Ctrip.Com International, Ltd Investment Thesis

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KONG, TH[pic 5]

Disseminated 23 May 2018 06:41 PM HKT

Asia Pacific Equity Research

23 May 2018

Ctrip.com International, Ltd        Neutral[pic 6]

Further downside risk from de-bundling seems limited;

Price: $43.44

lack of catalysts to re-rate        ▲ Price Target: $45.00[pic 7]

Ctrip delivered in-line topline in 1Q, with OPM slightly above JPMe thanks to opex savings. Management highlighted that Ctrip will put “customer centric” as core priority, which will generate long-term value at the expense of some short- term earnings. After the strict execution of de-bundling VAS products, we think the worst seems to be over and its short-term margin recovery is also slightly better than expectation (guide 2Q Non-GAAP OPM of 15-16% vs JPMe/consensus at 14/15%). The stock price is likely to react positively to 1Q earnings, although we don't expect it to meaningfully outperform the sector as 1) there remains uncertainty on pace of recovery in 2H18, 2) looming competition from private companies in hotel may pose pressure on margins. Maintain Neutral.

• Customer centric reform to gradually drive business recovery. Topline growth seems to have troughed in 1Q (+11% YoY) vs. 2Q guidance of 12%- 17% YoY. With the strict implementation of de-bundling VAS products already reflected in 1H financials/guidance, we feel further downside risk from de- bundling seems limited. We expect 2H topline growth to recover to 21% YoY, with full-year growth of 18% YoY. The company maintains mid-term non- GAAP OPM guidance at 20%-30% (JPMe 18%/21% in 2018/19).
• Expect to see fiercer competition. In response to Meituan’s aggressive move such as issuing more hotel coupons, Ctrip intends to be aggressive in lower-end

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China Internet Alex Yao AC

(852) 2800-8535

alex.yao@jpmorgan.com

Bloomberg JPMA YAO

Binbin Ding

(852) 2800 8572

binbin.ding@jpmorgan.com

Daniel Chen

(852) 2800-8579

daniel.q.chen@jpmorgan.com

1. Morgan Securities (Asia Pacific) Limited

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Price Performance

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60

$

50

40

May-17 Aug-17 Nov-17 Feb-18 May-18

hotel segment by prioritizing volume growth and market share gains to fend off         CTRP share price ($)[pic 11][pic 12]

CCMP (rebased)

competition. Its lower-end hotel business delivered 40%-50% YoY volume growth in the second half of 1Q18.

• Long-term growth drivers remain intact. For international business, Skyscanner maintained a solid 30% YoY growth in 1Q. Meanwhile, Ctrip’s organic international air ticketing (ex-Skyscanner) has already accounted for over 40% of total air ticketing revenue. For lower-tier city expansion,  total GMV of Ctrip’s offline stores witnessed a strong 50% YoY growth.
• Maintain Neutral and raise PT to US$45. We roll over our valuation base to 2019. Our PT is based on 2019E non-GAAP EPS of US$1.65, a FY19-21E EPS CAGR of 27%, and 1.0x PEG.

Share Price: $43.44, Date of Price: (22 May 18), Bloomberg CTRP US, Reuters CTRP

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Source: Company, J. P. Morgan estimates, Bloomberg. * Note: Excluding share-based compensation expense.

See page 6 for analyst certification and important disclosures, including non-US analyst disclosures.

J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

www.jpmorganmarkets.com

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FY13 FY14 FY15 FY16E FY17E FY18E FY19E

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Peer group valuation comparison[pic 25]

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Ticker        Rating        Price        PT        Mkt Cap        EV                 P/E        P/S        PEG        CAGR

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