【Company Research】Tongcheng-Elong (780 HK) – Better-than-feared 1Q20 guidance

Tongcheng-Elong (“TC”) delivered in-line 4Q19 results, and better-than-feared 1Q20E guidance with revenue at -42%~-47% YoY and positive earnings. We believe its 1Q20E guidance partly eased market concern on COVID-19, and we keep positive on its secular growth. We cut its earnings by 40%/15% in FY20/21E to reflect COVID-19 hit, with new TP of HK$15. Suggest to buy on dips.

 

  • Better-than-feared 1Q20E guidance. 4Q19 revenue grew 24% YoY, in line with consensus. Adj. net profit surged 68% YoY, in line with our estimates.1Q20E guidance came at -42%~-47% YoY, with positive earnings (vs. market expectation of loss-making in 1Q20E) on its effective cost control. We view its results as better-than-feared, and we are impressed by its positive earnings 1Q20E guidance, compared to Ctrip’s rev guidance at -45%~-50% YoY and non-GAAP operating loss at RMB1.75bn-1.85bn in 1Q20E.

 

  • Expecting recovery from Mar & effective cost control in 1Q20E. Mgmt stated booking in Feb declined ~80% YoY, and recovered to 40%-50% YoY drop in Mar, for work resumption and low-tier cities business travel recovery.  Comparing with other peers, we believe TC would be more resilient to COVID-19, mainly on: 1) lower exposure to international tourism (<5%); and 2) lower-tier cities to see faster recovery for less travel limitation. Mgmt guided bottom line at around RMB50mn in 1Q20E. We keep confident on a sooner recovery with stabilization of domestic market, travel recovery in lower-tier cities and policy support. We expect its transportation revenue flat in 2Q20E, while overall revenue to see positive YoY growth in 3Q20E.

 

  • Hotel, paying user, lower-tier cities penetration as 2020 priority. MAU /MPU grew 18.5%/21.5% YoY in 4Q19, with rising paying ratio and cross-selling ratio. TC will focus on hotel momentum, paying users, and low-tier cities penetration in FY20E. With continuous investment and subsidies on low-tier cites, we expect TC to benefit from industrial consolidation with gain share in long term after COVID-19. Regarding cooperation with Tencent, mgmt stated it's still too early to negotiate since the next 5-year term extends to 2021-2026, and TC cooperated with Tencent based on mutual benefit. 

 

  • Maintain BUY. We turn more positive on TC's recovery and cost saving in next few quarters. We cut earnings by 40%/15% in FY20/21E, and slightly revised our TP from HK$17 to HK$15 (14x FY21E P/E), in line with industry average. Valuation is pretty attractive. With COVID-19 headwinds priced in, we suggest to buy on dips. Maintain BUY.
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