DESCRIPTION
Ctrip.com International Ltd. (CTRP) was founded in 1999 in Shanghai, China.
The company is a leading provider of travel services including accommodation reservation, transportation ticketing, packaged tours and corporate travel management.
Ctrip’s market cap has grown by more than 30 times since its listing on the NASDAQ Stock Exchange in 2003. In 2014, the company’s gross transaction value reached USD24.5 billion and total commission revenue reached USD1.3 billion.
In 2009 and 2010, Ctrip invested in ezTravel in Taiwan and Wing On Travel in Hong Kong, expanding service coverage to include Taiwan, Hong Kong and Macau as well as additional destinations throughout Asia.
Ctrip invested in ToursForFun.com in 2014, bringing its services to North America.
Ctrip’s hotel reservation network includes around 1,000,000 hotels in 200 countries and territories around the world. Ctrip’s air ticketing products cover over 5,000 cities on six continents.
The company offers its services through an advanced transaction and service platform consisting of mobile apps, websites and a centralized, toll-free, 24-hour customer service center.
Currently app downloads exceed 1 billion.
Hotel bookings on Ctrip’s mobile channels account for over 75% of online hotel reservation volume, and flight bookings through wireless devices comprise over 60% of online flight reservations. Ctrip’s ticket booking platform offers air, train and long-haul bus ticketing services on a centralized reservation system with a highly efficient fulfillment infrastructure.
Ctrip also provides vacation packages and guided tour booking, covering most popular travel destinations around the world. The company’s travel-related destination services include car rental, insurance, visa services, attraction tickets and ground transportation.
Additionally, Ctrip’s Corporate Travel Management Business Unit helps corporate clients effectively manage their travel needs and significantly reduce travel expenses.
Ctrip is incorporated in the Cayman Islands and currently employs over 30,000 people at branches located in major cities in mainland China, Hong Kong, Taiwan, Singapore, Korea and Japan.
TOURISM IS A HIGH GROWTH INDUSTRY IN CHINA
Tourism has become an important contributor to the domestic economy in China since the beginning of reform and opening in the early eighties.
The emergence of an affluent middle class and an easing of movement restrictions for locals and foreign visitors are both supporting this travel boom.
The Chinese tourism market has transformed into one of the world’s most-watched inbound and outbound tourist markets.
The number of domestic trips in China is estimated to increase to about 2.38 billion trips by 2020, It is by far the largest travel market in the world.
The total revenue of Chinese travel and tourism industry amounted to 3.94 trillion yuan ( US$ 600 Bon ) as of 2016, up 15.2 percent compared to the previous year.
The industry contributed 2.1 percent to China’s gross domestic product (GDP) and provided around 22.5 million jobs directly and more than 65 million indirectly.
More than 200 million Chinese are expected to make their first flight experience in the coming five years and outbound tourism is expected to grow at 15 % plus per annum.
And CTRP is the leading online travel booking platform in China and its massive growth since 1999 comes from the phenomenal development of the tourism industry in China.
A WELL MANAGED US$ 22.5 Bln COMPANY GROWING AT 40 % PER ANNUM
CTRP US ADRs have fallen recently form US$ 60 to US$ 42 despite good numbers published for the last quarters.
Heavy investment in its platform and acquisitions and some temporary headwinds have clouded the company’s profitability in the short term, but the recent correction offers a great opportunity to gain exposure to the leader in one of the fastest growing segment of the Chinese economy.
CTRP is a very well-managed company and its ability to take the leadership in China’s online travel is a testimony of it.
Management has a laser-like focus on building the best travel platform and customer experience for the long term and isn’t afraid to sacrifice short-term profitability.
It uses advanced search engines and algorithms to forecast travel needs and adapts its offering permanently. Their strategy is centered around what customers need and this process is automated by machine learning
As the first OTA to use machine learning to forecast travel trends, Ctrip has the capacity to study the buying behavior of our customers on both Ctrip and third-party platforms.
Their investments in artificial intelligence drives continuous service improvements, personalized recommendations and an overall optimization of travel resources for our customers.
Accelerating revenue
A good sign that is quickly visible from Ctrip.com‘s financial statements is accelerating revenue which topped US$1.2B in the last financial quarter.
According to Reuters financial statistics, 5-year revenue CAGR totals 40.6 percent, 3-year revenue CAGR totals 52.8 percent and 1-year revenue CAGR amounts to over 76 percent.
From a revenue perspective, a key strength of Ctrip’s business is also a relatively high exposure to large rapidly growing Chinese cities such as Beijing, Guangzhou, Shanghai and Shenzhen, which account for the majority of total revenue.
A BUYING OPPORTUNITY
The company’s best days are yet to come and investors should take advantage of the current correction to build or add exposure to this very promising outlook.
Ctrip.com’s growth potential has not yet been fully manifested as it will further capitalize on the growth of the travel industry in China and its leading position in the market.
Even though the stock has suffered from a considerable equity dilution, Ctrip’s phenomenal revenue growth far outweighs the negative consequences of the continuous new shares issuance.
Nevertheless, as can be seen from the charts enclosed, EPS are going to double in the next two years and there are no reasons that their growth does not continue in the future the way ABIDU or ALI BABA haver done.
The recent sell-off has a lot to do with profit taking and with the recent downgrade to NEUTRAL by JP MORGAN that prefers to wait for next quarters results considering the stock had reached their target price and the high level of dilution due to company issuance of new shares.
As can be seen form Chart 2 above, the stock is now heavily oversold and even if it could eventually fall towards the 40 level, we believe that this is a good time to bottom-fish now that the correction in the Chinese market has taken place.
CTRP is a unique opportunity for Long term portfolios as a key player in a high growth market.
Investors will be rewarded sooner rather than later.
Our Target Price is at US$ 75.
