Ctrip's hotel booking growth to boost shares
Mainland travel website continues to increase share of hotel reservation market
American depositary receipts of Ctrip rose 13 per cent to US$67 last week, pushing the year's gain to 35 per cent. The shares are outperforming a 6.6 per cent year-to-date increase in online travel firm Qunar Cayman Islands and a 1.9 per cent drop in Elong, whose top shareholder is Expedia.
Henry Guo of JG Capital says Ctrip's investments in mobile products and marketing are helping it benefit from the mainland's rising incomes and growing middle class which boost demand for travel reservations and packaged tours. The Shanghai-based company is expanding its hotel booking business where transaction volume jumped 67 per cent last quarter while Elong reported a 43 per cent increase.
"Ctrip's fast growth in the hotel segment shows it's grabbing market share from Elong, and that explains its big rally over the past few months," Guo, a San Francisco-based analyst at JG Capital, said. "I am bullish on China's travel sector for its long-term growth outlook."
The company will report revenue of US$270 million for the April-June period, up 33 per cent from a year earlier, data from 11 analyst estimates showed. The average projection is 5.4 per cent higher than it was six months ago.
Chinese hotel revenue per available room increased 7 per cent in May, the highest since 2010. This may indicate a return of higher domestic leisure and business travel offsetting a corruption crackdown that has crimped lavish official spending.
Rising competition in the web-based travel sector has "depressed" Ctrip's operating margin, a measure of profitability, according to Michael Olsen, an analyst at Piper Jaffray.
Ctrip said its adjusted operating margin narrowed to 12 per cent in the first quarter from 23 per cent a year earlier.
"It's unclear when the intensifying competitive China travel environment will abate," he wrote. "We have modelled margins below the 20 per cent level for the next several quarters."
