Tongcheng-Elong (“TC”) delivered strong 3Q19 results, with topline/bottom line growth of 22%/33% YoY, 6%/7% above consensus. Mgmt guided revenue acceleration in 4Q19E. User metrics trends well in 3Q19, 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.
- 3Q19 all-round beat. 3Q19 revenue grew 22% YoY, 3%/6% higher than CMBI/ consensus. Non-GAAP net profit grew 33% YoY, 5%/7% above CMBI/ consensus. 4Q19E revenue was guided to accelerate to 25%-30 YoY. Mgmt prioritized topline growth over margin expansion in 2020E, and we keep confident on its user expansion and hotel momentum, despite competition from Meituan.
- User metrics trend well. 3Q19 MAU grew 13% YoY to 234mn (+28% QoQ) for strong seasonality, in line with our estimate. Paying user reached 29.8mn in 3Q19, up 32% YoY (3% above our estimate, with paying ratio at 12.7%). We expect its MAU/paying user to grow 10%/30% YoY in 4Q19E. Apart from Tencent traffic, user upside might derive from: 1) multi-channel apps (e.g. Douyin, Baidu); and 2) pre-installment.
- Strong hotel momentum to continue. Transportation revenue grew only 2% YoY for seasonality and 12306 impact, while accommodation revenue surged 34.5% YoY in 3Q19 (room nights +40% YoY). We expect its transportation revenue to grow 12% YoY in 4Q19E, in which take rate is up to 3% and 12306 impact is priced in. We expect strong momentum of accommodation to continue, with revenue up 40% YoY in 4Q19E (with room nights ~60% YoY). Accommodation take rate would remain intact at 8.5% in 4Q19E, in our view. Market concern lies in competition landscape in lower-tier cities. We view the hotel market in low-tier cities still in fast growing pace for low user penetration, and competition from Meituan poses limited impact on TC’s accommodation growth.
- Maintain BUY. We maintain our TP of HK$19.71, with earnings estimates barely changed. Our TP represents 17.5x FY20E P/E, in line with industry average. The stock is trading at 15.0x/11.6x FY19/20E P/E. Valuation is attractive, given its strong 4Q19E and solid FY20E outlook. Maintain BUY.
