The size of China's travel market is relatively small compared to that of the United States—$134 billion and $1.3 trillion, respectively. Even so, China's swelling middle class and an unprecedented rise in disposable income have created one of the fastest growing tourism sectors in the world. In fact, the country is expected to eclipse Germany and become the third largest travel market by 2011, according to e-Marketer. And the World Travel and Tourism Council predicts that by 2010, China will receive more than 64 million tourists annually. The numbers and outlook justify the bullish sentiment among industry analysts, who forecast companies in the sector will grow 40% to 45% through 2008.
One player keyed into the China travel boom is Universal Travel Group (UTVG.OB), a small cap that provides travel services that include airline tickets, hotel and restaurant reservations, packaged tours and air cargo services. Based in Shenzhen, the nation's transportation hub and one of the world's fastest growing cities, Universal Travel Group serves domestic and international business and leisure customers traveling to, from and within mainland China, as well as the hot tourist markets of Hong Kong, Macao and Taiwan. Universal Travel has eight company owned reservation office locations, 103 franchised locations and a high-volume call center facility (which has reported a 30% jump in phone traffic each month since the end of last year).
The Company has forged lucrative partnerships with Chinese domestic and world-class international carriers, including British Airways, Air France, Cathay Pacific, Iberia, Virgin Atlantic, Turkish Airlines, Swissair and others. Through its November 2006 alliance with TravelSky, a leading provider of IT solutions for China's air travel and tourism industries, the company has secured access to more than 3,000 domestic and international hotel booking services. A wave of acquisitions, including the recent purchases of Tianjin Golden Dragon International Travel and Foshan Overseas International Travel Service Co. Ltd., providers of domestic and international packaged tours, will provide a windfall of customers and increase cross-selling opportunities for the company.
Of course with the 2008 Olympics coming to China will also benefit the expansion of travel needs. Another interesting aspect is that it has coverage from at least one legitimate US-based equity research company: Maxim Group.When I say legitimate, I mean that these guys are not "for-hire" research company where you pay a certain amount to the "stock promoter", they do a mass-mailing and then parties never speak to each other again.
Maxim just recently raised their target from US $5 to $7 for UTVG.
A copy of the full report can be accessed here(pdf warning).
Now, more on the financials and prospects for Universal Travel Group: UTVG reported a strong quarter in August 2007, in which they beat the street estimates by 25% resulting in .05 eps for the quarter. The growth story is just starting as UTVG expects to report earnings of .24 for 2007 which entails 200% earnings from 2006.
For 2008 analysts are expecting UTVG to report .39eps giving them a low forward 08? PE of just 8.56. We should expect the stock price to continue north to catch up with its future valuation as time passes. Theoretically for UTVG to be fairly valued in its industry we should expect price to proceed skyward near $14/share as we head into 2008. This is calculated by multiplying the expected annual 2008 eps of .39 x the industry average PE of 36x earnings which gives us an estimated share price of $14.04.
Or if you calculate the 2008 share price target by giving UTVG the same forward PE as CTRP (which is 53), you get a price target of $20.67 (.39 eps X 53 p/e). So one can use a "median" price target between the two and you come up with $17.36 stock price. The estimated above targets would give stockholders a possible 220% to 400% return from today's stock levels. Another future catalyst for a rise in the stock is that (unconfirmed) Universal Travel Group is now in the application process to move from the OTCBB to an AMEX listing. This of course will give the stock more liquidity and exposure to institutional interest. For those who always like to examine a stock from a technical side, UTVG is building on a bullish breakout.
The stock has been experiencing increasing daily trading volume during the last four months and the stock is trading above the 10, 20, 30, 50 and 200-day moving averages. The Point and Figure chart (P&F) is showing a short-term price objective of $11.
UTVG currently has a total of 34.9 million outstanding. The float is only about 12 million shares.Although the stock has risen since July 2007 from $2 to now around $5.50, this company is still under the radar of many investors and has a lot of growth left to achieve the calculated $17.36 price target.
With the great expansion of China happening in front of our eyes, it should provide the opportunity for Universal Travel Group's to achieve their goal to become one of China's leading travel services provider in the aviation, cargo, hotel booking and tour packaging segments.