Ctrip.com (CTRP) Draws Price Target Lift from Oppenheimer Following Ramping Market Share Gains

Oppenheimer's Jed Kelly now anticipates 16% in return potential from Ctrip.com on back of a strong Q1 earnings show.


Ctrip (NASDAQ:CTRP) served up an impressive first quarter print yesterday after the bell tolled that has investors amped to buy into the stock today. As shares rise almost 7%, China’s biggest online travel agency has also drawn the attention of Oppenheimer analyst Jed Kelly, who commends the company’s financial results; especially amid the strict reign of more regulations.

Even with a regulation-heavy backdrop, CTRP’s quarter suggests share gains are firing up, leading Kelly to reiterate an Outperform rating on CTRP stock while hiking the price target from $51 to $54. These new target expectations imply a 16% upside from current levels.

For the first quarter of 2018, CTRP posted revenue that met Kelly’s forecast but beat out the Street by 1%. The company hit an 11% year-over-year rise in net revenue compared to 26% seen in the fourth quarter, considering VAS regulation tripped up transportation revenue on a downturn to flat growth compared to the 20% exhibited in the fourth quarter of 2017. Accommodation revenue marked a 2% beat against the analyst’s estimate, reaching a 23% year-over-year jump against the 18% seen in the fourth quarter. Meanwhile, CTRP achieved an 18% year-over-year increase in Package/Tours, 25% in Corporate, and 10% in Other; compared to the fourth quarter, which saw 18% year-over-year growth for Package/Tours, 15% in Corporate, and 48% in Other. More robust marketing efficiencies spurred the first quarter margin outclass, with adjusted EBIT for the quarter sailing 7% beyond the tail-end of CTRP’s own guide, 16% ahead of the analyst’s estimate, and 15% over the Street.

Glancing ahead to the second quarter of 2018, the CTRP team has set its net revenue guide between 12% and 17% year-over-year, which suggests a mid-point of 1% along with a tail-end point of 3% surpassing the analyst’s and the Street’s expectations. The Transportation revenue guide for the second quarter suggests 0% to 5% in year-over-year growth, compared to the first quarter which just saw flat growth, and is primed to get stronger in the back half of the year on greater volumes. Likewise, this suggests second quarter Accommodation revenue could reach 20% to 25% year-over-year against 23% exhibited in the first quarter. The tail-end of the adjusted EBIT outlook may have risen beyond the analyst’s forecast by 3%, but actually came up shy of the Street by 2%, which Kelly attributes to loftier marketing expenses for International and lower-tier city expansion along with customer service initiatives. As such, Kelly is boosting his RMB net revenue forecast for 2018 by 1.4% and adjusted EBIT by 3%. Additionally, the analyst is adjusting his 2019 RMB net revenue estimate up by 2.9% along with adjusted EBIT by 4%.

Ultimately, the analyst is “incrementally positive following a 2Q18E guide for accelerating net revenue, and reiterating 2H18 topline improvement, that we see as indicative of accelerating market share gains from smaller players struggling under tighter Value Add Services (VAS) cross-selling regulation,” contending: “2Q net revenue guide, +12-17% y/y, 3% above Street at high end, indicates 15-20% revenue growth is achievable in 3Q18. Additionally, traffic’s returning to normalized patterns following 4Q17’s negative media coverage. The key debate remains Meituan hotel competition in lower-tier cities; however, CTRP accelerated volumes to 40-50% in lower star hotels at end of 1Q. Management sees 20-30% operating margins as achievable in next 1-to-2 years, even with lower-tier hotel expansion operating at negative contribution to profit.”

TipRanks suggests Wall Street leans toward the bulls on CTRP stock. Out of 6 analysts polled in the last 3 months, 4 are bullish on CTRP while 2 remain sidelined. With a return potential of 8%, the stock’s consensus target price stands at $49.83.  

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