Leading outbound travel agency, integrated national layout: Established in 1992, Zhongxin Travel is a leading domestic outbound travel company. The company takes outbound travel as the core, develops wholesale and retail businesses in an integrated manner, integrates online and offline channels, and also lays out domestic travel and integrated marketing businesses, and has formed resources and brand advantages covering upstream and downstream areas. In 2019, the company achieved revenue of 12.68 billion yuan, of which the travel wholesale/travel retail business accounted for 71%/19% respectively; revenue in 2023 was 3.30 billion yuan, recovering to 26% in the same period in 2019. By the end of 2023, the total number of stores nationwide reached 1,500.

The outbound travel market recovered, and the leading market share increased: 1) After the epidemic, the outbound travel market recovered, and tourism demand gradually diversified. The number of outbound travelers reached 87 million in 2023, recovering to 56% in 2019; due to the restructuring of international passenger flow, Hong Kong, Macao and Taiwan residents accounted for 43% of inbound and outbound visitors, compared to +9pct in 2019. 2) The supply of outbound travel agencies was cleared, and the market share of leading companies increased. At the end of 2023, there were 243,200 travel agency employees, 42% compared to the end of 2019, and the supply was greatly cleared; industry leaders had obvious resource advantages and were the first to establish a supply chain, and their market share is expected to increase. 3) International passenger flow continues to recover, and there is still room for improvement in outbound travel penetration. In March 2024, the total passenger traffic volume on the international + Hong Kong, Macao and Taiwan routes was 5.611 million, recovering to 79% in the same period in 2019, and the popularity of outbound travel further increased; in 2019, China's outbound travel penetration rate was 11%, lower than the world average of 19%, and there is still plenty of room for improvement.

Products & operations create brand advantages, benefiting from the recovery of outbound travel: 1) Product: Continued innovation to build product strength, expand “travel +” to seek epitaxial growth. Positioning the middle and high-end markets, the product matrix covers diverse destinations and travel methods, and continuing to expand “Travel+” incremental products. 2) Operation:

Implement omni-channel marketing strategies to accelerate the digital transformation of cultural tourism. Combining online and offline channels to promote nationwide layout, while using self-media marketing to increase the company's brand penetration rate; co-invested with Ali in Hangzhou Axin to enable development of a self-developed distribution system platform. By the end of 2023, the peak monthly turnover reached 30 million. 3) Post-epidemic recovery: The recovery of outbound travel is accelerating, which is expected to release flexible performance. The China Institute of Tourism Research estimates that the number of outbound tourists will be 130 million in 2024, or 84% of the same period in 2019. The company is actively responding to the recovery of the outbound travel market, broadening destination resources, and is expected to unleash performance flexibility.

Profit forecast and investment rating: As a leading domestic outbound travel operator, Zhongxin Travel has accelerated the national layout with wholesale and retail integration. The outbound travel product matrix is rich. The industry's supply was clear during the epidemic. Leading companies are expected to take the lead in benefiting from the recovery of outbound travel, and profitability will continue to recover. We predict that the net profit of Zhongxin Travel in 2024-2026 will be 1.2/2.1/270 million yuan, respectively, corresponding to the PE valuation 54/30/24 times. Based on the rapid recovery of the company's business and the expected increase in market share, there is a certain valuation premium, and for the first time, coverage was given a “gain” rating.

Risk warning: Risk of macro demand falling short of expectations, risk of rising exchange rates, increased risk of market competition, etc.