Tongcheng Travel reported 3Q24 revenue of Rmb5.0bn (+51% YoY) and adjusted net profit of Rmb910m (+47% YoY), higher than our expectations, thanks to higher than expected efficiency improvement. We raise 24E EPS forecast from Rmb1.12 to Rmb1.17, and maintain 25E forecast of Rmb1.32 and 26E forecast of Rmb1.52. We raise target price from HK$20 to HK$22.5, with 23% upside potential, we maintain Buy rating.

Strong growth of core OTA business. In 3Q24, the company's core OTA revenue increased by 22% YoY, with accommodation reservation revenue up by 22% YoY and transportation ticketing revenue up by 21% YoY. Number of monthly paying users reached a record number of 46.4m. The operating profit margin of core OTA business improved 7ppts QoQ to 31%, benefiting from cost control and efficient marketing activities. International hotel room nights increased by 130% YoY and air ticketing volume increased by 110% YoY. We expect the impact of outbound travel business's marketing activities on core OTA margin to narrow and outbound travel business to breakeven in 2025.

Performance Outlook. We expect 4Q24 revenue to grow 25% YoY, with accommodation reservation revenue up 20% YoY, transportation ticketing revenue up 15% YoY, and other revenue up 15% YoY.

Maintain Buy. We are optimistic about the long-term structural growth of the online travel industry, and Tongcheng Travel is expected to remain resilient on the top-line thanks to its mass market positioning and continuous expansion of customer acquisition channels, and strategically improve the certainty of bottom-line. We believe the company has relative high certainty in domestic consumption and maintain a Buy rating.

Risks. Revenue growth may fall short of expectations. Intensified competition could lead to margin erosion.