Tongcheng Travel's 2Q24 profit exceeded market expectations
Tongcheng Travel's 2Q24 revenue also increased 48% to 4.2 billion yuan, slightly lower than market expectations, mainly due to other revenue falling short of expectations; non-IFRS net profit of 0.65 billion yuan, exceeding market expectations by 3%, corresponding to 15% non-IFRS net profit margin, mainly due to marketing leverage brought about by subsidy optimization.
Development trends
Core OTA growth is steady. 2Q's core OTA business revenue also increased 23% to 3.5 billion yuan. The frequency of platform users and ARPU grew steadily. The cumulative number of service users increased by 30% to 1.9 billion in 12 months, and the average annual consumption frequency of users also increased by 24% to 8.13 times. The average annual ARPU increased 31% compared to 2019. Looking ahead to 2H, we expect core OTA revenue to increase by 19%:
1) Accommodation: 2Q revenue also increased 13% to 1.2 billion yuan, overall overnight stays increased by 10% (international overnight stays increased by nearly 140%), and ADR declined slightly; due to subsidy optimization, the commission rate increased year-on-year. Industry data shows that ADR has been under pressure since the summer. The company expects a slight decline in ADR on the 3Q platform, but the increase in commission rates may offset some of the impact. We expect 3Q hotel revenue to increase by 18%.
2) Transportation: 2Q revenue also increased 17% to 1.7 billion yuan, and overall air ticket volume increased 20% (international air ticket volume increased by more than 160%), significantly faster than the industry, and VAS continued to catalyze an increase in commission rates. We expect 3Q's traffic ticket volume to remain higher than the industry's growth rate, and the monetization rate is expected to remain high. We expect 3Q traffic revenue to increase by 18%.
3) Others: 2Q revenue also increased 87% to 0.6 billion yuan. Business travel performance was weak due to seasonal influence, but the scale of wine management continued to expand. By the end of June, the number of hotel stores operating on the Elong Hotel Technology Platform had further grown to more than 1,900, and more than 1,000 stores were being prepared. Considering the high revenue base of advertising and Black Whale members, we expect 3Q's other revenue to increase 25% as well.
The revenue contribution of new businesses continues to grow. 1) 2Q vacation revenue reached 0.7 billion yuan. By the end of June, Tongcheng Travel had 800 travel agency stores across the country, and vacation business profits had declined due to the off-season impact of the scenic spot business; 2) International business accounted for an increase in revenue, and the company maintained a target of close to 5% of annual revenue. The company expects international business to continue to reduce losses, and 2H's profit margin will be dragged down or reduced.
Marketing investment is adjusted flexibly, and we expect steady profits throughout the year. The 2Q core OTA profit margin is 24%, and the reduction in marketing expenses brings operating leverage; the company expects 2H to focus on improving quality and efficiency, and the marketing expenses ratio will be optimized month-on-month. We expect the 2H core OTA operating margin to return to the level of 19, and the overall net profit from non-IFRS in 24 was 2.7 billion yuan (corresponding to a 15.7% profit margin).
Profit forecasting and valuation
Taking into account other business drags, we lowered our 24-year revenue by 3% and 4% to $171 and 20.4 billion. We lowered our 24-year profit forecast by 4% to $2.7 billion, maintained our 25-year profit forecast, and maintained an outperforming industry rating. Considering the decline in profit, we lowered our target price by 10% to HK$19.3 (slightly downgraded valuation to 15 times the 2024 non-IFRS price-earnings ratio), with an upward margin of 47%. The company is currently trading at 10x/8x 24e/25e non-IFRS P/E.
risks
Macro uncertainty, cost control falls short of expectations.