The Fast Ascent of Universal Travel Group

| About: Universal Travel (UTRA)

A year ago, Universal Travel Group (UTVG.OB) was a small travel company is southern China, taking in $1.5m in revenues for Q3 2006. Its main asset was this company called Yu Zhi Lu ("YZL") which provided hotel reservations, packaged tours, and air delivering out of Shenzhen. Since then, much has happened. It has gone on an aggressive acquisition strategy, gobbling up companies to diversify its service offering as well as geographical reach.

In April 2007, it acquired Shenzhen Speedy Dragon, an international and domestic freight forwarding firm. In August 2007, it bought Xi'an Golden Net Travel Service Company, a travel services outfit with operations in western China. Also in August, it acquired Shanghai Lanbao Travel, a centralized real-time booking system providing hotel bookings, air ticket and tourism information via the internet and mobile phone. Shanghai Lanbao owns and manages the award-winning China Booking Association website, which receives about 200,000 visitors daily. Finally, in October, it snapped up Foshan Overseas International Travel as well as Tianjin Golden Dragon Travel, both leading travel services companies in their respective cities.

What made this fast growth possible was that all the acquisitions were engineered via a combination of equity and non-interest bearing promissory notes, with no cash at all, and all the targets ended up as fully-owned subsidiaries of YZL (except for Tianjin, which YZL owns 90%). This would only have been possible with the company's liquid shares, which became OTC traded via a reverse acquisition in mid 2006.

The real question here is how the companies are integrated into the overall group operations and if synergies are realized. I suspect its most important national (as opposed to regional or city-wide) platform going forward is the CBA Hotel website, which could position the company to compete with Ctrip and eLong. And with the Beijing Olympics coming up, on top of China's fast growing tourism rate, this is a great sector to be in right now.

With five major acquisitions in the space of just over 6 months, it is no wonder that the company chalked up record financial results for Q3, released earlier this week. Some highlights are:

  • Record revenue of $20.4 million, an increase of approximately 1,252% from Q3 2006 and 190% sequentially from Q2; and
  • Net income of $3.1 million, or $0.09 earnings per share, up approx. 219% from Q3 2006 and 86% from Q2 2007.

The company is expecting net income for FY2007 of $8.2 m-$8.5 m, or EPS of $0.23-$0.24, an increase of over 220% from 2006. EPS for 2008 was projected by Maxim Group (research dated 10/23/07) to be $0.39.

With its current share price of $3.70, this works out to a P/E of 15.7 (for 2007) and 9.5 (for 2008). For a company that is growing so fast, this is really one of the cheapest stocks on the market. Compare these figures to the 2007 P/E of Ctrip (NASDAQ:CTRP) (81.6x) and eLong (NASDAQ:LONG) (>100x) and you will see what an amazing buying opportunity this is.

Disclosure: Author has a long position in UTVG.OB