2024 results in line with market expectations; board to adjust dividend policyTravelSky Technology announced its 2024 results: Revenue rose 26% YoY to Rmb8.82bn and net profit attributable to shareholders grew 48% YoY to Rmb2.07bn, in line with market expectations. In 2H24, revenue rose 30% YoY and 18% HoH to Rmb4.78bn and net profit grew 256% YoY but fell 48% HoH to Rmb707mn.
　　The board of directors proposed a dividend of Rmb0.239/sh (tax included), or 34% of the attributable net profit in 2024. They also proposed to adjust the company’s dividend policy to generally paying an annual final dividend in cash once a year, with the total amount of cash dividends accounting for 35-45% of the parent company’s net profit for the year (vs. 30-40% previously).
　　Multiple businesses such as system integration and technologicalservices performed well. In 2H24, revenue from the AIT business rose 5% YoY to Rmb2.05bn, with total bookings up 13% YoY and ASP down 7% YoY to Rmb5.4/seat, slightly beating our expectations. In addition to the AIT business, multiple businesses reported strong growth in 2H24.
　　System integration revenue grew 79% YoY, mainly due to a YoY increase in business scale and number of projects that meet the requirements for completion and acceptance. Revenue from technical support and products rose 110% YoY, mainly due to increased demand for IT services from customers and product expansion. Revenue from the settlement and clearing business and data network services grew 20% and 32% YoY, also outpacing booking volume growth.
　　Operating cost rose 25.5% YoY in 2H24. The firm’s costs rose in 2H24as: 1) Labor costs rose 15% YoY in 2H24 and 21% YoY in 2024; 2) depreciation and amortization rose 31% YoY, mainly due to the carryover of R&D spending to intangible assets; 3) cost of sales for the integration business rose 180% YoY. In 2H24, the firm made provisions for credit impairment losses of Rmb180mn, down Rmb242mn YoY.
　　Trends to watch Bookings continued to recover steadily; we suggest paying attention to the progress of international flights provided by overseas airlines.
　　According to a corporate announcement on operating data, the firm’s bookings for domestic flights provided by domestic airlines and international flights provided by domestic airlines rose 3% and 29% YoY, but those for international flights provided by overseas airlines fell 21% YoY, recovering to 119%, 94%, and 45% of the levels in the same period of 2019.
　　We believe the recovery of the firm’s bookings for international flights provided by overseas airlines was previously affected by factors such as flight routes and tight supply-demand conditions at overseas airlines, but some of these factors may ease in 2025. We suggest paying attention to the progress of the recovery in bookings for international flights provided by overseas airlines.
　　Financials and valuation
　　We raise our 2025 and 2026 net profit forecasts by 10.7% and 8.9% to Rmb2.33bn and Rmb2.58bn, due to higher revenue forecasts for project fee-based businesses. The stock is trading at 13.2x and 11.7x 2025e and 2026e P/E. Maintain OUTPERFORM. We raise our target price (based on P/E valuation method) 15% to HK$13, implying 15x 2025e P/E, offering 16.5% upside.
　　Risks
　　Disappointing civil aviation demand; higher-than-expected cost growth; large impairment provisions.