OTA business revenue continued to grow well in the first quarter of 2024, and profit margins declined somewhat year over year. In 2024Q1, the company achieved revenue of 3.87 billion yuan, net profit due to mother of 40 billion yuan, and adjusted net profit of 550 million yuan, an increase of 49.5%/5.0%/10.9%, respectively. Among them: 1) OTA platform revenue reached 3.21 billion yuan, up 23.9% year on year, and online penetration of the sinking domestic market continued to be interpreted; profitability declined year on year, mainly due to the company gradually entering the overseas investment cycle since the second half of last year. At the same time, domestic app-side customer acquisition marketing increased. The operating profit margin of the Q1 OTA platform was 22.6%, down 3.7 pct year on year. 2) The vacation business achieved 660 million yuan, mainly due to offline travel agencies and scenic spot operations combined in December last year. It is expected to benefit from the recovery of outbound travel trends. The operating profit margin for the first quarter was 6.6% compared to the peak season.

The domestic market has benefited from increased online penetration in the sinking market, diversified industrial chains, and the international market has entered a rapid expansion cycle. 2024Q1's transportation and lodging business revenue was 1.74 billion and 960 million, respectively, up 25.6% and 15.6% year on year. The base of accommodation revenue for the same period last year was relatively low, but it still benefited from increased online rates and the consumption boom in low-tier cities, and achieved good year-on-year growth. In addition, the company's international business expanded at an accelerated pace. The number of international air tickets increased by more than 260% year on year, and the number of international hotel nights increased by more than 150% year on year. While strengthening its core OTA business, the company continued to expand its diversified layout. Q1's other revenue segments (including advertising, membership, hotel management, etc.) increased 36% year over year to 50 billion yuan. By the end of April 2024, nearly 1,800 hotels had been opened on the Elong Hotel Technology Platform, and more than 2,600 hotels had been signed.

In terms of user monetization, paying users and per capita contributions continued to grow, and daily app activity reached a new high. The company continues to enrich service scenarios and product categories to meet the multi-level needs of a wide range of consumers in the sinking market. By the end of 2024Q1, registered users in non-first-tier cities accounted for about 87% of the total number of registered users. The annual paid users of the 2024Q1 platform increased by 14.3% year-on-year to 229 million; in terms of ARPU, on the one hand, the annual user purchase frequency increased to 8 times, far higher than 5 times in the same period in 2019; at the same time, the 15-day cross-selling rate increased to 11%, thereby increasing the revenue and commission rate for each transaction. 2024Q1's commission rate increased to 5.9%, an increase of 0.9 pct over 2019 Q1. In April-April 2024, the company's daily app activity reached 2 million, up 100% year-on-year under a low monthly activity base, providing a good foundation for further strengthening competitive barriers.

Benefiting from the sinking market tourism boom, the overseas expansion cycle phase disrupts profit margin levels. Looking ahead, although prices in the hotel industry are currently relatively lackluster, the platform's low star performance still shows some resilience. Overall, it still benefits from the sinking market's online penetration dividends and the growing consumer sentiment of tourism, driving good revenue growth. However, at the same time, the company is also actively increasing the overseas industrial chain to explore the international market and increase domestic app marketing. Looking at the whole year, it is expected that this may have a certain impact on profit margins. In terms of trends, considering last year's Q2 as the first full quarter of normalization, it is expected that there will be a high base impact of compensatory travel demand (23Q2 companies' adjusted net profit of 171% of 19Q2). The base figure declined relatively in the second half of the year, while marketing and sales investment gradually increased. The year-on-year growth rate of OTA's main revenue and profit this year is not ruled out to be high.

Risk warning: Traffic costs have changed, industry competition has intensified, and consumption recovery falls short of expectations.

Investment advice: For the time being, maintain the company's adjusted net profit for 2024-2026 at RMB 27.4/33.9/4.08 billion, and dynamic PE at 14/11/9x. The company is deeply involved in WeChat applets, has deep insight into the travel needs and consumption habits of a wide range of people in low-tier cities, and benefits from online penetration to increase dividends and the current trend of narrowing down travel destinations. It continues to increase the monetization of platform users' contributions in terms of travel frequency and single consumption, which is expected to drive good revenue growth. At the same time, based on mid-tier growth and competitiveness improvement considerations, the company gradually increased its marketing investment in the outbound travel business and domestic apps. The initial stage disrupted profit margins, followed up on the layout effects and profit margin trends of the new business and new channels, and maintained a “gain” rating for the time being.