Tongcheng Earnings: Revenue Meets Low End of Guidance, but Profitability Improves, Guidance Raised
We keep our fair value estimate at HKD 23 per share for Tongcheng after it reported second-quarter revenue of CNY 4.2 billion, representing a 48% year-on-year increase that met the lower end of its guidance of 48%-52%. However, profitability improved significantly as the operating margin for its core online travel business increased by 160 basis points sequentially to 14.6%. Better profitability was driven by a combination of lower marketing expenses and likely outperformance in air ticketing, where revenue rose 20% year on year, compared with a low-single-digit decline in flight volume during the quarter. Tongcheng also continues to build its international platform as outbound air ticketing volume has increased by over 160% year on year.