We hosted Tongcheng-Elong (“TC”) NDR last week, and mgmt. reiterated their confidence on above-industry recovery and priority on MPU expansion (targeting 200mn APU) and hotel penetration in 2021. Investors focus lie on: 1) traffic cooperation agreement with Tencent; 2) S&M strategy and bus ticket promotion; 3) hotel competition landscape; and 4) recovery pace in both domestic and overseas markets. We maintain BUY with TP at HK$19 (19x FY21E P/E).
- Priority on MPU expansion in 2021. We hosted TC NDR in which mgmt. restated priority on MPU expansion, targeting 200mn APU in FY21E (vs. 150mn in FY19). TC will strategically acquire users through multiple channels: 1) online: apart from unique access to Weixin & QQ, TC will explore diversified channels including app stores, livestreaming, etc; 2) offline: TC will continuously expand bus ticketing and offline hotel QR code promotion. Offline channels contributed 11% of MPU in 3Q20, and mgmt. expect higher mix from offline channels in FY21E. Bus ticketing TAC was lowest (<RMB5 per paying user) among all channels (e.g. Tencent channel <RMB10, hotel QR code RMB40-50, proprietary App RMB80-100).
- Bullish on hotel upside in post COVID-10 period. Despite short-term pressure, mgmt. reiterated confidence on hotel growth potential in the long run, especially in lower-tier cities. Low-end hotels’ room nights accounted for around 50% currently, and will surpass high tier hotel ahead, given faster recovery pace and low online penetration. OTA platforms would invest heavier in low-tier cities expansion in FY21E, but competition landscape would be relatively stable and rational.
- Strengthening cooperation with Tencent. Pursuant to a certain agreement, TC is the sole operator of the Tencent portals till 31 Jul 2021 and will be considered for another 5-year cooperation in priority after that. TC will enter into negotiation with Tencent in 1Q21E and the renewal cost would be manageable given mutual cooperation between both sides.
- Maintain BUY. Despite short-term topline drag in 4Q20E, we keep positive on TC’s better-than-industry recovery and productivity enhancement in the long run. We maintain BUY with unchanged TP at HK$19 (19x FY21E P/E), in line with industry average multiple.
