Morgan Stanley analyst Richard Ji released a note on Ctrip (ticker: CTRP) today entitled "Ctrip.com: The Trip Has Just Started". He sees more upside to China's travel industry especially for Ctrip. Here are the highlights of his report:
Morgan Stanley Estimates:
- Chinese people spent an average of US $50 per person on travel in 2004.
- Frequent flyers account for less than 1% of the total Chinese population.
- Ctrip contributes around 1% of China’s total travel service sales.
- Ctrip’s cumulative customers of 1.5MM approximate only 1.5% of total Internet users in China.
What Morgan Stanley Would Not Overreact To:
- The margin dip due to year-end bonuses which they see as a likely one-off event until 4Q06.
- The departure of the former CFO because Ctrip’s model is platformcentric.
- Competition, as Ctrip is one of two Chinese Internet leaders that have consistently widened their gaps against the No. 2 players.
What Investors Should Be Concerned About:
- The slowdown in hotel room booking in top-tier cities (Ctrip may accelerate its expansion into second-tier cities).
- Economic softness, as Ctrip produces 85%+ of sales from business travel.
- Epidemics, such as avian flu. Note that nearly all of the avian flu cases reported to date have occurred in inland China. Ctrip, however, generates 70%+ of its customer flow from the top four cities. Panic selling could present a further buying opportunity.
Morgan Stanley reiterates its Overweight-V Rating and forecasts diluted earnings per ADS of $1.62 (-5% vs. its prior forecast) for 2005 and $2.16 (-5%) for 2006. It maintains its positive outlook for Ctrip and views the recent share weakness as a buying opportunity for long-term investors.
Comment: All China Stock Blog articles on CTRP here.