Deutsche Bank on CTRP and LONG

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Includes: CTRP, LONG
by: Ezra Marbach

Deutsche Bank's William Bao Bean initiated coverage of Ctrip (ticker: CTRP) and eLong (ticker: LONG) today. His 12 - 18 month price target on CTRP is $59. The price target on LONG is $13. Here are key points from Bean's research note along with a link to the full report courtesy of Bill Bishop:


CTRP and LONG are positioned to capture an increasing percentage of the China travel sector

  • More people are travelling independently.
  • Both companies have control of hotel supply and hotel and air ticket demand.
  • Both have strong brands.
  • Both web sites are easy to use.

Long term outlook strong but near-term catalysts largely priced in 

  • China travel market heading into peak travel season.
  • Expect to see 40-50% YoY growth and stable margins.
  • Sector is a long-term buy.
  • Near-term catalysts such as seasonality and industry consolidation are priced in.

Initiating coverage of CTRP with a Buy and LONG with a Hold 

....Our price target for  Ctrip is US$59.00, based on a 2006E-08E EPS CAGR of 33% and PEG of 1.0x, and  for eLong is US$13.00, based on a target EV/EBITDA multiple of 27x, a 13%  discount to the 32x derived from its 2006E-08E EBITDA CAGR of 56% as well as  the less relevant PEG methodology. The biggest risks to our assumptions are an  economic downturn, execution and eLong’s parent company, IAC (ticker: IACI), pushing out  profitability.

Why CTRP and LONG will gain market share slower than online travel players in the US

.....We believe that China consolidators’ share of the
overall travel market  is likely to grow much more slowly than online
travel players in the US. The US online players,  who drove share of
total bookings from around 1% in 1998 to about 19% in 2003, were able
to leverage existing global distribution services (NASDAQ:GDS) for supply and
benefit from a target  customer base familiar with the Internet, credit
card usage and eCommerce. China players, which we expect to grow at a
43% CAGR between 2001-06E, have had to face problems  like: 1) building
their own hotel networks; 2) the lack of transparency in the travel
market with  numerous players; 3) little familiarity with making
bookings and purchases over the phone  and/or the Internet; 4) little
education among consumers as to the benefits of going to a
consolidator versus just walking into a hotel, using an agent or
booking at an airline office;  and 5) surmounting regulatory hurdles
such as local and national licensing requirements.

Comment: You can access the full report here.

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