Results for the 2nd quarter of 2024: Revenue of 4.2 billion yuan (RMB, same below), up 48% year over year, basically in line with our /Bloomberg market expectations. Among them, core OTA business revenue increased 23% (transportation/accommodation +13%/17%), and vacation business revenue was 0.72 billion yuan. Adjusted net profit of 0.66 billion yuan, up 11% year on year, higher than our/Bloomberg market expectations of 5%/4%, corresponding to a net interest rate of 15%, down from 21% in the same period last year, due to lower profit margins in the vacation business and a drag on outbound business investment. Adjusted marketing expenses increased 35% year over year, mainly due to increased marketing activities, but their share of revenue remained stable at 35% month-on-month.

Performance highlights: 1) GMV increased 4% year over year, and the growth rate was lower than revenue. APU increased 5% to 0.228 billion due to last year's high base and increased monetization rate. 2) Transportation: The airline ticket business recorded a record high quarterly revenue. Ticket volume increased nearly 20% year over year, and international ticket volume increased 160% + under the overseas business expansion strategy. 3) Accommodation: The number of nights in mainland hotels increased by 10% year-on-year. Thanks to continuous exploration of scenarios and increased cross-sales rates, the company's ADR is relatively resilient under the overall pressure of the industry's ADR. International nighttime volume increased by nearly 140% year-on-year due to the expansion of the supply chain network and optimization of the product structure. 4) Other revenue increased 87% year-on-year, and the wine management business rapidly expanded its coverage. As of the end of June, the number of hotels operated by the Yilong Technology Platform was 1,900+, an increase of about 300 over March.

Outlook: Based on demand side growth falling short of expectations in the industry, we lowered our revenue growth forecast for the 3rd quarter and full year. OTA revenue is expected to increase 19% year over year in the 3rd quarter, which is slower than in the 2nd quarter. OTA revenue is expected to increase by 21% for the whole year. Among them, nighttime sales between hotels are growing at a rate of 10-15%. The monetization rate has increased due to more careful subsidies, and transportation revenue is mainly driven by the expansion of the airline ticket market share. Considering the company's strategic adjustments, abandoning low-ROI channel marketing, improving personnel cost control, and increasing the monetization rate and ROI investment in outbound operations, it is expected that the operating margin of the OTA business will resume year-on-year growth in the second half of the year, and the OTA operating margin is expected to stabilize at 25% year-on-year.

Valuation: We lowered our 2024 revenue/profit forecast by 4% and lowered our target price from HK$25 to HK$23, based on the same price-earnings ratio of 18 times in 2024. Although the year-on-year growth rate of the company's core OTA business has slowed down, it is still close to 20%. Under the current market environment, the company will also focus on the balance between revenue growth and profit margins. The profit margin of the core business is expected to recover in the second half of the year. The current price is only 10 times the 2024 price-earnings ratio, maintaining purchases.