24Q3 performance remained high, and core OTA profit margin increased: 24Q3's revenue was 4.991 billion yuan, +51% year over year; adjusted net profit was 0.91 billion yuan, +46.6% year over year; both revenue and adjusted net profit exceeded the company's previous guidelines. Core OTA revenue reached 4.013 billion yuan, +22% year over year; vacation business revenue reached 0.979 billion yuan, +36% month-on-month, which also exceeded the company's previous guidelines. 24Q3's adjusted net profit margin increased 2.7 pcts to 18.2% month-on-month; core OTA profit margin reached 31.3%, +5.9 cpts year over year, and +6.8 pcts month-on-month. The increase in profit margins is mainly due to: 1) the narrowing of user subsidies in the accommodation sector, promoting an increase in the level of hotel net takerate; 2) optimizing international business investment strategies, focusing on revenue management and more accurate pricing strategies, reducing the negative impact of international business on profit margins; 3) adjusting sales expenses to focus on users, and optimizing subsidies for old customers on WeChat. In 24Q3, the company's sales expense ratio reached 29.4%, -9.1pcts year-on-year, and -6.0pcts month-on-month. 4) The 24Q3 vacation business achieved break-even, with a profit margin of 2.4%, reducing the drag on the profit side.

User value has increased significantly, accelerating the development of new traffic and international business: since 2023, the company has continued to dig deeper into user value and achieved good results: 1) The average number of monthly paying users of 24Q3 was 46.4 million, +5%; 2) By the end of September 2024, the company's user purchase frequency was more than 8 times a year, compared to 5.5 times in 2019; 3) 24Q3's ARPU grew to about 70 yuan, +53% YoY; 4) 24Q3's GMV monetization rate It increased to 6.9%, +2.2pcts year over year. In addition, the company continues to expand and add high-quality traffic through its own app. Before the National Day of 24, the app's daily active users surpassed 3 million, a record high. According to Questmobile, the traffic contribution of Tongcheng travel apps increased from 4% to 8% from August 2023 to August 2024. In terms of international business, the company established an overseas headquarters in Singapore and launched the international travel booking platform HopeGoo in mid-'24. Currently, the company's contribution to international business revenue is still low. In the future, it is expected to gradually increase its revenue scale and profitability and expand its share in the global market.

The OTA business is expected to maintain double-digit growth in 24Q4. The future focus will be on improving profitability: in the accommodation reservation sector, the company's accommodation reservation volume increased by double digits year-on-year during the National Day in '24. We expect the net rate of 24Q4 hotels to also increase year-on-year, and the 24Q4 company's accommodation reservation revenue is expected to maintain double-digit year-on-year growth. Transportation reservation sector: 1) According to flight managers, the passenger traffic volume of China's civil aviation was +15.2%/15.4% year-on-year in 10/11, respectively, and the industry trend is improving. The company's ticket reservation volume increased by double digits over the same period last year during the National Day. The company is rich in airline ticket auxiliary products, especially the sales rate of insurance products is stable. The increase in ticket reservation volume is expected to drive sales of auxiliary products, which in turn will drive the increase in ticket reservation revenue. We expect 24Q4's ticket reservation revenue to maintain a year-on-year double-digit increase. 2) In terms of train ticket reservations, the company continues to improve the monetization capacity of the train ticket business by optimizing the comet system. In summary, we expect 24Q4's core OTA business revenue to maintain double-digit year-on-year growth. Considering changes in the company's user strategy, we will focus on the company's progress in improving user value and driving profitability growth by optimizing cost investment efficiency.

Profit forecast, valuation and ratings: We basically maintain the company's 24-26 revenue of 17.263, 20.195, and 23.134 billion yuan, respectively, and adjusted net profit of 2.74, 3.252, and 3.872 billion yuan respectively. The current stock price corresponds to the 24-26 adjusted PE of 15/13/11 times, respectively. Maintain a “buy” rating.

Risk warning: The risk that residents' travel expenses fall short of expectations, and that strategic cooperation with major shareholders falls short of expectations.