Key points of investment

Incident: On October 30, 2024, Zhongxin Travel released its 2024 three-quarter report. The 2024Q1-Q3 company achieved revenue of 4.723 billion yuan, +130% year-on-year, net profit to mother 0.123 billion yuan, +774% year-on-year, and net profit after deducting non-return to mother was 0.118 billion yuan, +1056% year-on-year.

Q3 revenue recovered 55% in 2019: Q3 revenue was 2.106 billion yuan, +67% year over year, back to 55% in the same period in 2019; net profit to mother was 0.052 billion yuan, +6% year over year, which is in the middle of the forecast range. It was 0.005 billion yuan in the same period in 2019, and Q3 net profit increased 18% over Q2's 0.044 billion yuan. It is a further restoration of residents' outbound travel. As a leading outbound travel agency, the company continues to recover revenue and profits. Q3 gross margin was 13.0%, +1.2pct year on year; net profit margin was 2.5%, -1.4pct year on year. Under rapid growth in business volume, sales expenses increased 2.8 percentage points year over year, dragging down profit margins.

International passenger traffic in civil aviation continued to climb during the peak summer season, and outbound travel was further booming: in September 2024, the international+ regional passenger flow at Beijing Capital Airport/Shanghai Pudong+Hongqiao Airport/Guangzhou Baiyun Airport recovered 58%/94%/83% from 2019, respectively, and was further restored from 50%/87%/75% levels in Q2. 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 National Day holiday and Cuofengyu products are expected to support Q4 performance: the company broadens upstream and downstream resources, optimizes product structure, improves operational efficiency, and continues to improve profitability. The outbound travel market performed well during the National Day holiday. According to Ctrip data, the average number of outbound travel orders on its platform during the National Day exceeded the same period in 2019, reaching a record high. The company launched the “Benefit Season” product series, which focuses on tourist routes departing from mid-late October to January 2025. As of October 14, overall sales were close to 80%, and we expect to support Q4 performance.

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 continue to recover their profitability. Based on the degree of recovery in the outbound travel business, the profit forecast for Zhongxin Travel was adjusted. Net profit returned to mother in 2024-2026 was 0.17/0.23/0.29 billion yuan respectively (previous value was 0.18/0.23/0.29 billion yuan), corresponding to PE 46/34/27 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.