We expect Tongcheng-Elong (“TC”) to deliver solid 3Q19E results in Nov. We forecast its topline/bottom line to grow 20%/33% YoY in 3Q19E. User metrics trends well in 3Q19E, and we keep confident on its long-term user expansion and enhanced monetization. We maintain our TP of HK$19.71, with earnings estimates barely changed.
- 3Q19E preview: topline surprise with solid earnings. We forecast a 20% YoY revenue growth to RMB2.0bn in 3Q19E (3% above consensus), and expect adj. net profit up 33% YoY to RMB399mn (in line with consensus). We expect solid financials in 2H19E despite 12306 impact, and 4Q19E revenue might see acceleration. Multiple headwinds are already priced in, in our view, and we think recent OTA regulation poses limited impact on leaders.
- User metrics on track. We estimate 3Q19E MAU to grow 13% YoY to 233mn (+28% QoQ) for strong seasonality. Number of paying user is estimated to reach 28.9mn in 3Q19E, up 28% YoY (+4% QoQ), with paying ratio at 12.4%. Both MAU and MPU trend well in 3Q19E, mainly on stronger seasonality, heavier S&M efforts on cross selling and membership loyalty program.
- Strong hotel to offset soft transportation. We expect strong momentum of accommodation to continue, with revenue up 33% YoY in 3Q19E (room nights over 45% YoY). Accommodation take rate would remain intact at 8.5% in 3Q19E, in our view. Market concern lies in its transportation deceleration dragged by 12306 waiting list features (排队候补功能). We expect its transportation revenue to grow 3% YoY, in which air tickets performed well but ground transportation softened again. We expect 3Q19E take rate to pick up to over 3%, and to peak at 4Q19E (> 3.5%), thanks to 1) stronger demand from ticket-grabbing for earlier Chinese New Year; and 2) enriched VAS products (e.g. Huixing system“慧行”).
- Maintain BUY. We maintain our TP of HK$19.71, with earnings estimates barely changed. Our TP represents 22.4x FY19E P/E, in line with industry average. User metrics and strong hotel performance should offset its soft transportation in 3Q19E. Maintain BUY.
