The Q2 performance was in line with expectations: 2024Q2 achieved revenue of 4.245 billion yuan, +48.1% year over year; net profit to mother was 0.434 billion yuan, +21.9% year over year; adjusted EBITDA was 0.914 billion yuan, +13.4% year over year; adjusted net profit was 0.657 billion yuan, +10.9% year over year, and Q2 results were in line with expectations.

2024Q2 gross margin was 64.6%, -10.8pct year on year, -0.4pct month on month; adjusted net margin was 15.5%, -5.2 pct year on year, +1.1 pct month-on-month. The gross margin of the new vacation business segment was low, and the Q2 off-season led to a structural decline in profit margins.

Steady growth in the transportation and lodging business: In the Core-ota sector, the transportation ticketing/accommodation reservation business Q2 achieved revenue of 1.743/1.191 billion yuan respectively, +16.6%/12.8% year-on-year. The growth in the transportation business was mainly due to increased ticketing volume and enhanced value-added service products. The growth in the lodging business was due to an increase in hotel supply and product structure optimization. The 2024Q2 company's total ticketing volume/total night volume was +20%/10% YoY, and the international airport/international nighttime volume was +160%/140% YoY. The company continues to improve cross-sales strategies, increase investment in international business, mainly air ticket business, improve operational efficiency, and continuously expand the outbound travel market.

Rapid growth in other businesses: 2024Q2's other businesses achieved a total revenue of 1.312 billion yuan, with Core-ota/vacation segments achieving 0.592/0.719 billion yuan respectively, +87.3% /- (the vacation sector was not consolidated in the same period in 23 years), mainly driven by advertising and black whale membership businesses. By the end of 2024Q2, the number of hotels operated by the company's hotel management division was about 1,900, and more than 1,000 stores were being prepared.

The frequency of purchases continued to rise, and the cooperation agreement was renewed with Tencent: as of the end of 2024Q2, the cumulative number of annual paid users/ annual service users was 0.228 billions/1.856 billion, respectively, +4.8%/29.9% compared to the same period; the frequency of user purchases was 8.1 times, and the frequency of payments continued to rise. The average monthly paying users/transaction volume in Q2 was 0.043 billion people/6.23 billion yuan, +0.7%/4.4% YoY. On July 30, 2024, the company and Tencent renewed a three-year strategic cooperation and marketing promotion agreement. In the future, they will continue to acquire user traffic through multiple channels, mainly WeChat, and further cultivate the sinking market. As of the end of 2024Q2, registered users living in non-first-tier cities accounted for more than 87% of all registered users, and about 70% of the new paying users on the WeChat platform in Q2 came from non-first-tier cities.

Profit forecast and investment rating: Tongcheng Travel actively operated WeChat traffic to achieve accelerated growth, domestic travel maintained a high boom, cross-border tourism gradually recovered, and the company's revenue and profit were greatly restored. Based on higher marketing expenses and a slowdown in growth under the Q3 high base, Tongcheng Travel's profit forecast was lowered. The expected net profit for 2024-2026 was 1.98/2.77/3.46 billion yuan (previous value was 2.17/2.83/3.54 billion yuan), the corresponding PE valuation was 14/10/8 times, and the adjusted net profit for 2024 was 2.56 billion yuan, corresponding to PE of 11 times, maintaining the “gain” rating.

Risk warning: changes in travel consumption habits, increased competition in the industry, etc.