【Company Research】Tongcheng-Elong (780 HK) – Solid recovery; Moving into 2021 outlook

Tongcheng-Elong delivered upbeat 3Q20 results but soft 4Q20 rev guidance. 3Q20 revenue/ adj. net profit -7% YoY/-11% YoY, 1%/1% above consensus. 4Q20 rev guidance missed 5%, while adj. net profit guidance beat 8%. Mgmt guided 33% YoY paying users growth in 2021E (vs. 2019), coupled with faster growth of hotel. We slightly trimmed earnings by 0%/4%/1% in FY20/21/22E with unchanged TP at HK$19 (19x FY21E P/E) for higher industry multiple.

 

  • Upbeat 3Q20, while 4Q20 rev guidance is soft. 3Q20 revenue -7% YoY, 1%/1% above our estimate/ consensus. Non-GAAP net profit -11% YoY, 4%/1% above our estimate/ consensus. 4Q20E guidance came in at -5% to 0% YoY (vs. consensus +2% YoY), and bottom line was stated at RMB300mn-RMB350mn (vs. consensus RMB301mn). As we estimated in preview report, 4Q20E topline growth would be dragged by: 1) high comps with early CNY, overseas business and pre-purchase hotel; and 2) occasional COVID-19 cases. 4Q20E earnings keep intact for its disciplined expenses.

 

  • Above-industry recovery with strong presence in lower-tier cities. TC’s transportation/ hotel rev -1%/-7% YoY in 3Q20 (vs. our estimate of -6%/-9%). In 3Q20, lower-tier cities recovered faster, with room nights nearly +30% YoY. For transportation, TC recorded over 80% YoY in bus ticketing and over 20% in domestic air ticketing volume. With stable traffic on Weixin and diversified marketing channels, TC’s MAU +5% YoY and MPU +60% QoQ (fully recovered YoY). Offline channels contributed 11% of MPU in 3Q.

 

  • Looking beyond 4Q20E; expecting stronger 2021 than 2019. For 4Q20E, TC guided rev -5% to 0% YoY (+3% to 8% YoY if excluding international & pre-purchase), with hotel growth of 2% to 7% YoY (10% to 15% YoY with the exclusion), driven by recovering travel, cross-selling, offline user acquisition, and narrowed ADR decrease. Transportation rev -5% to -10% YoY (0% to +15% YoY with the exclusion), dragged by decreased VAS revenue in cross-selling and time difference in CNY. Other rev +5% to 10%, driven by recovering ads and new business. Mgmt guided 33% paying users growth in 2021E (vs. 2019), coupled with faster growth of hotel.

 

  • Maintain BUY. We slightly trimmed earnings by 0%/4%/1% in FY20/21/22E with unchanged TP at HK$19 (19x FY21E P/E), in line with industry average multiple. Despite short-term topline drag, we keep positive on TC’s better-than-industry recovery and productivity enhancement in the long run.
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