of maintaining a break-even balance.
The vacation business increases the coverage of the industrial chain and is expected to benefit from the resumption of outbound and group tours during the year. As an important part of the layout of the industry chain, the company completed the acquisition of Tongcheng Travel at the end of November 2023. The company expects its self-designed travel products and differentiated offline traffic (such as Yinfa Family) to expand the platform's existing product line and traffic; considering the different business attributes, the company expects to separately disclose the financial situation of Tongcheng Travel (vacation business) in 1Q24 so that investors can better track it. In '23, revenue from the domestic and cross-border vacation business recovered to 80% and 2-3% respectively in '19. Benefiting from the continued recovery of the group travel market, the company expects the domestic vacation business to return to over 19 levels in '24, and the cross-border vacation business is expected to return to 80% in '19. The company expects the overall vacation business to contribute 15-18% to revenue in 24, and the profit margin may be 2-5%.
The profit margin of the core OTA business may decline due to the influence of international business and customer acquisition strategies. Considering the relatively accelerated expansion in China, we expect the company's overall marketing investment rate to remain relatively high in 2024; in addition, we expect an increase in early investment in international business, which will also have an impact of 1-2 ppt on the core OTA profit margin. Overall, we expect the non-IFRS net profit margin of the core OTA business to be 18% in 24, a decrease compared to 19.1% last year; considering the low profit margin of the resort business, we expect the Group's non-IFRS net profit margin to be 15.8% in 24.
Profit forecasting and valuation
We maintain our 2024/2025 revenue and profit forecast, outperform the industry rating and target price of HK$21.5 (based on 16 times the 2024 non-IFRS price-earnings ratio). There is 8.1% upside. The company is currently trading 15/11 times the 2024/2025 non-IFRS price-earnings ratio.
risks
Macro uncertainty, cost control falls short of expectations.