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Summary

  • Top-line revenue grew 75% in 2013 vs 2012 to $322 million.
  • Gross profits are 6.2% of revenue, and the loss rate on revenue is 4.1%. Gross profits are too low for TOUR to ever make much money.
  • CTRIP & QIHU indicated investment interest on the IPO. Ctrip has a $6.4 billion market cap. Qihoo 360 has a $22 billion market cap.
  • TOUR is a leading online leisure travel company in China.

Based in Nanjing, China, Tuniu (NASDAQ:TOUR) scheduled an $80 million IPO on the Nasdaq with a market capitalization of $471 million at a price range midpoint of $10 for Friday, May 9, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents
Manager, Joint managers: Morgan Stanley, Credit Suisse, China Renaissance Securities

Co-Managers: Oppenheimer & Co.

End of lockup (180 days): Wednesday, November 5, 2014

End of 25-day quiet period: Tuesday, June 3, 2014

Summary
TOUR is a leading online leisure travel company in China.

Top-line revenue grew 75% in 2013 vs. 2012 to $322 million, but TOUR has shown losses the last three years.

Gross profits for 2013 were only 6.2% of revenue, very low. It's hard to make money for shareholders when gross profits are 6.2% of revenue, and the loss rate on revenue is 4.1%.

TOUR is priced at 1.5 times revenue which seems low, but really isn't when investors consider the very low gross profit margin.

Nevertheless, big China companies have indicated an interest in buying 44% of the IPO, $35 million.

"Concurrently with, and subject to, the completion of this offering, DCM Hybrid RMB Fund, L.P., an existing shareholder, Ctrip Investment Holding Ltd., or Ctrip, and Qihoo 360 Technology Co. Ltd., or Qihoo 360, have each agreed to purchase from TOUR US$15.0 million, US$15.0 million) and US$5.0 million respectively, in Class A ordinary shares."

Ctrip (NASDAQ:CTRP) has a $6.4 billion market cap.
Qihoo 360 (NYSE:QIHU) has a $22 billion market cap.

Also, TOUR has a dual stock structure giving insiders almost total voting control: "Upon the completion of this offering, our existing shareholders will own an aggregate of 106,764,391 Class B ordinary shares, which will represent 96.9% of the then total voting power of our outstanding shares."

Valuation

Glossary

2011

2012

2013

2013

RMB

RMB

RMB

($)

Net revenues

765,543

1,112,881

1,949,687

$322,065

Rate of growth

45%

75%

Gross profits % of net revs

3.1%

3.5%

6.2%

6.2%

Loss from operations

-100,374

(113,446)

-97,033

-$16,029

Net loss

-91,950

(107,190)

-79,632

-$13,154

Net loss % of net revs

-12.0%

-9.6%

-4.1%

-4.1%

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

2013 yr

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Tuniu

$470

1.5

-36.2

3.2

3.2

32%

Conclusion
Even though TOUR can't seem to make money, the rating is neutral+. Neutral+ because of big China investors on the IPO.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

TOUR is a leading online leisure travel company in China.

TOUR offers a large selection of packaged tours, including organized tours and self-guided tours, as well as travel-related services for leisure travelers.

TOUR ranked first in China's online organized tours market as measured by transaction value in 2013, according to iResearch, a third-party research firm.

TOUR believes it is well positioned to benefit from the significant growth potential of China's online leisure travel market, which is expected to grow at a CAGR of 35.6% from 2013 to 2016 as measured by transaction value, according to iResearch.

History

TOUR started offering packaged tours online in 2007, and is among the earliest Chinese companies that focus on the online leisure travel market.

As an early mover in China's online leisure travel market, TOUR has sold over three million packaged tours since its inception.

TOUR offers packaged tours sourced from over 3,000 travel suppliers, covering over 70 countries as well as all popular tourist attractions in China.

TOUR's product portfolio consists of over 100,000 SKUs of organized tours, over 100,000 SKUs of self-guided tours, and tickets for over 1,000 domestic and overseas tourist attractions. TOUR's core strength is in overseas leisure travel products and services, which contributed over 70% of its gross bookings in 2013.

TOUR has achieved significant growth in recent years. Its net revenues increased from RMB765.5 million in 2011 to RMB1,112.9 million in 2012 and further to RMB1,949.7 million (US$322.1 million) in 2013, representing a CAGR of 59.6%.

TOUR had a net loss of RMB91.9 million, RMB107.2 million and RMB79.6 million (US$13.2 million) in 2011, 2012 and 2013, respectively. TOUR generally collects payments from its customers upon contract confirmation before TOUR pays its travel suppliers, which allows TOUR to generate positive cash flow from operations. TOUR's net cash provided by operating activities was RMB36.3 million, RMB14.7 million and RMB116.7 million (US$19.3 million) in 2011, 2012 and 2013, respectively.

Dividend Policy

No dividends are planned.

Intellectual Property

TOUR has registered 20 computer software copyrights, one patent and four artwork copyrights in China, and are applying for four patents in China. In addition, TOUR has registered 35 domain names.

Competition

TOUR competes primarily with all other types of online travel companies.

In addition, TOUR competes with traditional travel service providers and tour operators. In its self-guided tour business, as it sells packaged tours which include flights and hotels, TOUR also competes with airlines and hotels, which in recent years have made efforts to improve their direct sales.

Large, established Internet search engines have also launched applications offering travel products in various destinations around the world.

Factors affecting TOUR's competitiveness include, among other things, price, availability and breadth of choice of travel products and services, brand recognition, customer services, and ease of use, accessibility, security and reliability of its transaction and service infrastructure.

5% stockholders

Dunde Yu 10.9%

Haifeng Yan 7.8%

Thomas Gai Tei Tsao 16.4%

Steve Yue Ji 13.2%

DCM V, L.P. and Affiliates 23.5%

Esta Investments Pte Ltd. 16.7%

Fund II, L.P. 16.4%

Sequoia Capital 2010 CV Holdco, Ltd. 13.2%

Dragon Rabbit Capital Limited 9.6%

Verne Capital Limited 6.4%

RS Empowerment, Inc. 5.3%

Use of proceeds

TOUR expects to net $65 million from its IPO. Proceeds are allocated as follows:

$30 million to expand its sales and marketing efforts;

$20 million to expand its product selection and offerings;

$10 million to strengthen its technology and product development capabilities; and

the balance for general corporate purposes, including strategic investments in and acquisitions of complementary businesses, although TOUR has not identified any near-term investment or acquisition targets.

Disclaimer: This TOUR IPO report is based on a reading and analysis of TOUR's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Tuniu