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Stock Strategist

This Travel One-Stop Shop Looks Undervalued

We're more optimistic on its margin expansion potential.


Online travel agent Ctrip (CTRP) reported 18.8% revenue growth in the second quarter, in line with its guidance midpoint of 18.5% but lower than Meituan’s 43% growth in the in-store, hotel, and travel segment and Tongcheng-Elong’s 21% growth. For the third quarter, the company expects revenue growth of 10%-15%, lower than the second quarter’s growth due to weak macroeconomics. An approximate effect of 400-500 basis points comes from the slowdown in Hong Kong and Taiwan and flight price reductions resulting from reduced demand; this is incorporated into the third-quarter outlook.

We have increased our own 2019 operating profit forecast by more than 2 times on the basis of Ctrip’s year-to-date performance. Our growth assumptions for margins and revenue are unchanged, except for the sales and marketing expenses/sales ratio, during the years ahead. Our margin assumption was previously conservative due to a big miss on margin expectations last year (only 3.5% non-GAAP operating margin in the fourth quarter) due to investments in customer service, and we were worried the same situation could happen this year. A large decline in the sales and marketing expenses/sales ratio in the first half was another reason for the revision in operating profit for 2019. We’ve increased our fair value estimate for narrow-moat Ctrip to $50 per share from $47, and we think the stock is undervalued.

Chelsey Tam does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.