We expect Tongcheng-Elong (“TC”) to deliver solid 3Q20E, with revenue/ adj. net profit -8%/-14% YoY, 1%/0% above consensus. Given strong golden week holiday travel data, we keep positive on its above-industry recovery pace, with lower-tier cities focus. Earnings would be intact, but 4Q20E topline growth might be dragged by high comps and potential second wave of epidemic. We slightly cut our earnings forecast by 8.1%/1.5%/1.3% in FY20/21/22E to factor in conservative 4Q20E, with unchanged TP of HK$19 (18x FY21E P/E). Maintain BUY.
- Solid 3Q20 ahead. We expect TC to deliver solid 3Q20, with revenue/ adj. net profit -8%/-14% YoY, 1%/0% above consensus. If excluding overseas business and pre-purchase factor, 3Q20E topline suggests 0%-5% YoY growth. By segment, we expect hotel rev down 9% YoY in 3Q20E (better than previous guidance of -15%-20% YoY), in which hotel room nights is estimated to achieve double-digit YoY growth while take rate will remain solid at 9%. ADR would still decline YoY in 2H20E (-25% YoY in 3Q20E). Lower-tier cities would recover faster, with room nights over +25% YoY in 3Q20E. For transportation, we expect its rev down 6% 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 8% 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.
- Strong growth backed by Golden Week momentum. TC delivered strong growth in Golden Week holiday, with transportation/ hotel volume over +20%/+44% YoY (vs. industry -21% YoY). By segment, air/train volume grew 25%/10% YoY. Given faster recovery in low-tier cities, we see high visibility for TC to continuously gain share. 2H20E adj. net margin would keep stable at 20%, despite heavier S&M efforts (rising S&M/Rev ratio) for hotel cooperation and bus tickets expansion. 4Q20E topline growth might be dragged by multiple factors: 1) high comps with early CNY in 2020, overseas business and pre-purchase hotel; and 2) potential second wave of epidemic.
- Maintain BUY. We keep positive on TC's recovery and ROI-driven expenses in 2H20E, but 4Q20E topline growth might see pressure from high comps and potential second wave of epidemic. Accordingly, we slightly cut our earnings forecast by 8.1%/1.5%/1.3% in FY20/21/22E, with unchanged TP of HK$19.
