Tongcheng-Elong (“TC”) delivered better-than-feared 4Q20 results, with revenue/ adj. net profit -7%/-7% YoY, 0%/7% above consensus. Mgmt guided 1Q21E rev down 10-15% (vs. 1Q19), midpoint 2.5% above consensus. Despite small wave in CNY, travel data in Mar saw V-shaped rebound, and mgmt. showed confidence in upcoming holiday performance. We think the market has well anticipated 1Q21E drag by epidemic uncertainty, and we suggest to move into 2Q21E rebound. We keep our earnings forecast unchanged, and maintain TP of HK$21.0.
- 4Q20 margin beat. TC 4Q20 rev/ adj. net profit declined 7%/ 7% YoY, 0%/7% above consensus. 1Q21E guidance beat 2.5%. We view this result as better-than-feared, and suggest to buy on dips as TC is one of the few names with attractive valuation, high recovery visibility, and low regulation risk.
- Expecting 2Q21E rebound. Mgmt stated that travel data in Jan & Feb 2021 was below expectation, as government ramped up COVID-19 restrictions (e.g. “stay-in-cities” advice in CNY). Low-tier cities hotel and short-distance travel are still resilient. Mgmt guided 1Q21E rev down 10-15% (vs. 1Q19) and bottom line at RMB220mn-270mn. We estimate transportation/ hotel rev +38%/+92% YoY (or -19%/-10%, vs. 1Q19) in 1Q21E. We think soft 1Q21E has been well priced in, and expect to see 2Q21E rebound, as V-shaped recovery in Mar was faster than expected, according to mgmt. We forecast 2Q20E to see positive rev growth (vs. 2Q19), and upcoming holiday & vaccine progress could be further catalysts.
- Eyes on MPU and hotel expansion. Mgmt reiterated its MPU priority in 2021, targeting APU at 200mn in FY21E (+30%, vs. FY19). User acquisition would derive from: 1) offline promotions, e.g. QR code and bus ticketing; and 2) branding and multichannel marketing (e.g. cooperation with Kuaishou). Then, we expect further cross-selling to bring LT value (cross-selling ratio at 11%, targeting 14-15% in FY21E). Hotel expansion would be another key focus, given stronger demand from supply chain under COVID-19. Lower tier cities have contributed over 60% room nights, and we forecast domestic room nights +40% in FY21E, vs. FY19. 2021E ADR would be still below 2019 level, but VAS enrichment could boost rev growth.
- Maintain BUY. We keep our earnings forecast and TP at HK$21 unchanged. Valuation at 14x FY22E P/E is attractive. Suggest to look beyond 4Q20 & 1Q21E. Vaccine progress and 2Q21E rebound could be further catalysts.
