We expect Tongcheng-Elong (“TC”) to deliver solid 2Q20E results in mid-Aug, with revenue/Non GAAP net profit decline of 24% YoY/52% YoY, 3%/1% above consensus. We believe TC will see margin surprise for its cost control and higher productivity. With reboot of trans-provincial group tourism, we expect both transportation and hotel to see further gradual recovery in 2H20E, backed by continuous lower-tier cities penetration and solid hotel. 3Q20E topline might be partly dragged by high base, but earnings will stay intact. We keep our forecast unchanged and TP of HK$17. Maintain BUY.
- Expecting solid 2Q20. We expect TC’s revenue/Non GAAP net profit to drop 24% YoY/ 52% YoY in 2Q20E (at the high end of guidance), despite BJ short-term outbreak in Jun. If excluding two negative factors of BJ restriction (4% of sales) and international tourism (5%), 2Q20E topline could see a narrower 15% YoY decline in our estimate. Thanks to effective cost control, we expect margin surprise in TC 2Q2E results. 2Q20E MAU will drop 7% YoY (with lower mix of Wechat traffic), but is expected to achieve positive growth in 3Q20E. MPU recovery lagged behind MAU. With reboot of trans-provincial group tourism and easing BJ restriction, we expect TC to continuously deliver above-industry growth and profitability in 2H20E.
- Further recovery ahead in 2H20E, despite high comps. TC could see 45-50% drop YoY in 2Q20E GMV. By segment, transportation/ accommodation/ others rev are estimated to decline 33%/21%/10% YoY. Hotel room nights would drop 5-10% YoY, while ADR would decline 20% YoY, bringing take rate up to 9% (less S&M) in 2Q20E. Looking ahead, we expect hotel room nights to achieve positive growth in 3Q20E, while take rate back to normal. ADR was still the key concern. Lower-tier cities would recover faster, with room nights +20% YoY in Jun, and we expect further leisure trip recovery with supportive policy. For transportation, air ticketing volume recovered 80%, with better trend than ground transport (50-60%) given higher user safety awareness and lower price. We estimate its transportation volume to see positive growth from Jul, and take rate back to 3.5% in 3Q20E (vs. 4.0% in 2Q20E). 3Q20E would see decent recovery from both lines, but its topline might be partly dragged given high base in 3Q19 with pre-purchase business (9% of total rev).
- Maintain BUY. We keep positive on TC's better-than-industry recovery and productivity enhancement in 2H20E. We maintain our forecast unchanged, with TP of HK$17 (16x FY21E P/E).
