Event: The company released its second-quarter results report. 2Q24 achieved revenue of 4.2 billion yuan/year over year; core OTA business revenue of 3.2 billion yuan/year on year +23.0%, in line with expectations; net profit to mother 0.43 billion yuan/year on year +22%; adjusted net profit of 0.66 billion yuan/year on year +11%.

Continued strong travel demand and international business expansion helped the core OTA business achieve revenue of 3.2 billion yuan, +23% over the same period last year. Sub-sector: 1) Accommodation reservation services achieved revenue of 1.2 billion yuan/year over year, mainly due to increased demand for accommodation and strengthened cross-sales strategies, the total number of nights/international nights was +10%/+140% YoY. 2) The transportation booking business achieved revenue of 1.7 billion yuan/year over year, a record high of quarterly revenue, mainly due to increased demand for transportation ticketing volume and its value-added products and services. Total ticket volume in 2Q24 was +20% year-on-year, and the growth rate of international air tickets exceeded 160%. 3) Other revenue from the core OTA segment achieved revenue of 0.6 billion yuan/year over year, thanks to advertising services, hotel management services, and user membership services.

The number of users and the frequency of purchases continued to increase, and consumption capacity was released. As of 2024/6/30, the company's annual paid users/cumulative annual service users reached 0.23 billion/ 1.86 billion, +4.8%/29.9% over the same period last year. The number of monthly paying users reached 42.5 million, +0.7% year-on-year. ARPU is around 64 yuan, +30% compared to 2019.

The continued growth of users is mainly due to the company's optimization of the WeChat ecosystem layout, the upgrading of operational efficiency and user experience, and pre-installed marketing in cooperation with major manufacturers. At the same time, the company continues to enhance interaction with members and connections with the younger generation to enhance user loyalty and brand appeal.

The marketing strength of the outbound travel business declined slightly, and profitability increased compared to the previous quarter. 2Q24's gross margin was 65%, -11pct year over year, mainly due to differences between the newly added offline vacation business and the core OTA business model. In terms of expenses, service development expenses/sales and marketing expenses/administrative expenses were 0.49 billion/1.5 billion/0.27 billion yuan, respectively, accounting for 12%/35%/6% of revenue, -3 pct/-3 pct/-1 pct year over year, and -1 pct/+0pct month-on-month. 2Q24's adjusted net interest rate was 15%, -5 pct year on year, and +1 pct month over month. The year-on-year decline was mainly due to the increase in marketing expenses brought about by the merger of new vacation businesses and the expansion of outbound travel business, but it benefited from a slight recovery of marketing discounts compared to the previous quarter, which increased slightly from the previous quarter.

Investment advice: The company's marketing and user subsidies for the outbound travel business will gradually be recovered in the second half of this year. It is expected that profit margins will still increase, the sinking market is developing steadily, there is considerable room for growth in the medium- to long-term outbound travel business, and business growth is resilient. We expect the 2024-2026 adjusted net profit (excluding revenue and expenses unrelated to the main business) to be 2.6 billion/3.5 billion/4.2 billion, and the adjusted PE corresponding to the current stock price is 16X/12X/9X, maintaining the “recommended” rating.

Risk warning: macroeconomic risk; risk of business development falling short of expectations; natural disasters.