On the evening of July 30, Tongcheng Travel and Tencent Computer renewed the three-year 2024 strategic cooperation and marketing framework agreement. While Tencent provides traffic support services for Tongcheng, the two parties provide each other with advertising and marketing related services, and Tongcheng Travel pays related expenses. This agreement is a renewal of the 21-year cooperation agreement, which will help the two sides continue to deepen strategic cooperation. The maximum total service fee paid by the company to Tencent in 2024-2026 is 1.63/1.84/1.93 billion yuan, corresponding to a CAGR of 8.7% for 24-26 years. Considering the future growth of the company's revenue, it is expected that the overall service rate paid by subsequent companies to Tencent will remain stable or slightly optimized.
Renew the traffic & marketing cooperation agreement with Tencent and deepen strategic cooperation. On the evening of July 30, Tongcheng Travel and Tencent Computer re-renewed the 2024 Tencent strategic cooperation and marketing promotion framework agreement for a period of three years. According to the agreement: (1) Tencent Computer provides traffic support services to Tongcheng Travel (2) Tencent Computer and Tongcheng Travel provide each other with advertising and marketing related services, and Tongcheng Travel pays for related traffic support and marketing services. The agreement period is from August 1, 2024 to July 31, 2027. This agreement is renewed after the expiration of the 21-year cooperation agreement. As of 2023, about 80% of the company's average monthly active users came from the WeChat Mini Program. The renewal of this agreement will help the two sides continue to deepen strategic cooperation.
The service ceiling fee has been growing steadily, and the corresponding CAGR for 24-26 years is 8.7%. According to the announcement data, the maximum total service fee that will be paid to Tencent for 24-26 years is 5.4 billion yuan, an increase of 76.8% over the 21-23 upper limit (slightly lower than our expected revenue growth rate). The total service fee actually paid to Tencent by the same trip between 21-23 was 78.7% of the upper limit. Looking at each year breakdown, the maximum total service cost for 24-26 years was 1.63/1.84/1.93 billion yuan, up 20.2%/12.6%/5.0% year on year, and 8.7% for 24-26. It is estimated that the maximum cost of traffic support services payable for the same journey in 24-26 is 0.65/0.71/0.74 billion yuan, an increase of 11.9%/8.9%/4.5% year over year; the maximum cost of advertising and marketing promotion services payable in 24-26 is 9.8/ 11.3/1.19 billion yuan, a year-on-year increase of 26.4%/15.1%/5.3%. Overall, considering the company's rapid growth in revenue and users in recent years, it is expected that the overall service rate paid by the company to Tencent will remain stable or slightly optimized in the future.
Investment advice: With domestic transportation demand picking up in Q2, we expect the company's second-quarter revenue to be 4.27 billion yuan, up 48.8% year on year, accommodation revenue of 1.2 billion yuan/ +13.4%, transportation ticketing 1.73 billion yuan/ +16.0%, and other revenue up 85% year over year. It is expected that Q2 will achieve adjusted net profit of 0.64 billion yuan/ +7.7%. As the cooperation between Tongcheng and Tencent continues to deepen, we are still optimistic about the company's broad prospects in the sinking market, and recommend investors to pay active attention.
Risk warning: risk of macroeconomic decline; rising cost rates during the period; passenger flow recovery falls short of expectations.