Guotai Haitong: Maintains TONGCHENGTRAVEL (00780) rating of Buy with a target price of HKD 27.88

Guotai Haitong issued a research report stating that it maintains a buy rating on TONGCHENGTRAVEL (00780). Considering that the competitive landscape of the OTA industry remains stable, and the company maintains a steady increase in profit margins through efficiency improvements such as subsidies, it maintains the company's adjusted net profit attributable to shareholders for 2025/2026/2027 at 33.11/38.47/44.02 billion yuan (RMB) respectively. Taking into account the company's own growth potential and performance flexibility, and comparing it to Ctrip, a PE valuation of 18x for 2025 is given, maintaining a target market value of 59.6 billion RMB, corresponding to 6.53 billion Hong Kong dollars, and a target price of 27.88 Hong Kong dollars per share calculated at an exchange rate of 1HKD = 0.9128CNY. Guotai Haitong's main points are as follows: The performance in Q2 of 2025 exceeded expectations, with demand for travel and accommodation remaining strong and driving GMV growth to a positive year-on-year trend; the competitive landscape in the industry is stable, with efficiency improvements in marketing subsidies driving the core OTA profit margin to continue to steadily increase. Performance Summary: Revenue in Q2 of 2025 was 46.69 billion yuan, an increase of 10% year-on-year, with core OTA revenue reaching 40.08 billion yuan, an increase of 13.66% year-on-year. Adjusted net profit was 7.75 billion yuan, up 18% year-on-year, with an adjusted net profit margin of 16.6%, an increase of 1.1 percentage points year-on-year. The core OTA platform operating profit was 1.07 billion, a 24.69% increase year-on-year, with a core OTA operating profit margin of 26.7%, an increase of 2.4 percentage points. Performance exceeded expectations, with strong demand for travel and accommodation and GMV growth returning to positive. The key points to focus on in this quarter's financial report include: 1) slowed growth in traffic ticket sales affecting revenue. 2) changes in the competitive landscape and the impact of improved marketing efficiency on performance. 3) Despite the strong performance in Q2 of 2025, revenue was as expected. The return to positive GMV growth this quarter is worth noting again, with a slight increase in Tongcheng's market share in reality. Take rate drive... Stable landscape with improved marketing efficiency, steady increase in core OTA profit margin: In Q2 of 2025, adjusted net profit was 7.75 billion, an 18% increase year-on-year, and adjusted EBITDA was up 29.75% year-on-year. The driving force behind the increase in profit margins still comes from efficiency improvements. The sales expense rate decreased by 2.2 percentage points year-on-year, indicating that industry competition has not intensified significantly. The core OTA operating profit was 1.042 billion, a 21.4% increase year-on-year; the operating profit margin was 26%, up 1.7 percentage points year-on-year. The data in this quarter once again indicates that the industry landscape is stable, and there has been no intensification of competition. The growth in profits driven by efficiency improvements in marketing spending continues to have strong certainty. Risk warning: Macro-economic fluctuations impacting domestic travel and business demand; intensifying competition from new internet platform leaders; slower conversion of existing user operations than expected.