Ctrip: Buy On The Dip

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CTRP reported a solid Q4 but guidance disappointed due to dispute with the airlines.

Buy on weakness. Long-term thesis of CTRP becoming a global OTA remains intact.

Resolution with airlines a potential med-term catalyst.

Ctrip (NASDAQ:CTRP) reported Q4 revenue and EPS both of which beat consensus but the guidance of +75-80% y/y growth was a sharp deceleration to what most analysts were expecting (90-100%). This is particularly troublesome given the guidance reflects the consolidation of the Qunar (NASDAQ:QUNR) results but also may have reflected on the recent dispute with the airlines that are eliminating the 1% fees for international air tickets and the withdrawn of branded sales by the airline on Qunar. With CTRP getting close to 39% of its revenues from airline ticketing, the dispute with the airlines will certainly negatively impact CTRP's revenue outlook in the medium-term. On the flipside, if the big airlines continue to refuse to pay a commission to the OTAs then they stand the change of losing their regular customers. CTRP's stock reacted negative to the weak guidance but shares have recovered, +7% since Wednesday. I remain bullish on CTRP as I believe the dispute with the airlines will likely to be resolved. The stock remains my preferred OTA play in China.

Revenue of Rmb2.9b, +49% y/y, was ahead of consensus while accommodation and transportation ticket revenue grew +44% y/y and +51% y/y, respectively. Operating margins (non-GAAP) has snapped back to positive territory with 10% vs. -14% a year ago. Net profit (non-GAAP) of Rmb272m was almost double that of the consensus estimates due to QUNR integration. Going forward, CTRP will begin to integrate much of its own inventories with QUNR as well as eLong in air tickets, hotels and packaged tours, which should improve inventory efficiency and greater consistency across the brands. To help CTRP's long-term EBIT margin, the company has lessened its coupon promotion for the high-end hotels, which narrows the losses from the consolidated result.

Outbound tourism has been accretive to CTRP on both the volume and the revenue side, accounting for 10% of the hotel volume and 15% of the hotel revenue. On the air ticketing side, outbound accounted for 20% of the volume and 30% of the revenue. Clearly this is a growth area and I think CTRP is best positioned long-term for this trend as the empty nesters in China unleash their savings on tourism.

On a final note, the airline policy regarding international flights will pressure the outlook in the near-term but it is important to note that CTRP is perhaps the most effective distributor for travel services in China and it is beneficial for airlines to count CTRP as a distributor given the increasing usage of mobile travel booking and how CTRP has been consolidating the OTA market. That said, I see any near-term pullback on CTRP to be a positive for the stock and I would remain buyer of the name.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.