The company is an outstanding enterprise in China's online travel industry: the company's business covers air and train ticketing services, hotel accommodation reservation services, and value-added travel services. By focusing on the sinking market, establishing differentiated competitive advantages, and innovative marketing methods, the company promptly grasped post-pandemic industry recovery opportunities and achieved strong revenue and net profit growth in 2023.
The recovery of online travel is strong, and the sinking market is an important increase: OTA is in the middle of the travel industry chain and is an important value transmitter for the travel industry. In 2021, the top three OTA platforms in China's online travel market market were Ctrip, Meituan, and Tongcheng Travel, with market shares of 36.3%, 20.6%, and 14.8% respectively.
The concentration of the online travel market is expected to continue to increase in the future, benefiting leading companies in the industry.
The WeChat Mini Program contributes 80% of traffic, and the company is actively developing new traffic entrances: the company's partnership with Tencent has been around for nearly 10 years. The Tencent ecosystem is the company's main source of traffic. In 2020-2023, the company's average monthly active users from the WeChat Mini Program remained above 80%. In addition to the Tencent channel, the company is also actively expanding other traffic portals. Online investment is focused on Douyin and independent app operations have been strengthened. From August 2023 to March 2024, the traffic contribution of the Tongcheng Travel App increased from 4.0% to 4.7%. On the offline side, the company is actively reaching out to music festivals and other travel groups, seizing local and short-distance travel opportunities after the epidemic, strengthening the layout of bus ticketing, and launching an offline store franchise program to open up an “online+offline” travel and vacation service link.
When sharing hotel inventory with Ctrip and building its own supply chain: As the company's major shareholder, Ctrip is a leading travel service provider for accommodation reservations, transportation ticketing, group travel and business travel management in China. As of 2018H1, 44.3% of the company's hotels came from Ctrip, and in 2022, about 60% to 70% of the company's hotel inventory came from Ctrip. In addition to Ctrip, the company continues to expand the range of suppliers and improve the layout of hotel management and travel agencies.
For example, in 2021 and 2022, Tongcheng Travel successively acquired two PMS companies, Changsha Golden Swan and Beijing Mitianxia, to provide SaaS solutions for small and medium-sized hotels in low-tier cities, and obtain customer resources for small and medium-sized hotels in low-tier cities through technological empowerment. In 2022 and 2023, the company successively acquired Tongcheng International Travel Service and Tongcheng Travel Industry to strengthen its vacation coverage business. On the foreign side, the company accelerated its expansion into the North American market by developing apps and opening offline stores.
Profit forecasting, valuation and ratings: The company focuses on the sinking tourism market, fully enjoying the dividends of increasing the hotel chain rate and online rate of the sinking market. Combined, post-pandemic travel consumption favors short trips and low-tier city travel, which is expected to drive the company's performance to grow at a higher rate than the general market growth rate of the industry. We expect the company's 24-26 revenue to be 17.336, 20.355, and 23.369 billion yuan, respectively, and net profit to mother of 1.902, 2.446, and 2.906 billion yuan, respectively. The current stock price corresponding to 24-26 PE is 15/12/10 times, respectively. The company has a first-mover advantage in China's sinking travel market, actively building its own traffic entrances, and laying out a global supply chain system. We are optimistic about the company's future development prospects. First coverage, giving a “buy” rating.
Risk warning: Risk of residents' travel expenses falling short of expectations, risk of market competition increasing risk, risk of strategic cooperation with major shareholders falling short of expectations, risk of impairment of goodwill.