Tongcheng-Elong (“TC”) delivered upbeat 2Q20 but soft 3Q20 guidance. 2Q20 revenue/ adj. net profit declined 25%/43% YoY, 2%/20% above consensus. Despite 3Q20 topline guidance soft on high base, we keep positive on its above-industry recovery pace, with earnings intact in 2H20E. We expect 3Q20E rev to decline 7% YoY, and 4Q20E rev to achieve positive growth. We adjusted our earnings by -3%/0%/+2% YoY in FY20/21/22E, and slightly lifted our TP to HK$19, to reflect industrial valuation rebound. Maintain BUY.
- Solid 2Q20, while 3Q topline guidance soft on high base. 2Q20 revenue dropped 25% YoY, 0%/2% above our estimate/ consensus. Non-GAAP net profit declined 43% YoY, 19%/20% above our estimate/ consensus, for effective cost control. 3Q20E rev guidance came in at -5% to -10% YoY (vs. consensus -4%), and bottom line at RMB300mn-RMB400mn (vs. consensus RMB355mn). As we stated in our preview report, 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). If excluding overseas business and pre-purchase factor, 3Q20E topline guidance suggests 0-5% YoY growth.
- Short-term recovery pace to be affected by ADR trend. TC’s transportation/ accommodation revenue declined 31%/23% YoY in 2Q20 (vs. our estimate of -33%/-21%). Looking ahead, we expect hotel rev down 17% YoY in 3Q20E (0-5% YoY growth if excluding international business and pre-purchase factor), in which hotel room nights to achieve double-digit YoY growth while take rate back to normal. ADR would still decline YoY in 2H20E. Lower-tier cities would recover faster, with room nights +30% YoY in 3Q20E. For transportation, we expect its rev down 0-5% YoY (0%-5% YoY growth if excluding international business). 3Q20 air ticketing volume would grow 10% YoY, given higher user safety awareness and lower price. Ground transportation rev would still see 0-5% YoY decline. We estimate its transportation take rate to normalize in 3Q20E, and margin intact YoY. Bus tickets business would be new driver for its user expansion.
- Maintain BUY. 3Q20E topline might be partly dragged by high base, but earnings will stay intact, in our view. We keep positive on TC's recovery and disciplined expenses in 2H20E. We trimmed our topline forecast but kept our earnings estimate barely changed. We slightly lifted our TP from HK$17 to HK$19 (18x FY21E P/E), with higher industrial multiple.
