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Here’s the entire text of the prepared remarks from Ctrip’s (ticker: CTRP) Q3 2005 conference call. The Q&A is here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.

Executives:

Yin Yin, Senior Director of Finance

James Jianzhang Liang, Chairman and Chief Executive Officer

Jane Sun, (soon-to-be) Chief Financial Officer

Analysts:

Jason Brueschke, Citigroup

Richard Ji, Morgan Stanley

Safa Rashtchy, Piper Jaffray

William Bean, Deutsche Bank

Jason Avilio, First Albany Capital

Kit Low, Goldman Sachs

Chang Qiu, Forun Technology Research

Ashish Thadhani, Gilford Securities

Michael Millman, Soleil Securities

Presentation

Operator

Good day, ladies and gentlemen. I would like to turn the presentation over to Ms. Yin Yin, Senior Director of Finance. Please proceed ma’am.

Yin Yin, Senior Director of Finance

Thank you. Thank you for attending Ctrip’s Third Quarter 2005 Earnings Call. James Liang, our Chairman and CEO will give a business update highlights of the third quarter financial performance, as well as the fourth quarter outlook. James will then introduce our new CFO, Ms. Jane Sun. And then we will take questions towards the end of this call.

Before we begin, I would like to emphasize that we may, during this call, discuss our future outlook and performance, which are forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involving inherent risks and uncertainties, as such our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in future public filings with the Securities and Exchange Commission. Ctrip does not undertake any obligation to update any forward-looking statement except as required under applicable law.

Now, I will turn over to James.

James Jianzhang Liang, Chairman and Chief Executive Officer

We are pleased to report yet another terrific quarter with strong performance across our business. We continue to build a loyal customer base by the end of September we have more than 1.5 million accumulative effective customers.

During the third quarter, we were able to acquire new customers at a pace at about 55,000 new customers per month on average compared to about 51,000 per month in the previous quarter at approximately 48,000 per month on average in 2004.

During the quarter, we added net 60 domestic hotels although they guaranteed allotment rooms increase to about 24,000 out of 1400 guaranteed allotment hotels compared to about 22,000 rooms in the second quarter of 2005. We also added over 1100 hotels abroad to a total of 2100 hotels abroad as we continue to integrate CNG hotels and Pegasus ph hotel in addition to directly signing up overseas hotels.

On the air-ticketing side, we have added 4 more cities with fulfillment capability to a total of 43 cities, where we now deliver ticket. For the first time, we sold more than a million tickets in the quarter. Within the packaged-tour business, we continued to launch various popular leisure destinations for independent travelers, positioning ourselves at the higher ends of leisure segments. At the same time, we continue to strengthen -- we continue to strengthen our bookings and transaction platform for packaged products.

Our net revenues were US$17.4 million in the third quarter of 2005. Net revenues grew by 55% year-on-year, and 9% quarter-on-quarter driven by increase in revenues in all of our major business lines.

Revenues from hotels were US$11.9 million in the third quarter of 2005, up 29% from the same period in 2004, and 4% from the previous quarter, primarily as a result of solid growth in transaction volume. The total number of hotel rooms booked was approximately 1.44 million in the third quarter compared to approximately 1.13 million in the same period of 2004, and about 1.39 million in the previous quarter. The average commission per room night was up slightly at RMB67 against RMB66 for the same period in 2004 and previous quarter. The average commission rate on hotel bookings remained at approximately 14%.

The air-ticketing business continued to exhibit a spectacular growth during this quarter. Revenues from air-ticketing were US$5.7 million in the third quarter of 2005, up 160% from the same period of 2004, primarily driven by volume growth accompanied by increased average commission per ticket sold. Revenues from air-ticket grew 25% from the previous quarter. The total number of air-tickets sold in the third quarter of 2005 was approximately 1.02 million. This compares approximately 490,000 in the same period in 2004, and about 800,000 in the previous quarter. The average commission per air-ticket sold was RMB45 compared to RMB36 in the same period of 2004 or down slightly from RMB46 in the previous quarter. The average commission rate per ticket sold was 4.6% compared to 3.7% in the same period of 2004.

Revenues from packaged-tour were US$0.8 million up 120% from the same period in 2004 and 13% from previous quarter. Gross margin decreased slightly to 83% in the third quarter of 2005, compared to 86% in the same period in 2004 and 85% of previous quarter This is primarily due to high cost of services as a result of increasing increased revenue contribution from air-ticketing service.

Product development and sales increased by 45% from the same period of 2004, primarily due to the staff hiring to expand our travel supply network. Sales and marketing expenses increased by 61% from the same period of 2004. This increase is primarily due to expenses associated with the customer reward program, additional staff-hiring and advertisements.

G&A expenses increased by 17% from the same period of 2004. Total operating expenses for third quarter of 2005 were US$6.7 million, an increase of 45% from the same period of 2004, and a 4% from previous quarter in 2005. Total operating expenses as a percentage of net revenue in the third quarter of 2005 decreased to 39% compared to 41% in the same period of 2004.

Operating income was US$7.7 million in the third quarter of 2005, up 52% year-on-year and operating income increased by 9% sequentially. Operating margin remained flat at 44% in the quarter of 2005 compared to the previous quarter, but slightly down from the same period in 2004. The slight decrease is largely due to increased cost of service, highly offset by decreased operating expenses on a relative basis against net revenues.

Net income for the third quarter was US$8.1 million representing the increase of 71% from the same period in 2004, primarily due to higher operating income achieved, accompanied by substantial additional financial subsidies received in a slightly more favorable tax rate end of the quarter.

Net income increased by 16% sequentially. Net margin reached the record of 47% in the third quarter of 2005, up from 42% in the same period of 2004 and 44% in previous quarters. Fully diluted earnings per ADS for the third quarter were US$0.49 leading our guidance by 20%.

Cash provided by operating activities was US$9.3 million in the third quarter of 2005 compared to US$6.8 million in the same quarter of 2004. As of September 30th, 2005, cash balance increased further to about US$82 million.

We’ve had three strong quarters as we head into the fourth quarter of 2005. The company expects to continue to get strong year-on-year net revenue growth of approximately 40%.

Further more, the shareholders and Board of Directors have approved a distribution of 30% of future 2005 audit net income as dividend. We are confident of our long-term growth prospect and look forward to continuing to increase shareholder value.

Before we begin the Q&A session, we are very pleased to welcome Ms. Jane Sun to our senior management team. Jane has extensive experience in SEC reporting, finance and accounting. She has worked with Applied Materials since 1997. Ms. Sun currently serves as a head of SEC, and External Reporting Division of Applied Material. Prior to joining Applied Material, Ms. Sun worked with KPMG as Audit Manager in Silicon Valley, California, for five years. We look forward to having Jane officially joining us in December.

During the interim period, Alfred Fan, Ctrip’s Chief Operating Officer will serve as the acting Chief Financial Officer until Ms. Sun officially joins Ctrip.

And now, Jane would you like to say a few words?

Jane Sun, (soon-to-be) Chief Financial Officer

Thanks James. I would like to thank James and the Board for giving me this fantastic opportunity to be a part of this fast-growing, innovative and energetic organization. I look forward to working with a superb management team. In addition, I look forward to working with all of you in the investment and the research community. Thank you.

Yin Yin, Senior Director of Finance

Thank you, Jane. We will now take your questions.

Question-and-Answer Session

Related:

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