Jim Sun of Evolution Securities China released a note to clients earlier today on Ctrip (ticker: CTRP). Key extracts:
Rating and valuation. We are downgrading our recommendation from BUY to HOLD on the basis of Ctrip’s current valuation, despite raising our target price from US$63 to US$66. This target price is derived using a 1.2x PEG estimate for 2007 and a 19.5% long-term growth rate estimate for2007- 2010. Our target price represents 23.4x the adjusted FY07 EBITDA/share multiple, 25.4x the adjusted ex-cash FY07 diluted EPS estimate, and 27.3x the adjusted FY07 diluted EPS estimate.
Aggressive valuation is justified, but still doesn’t justify a BUY. The 1.2x PEG assumed in our target price is c.30% above most of China’s internet stocks. This aggressive PEG assumed in Ctrip’s valuation reflects the strong but steady growth of the travel industry in China and the company’s leading position in the market. However, we believe it would be too aggressive to attribute a higher PEG than 1.2x when compared with Ctrip’s peers, given its long-term (2007-2010) forecast growth rate of 20%.
Hotel booking business is stronger due to higher ARPU. Hotel booking revenues climbed 8.3% qoq to US$12.9m, 8.3% higher than our estimate, driven by strong ARPUs (average revenue per user) that increased from RMB66.3 to RMB68.3 in 3Q05.
Air-ticketing volume grew significantly, but ARPU declined. Air- ticketing revenues surged 11.8% qoq to US$6.4m, but the ARPU declined 2.8% qoq to RMB43.8.