Key points of investment

Incident: On July 10, 2024, Zhongxin Travel released its 2024 semi-annual results forecast. 2024H1 expects net profit to be 0.65 to 0.08 billion yuan, reversing losses year-on-year; net profit after deducting non-return to mother is 0.60 to 0.075 billion yuan, reversing year-on-year losses.

Q2 performance exceeded expectations: net profit for Q2 in 2024 was 0.37 to 0.052 billion yuan, 2023Q2 was 0.003 billion yuan; net profit after deducting non-return to mother was 0.32 to 0.047 billion yuan, 2023Q2 was 0.002 billion yuan, and performance exceeded expectations. The median net profit forecast range for the Q2 single quarter was 0.044 billion yuan, up 58% month-on-month from 0.028 billion yuan in Q1. It is a further restoration of residents' outbound travel. As a leading outbound travel agency, the company continues to recover revenue and profits.

International passenger traffic in civil aviation continues to rise, showing a further boom in outbound travel: as of May 2024, international and regional passenger traffic at the national/Beijing Capital Airport/Shanghai Airport/Baiyun Airport recovered to a degree of 83%/49%/85%/76%, respectively, compared with 2019, which is a further recovery from 77% of the national level in Q1. With the gradual restoration of the travel supply chain such as international flights and destination visas, the outbound travel market is expected to recover at an accelerated pace.

The peak summer season is expected to drive Q3 performance to continue to strengthen month-on-month: the company broadens upstream and downstream resources, optimizes product structure, improves operational efficiency, and continues to improve profitability. Summer is the traditional peak season for outbound travel. The company expects the number of summer outbound visitors in 2024 to increase by 100% compared to last year, and the Q3 performance is expected to further strengthen compared to Q2.

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. Considering that Q2 performance exceeded expectations, we raised the profit forecast for Zhongxin Travel. Net profit to mother for 2024-2026 was 0.18/0.23/0.29 billion yuan, respectively (previous value was 0.12/0.21/0.27 billion yuan), corresponding to PE 34/27/21 times, maintaining the “gain” rating.

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