We expect Tongcheng-Elong (“TC”) to deliver better-than-feared 1Q20E results, with revenue at -44% YoY and positive earnings of RMB50mn. We think TC’s above-industry performance would ease market concern on COVID-19, and we keep confident on a sooner recovery with stabilization of domestic market, travel recovery in lower-tier cities and policy support. We keep our forecast unchanged, with TP of HK$15. Maintain BUY.
- 1Q20E preview: tough times over. We forecast revenue/GMV to decline 44%/53% YoY in 1Q20E (at midpoint of guidance), and expect adj. net profit at RMB50mn (in line with consensus). We expect its transportation revenue to be flat in 2Q20E, while overall revenue to see positive YoY growth in 3Q20E. We think TC’s worst time was over, and recovery in sight.
- User metrics to fluctuate. We estimate 1Q20E MAU to decline 27% YoY. Metrics in Feb suffered more, and see gradual improvement from Mar. Number of paying user is estimated to decline 38% YoY in 1Q20E. Paying ratio would see short-term fluctuation, but intact in the long run on cross selling and membership loyalty program.
- Transportation to see faster recovery. We expect TC’s transportation/ accommodation revenue to decline 45%/52% YoY in 1Q20E, while other revenue with positive YoY growth. Transportation’s GMV would decline 47% YoY, in which air tickets with 37%/47% revenue/GMV YoY decline and ground transportation with 53%/53% revenue/GMV YoY decline, in our estimates. In terms of accommodation, we expect its GMV to decline 57% YoY in 1Q20E, with decreasing ADR. Take rate would see sequential growth in 1Q20E (transportation/ accommodation at ~4%/9%), for light marketing efforts and lower subsidies. After COVID-19, mgmt. guided take rate back to normal, in which transportation/ accommodation at 3-3.5%/8.0-8.5%. Comparing with other peers, we believe TC would be more resilient, mainly on: 1) lower exposure to international tourism (<5%); and 2) lower-tier cities to see faster recovery for less travel limitation.
- Maintain BUY. We keep positive on TC's recovery and cost saving in next few quarters. With earning forecast unchanged, we keep our TP at HK$15 (14x FY21E P/E), slightly lower than industry average. With COVID-19 headwinds priced in, we suggest to buy on dips. Maintain BUY.
