Tongcheng Travel (TC) reported 4Q24 results: total revenue was RMB4.2bn, up 35% YoY (3Q24: 51% YoY), 5% better than Bloomberg consensus estimates, due to the beat in revenue of accommodation reservation and Tourism business; adjusted NP was RMB660mn, up 37% YoY, and was 7% better than consensus. OPM of core OTA businesses improved to 28.4% in 4Q24 (4Q23: 23.6%), driven by optimization of marketing strategies. For 2024, total revenue grew 46% YoY to RMB17.3bn, and non-GAAP net profit reached RMB2.8bn, up 27% YoY. Looking into 2025, although Tourism business likely faces some short-term headwinds, core OTA business could still deliver solid earnings growth, driven by: 1) resilient travel demand for both domestic and outbound travel, and TC’s ability to drive for further operating efficiency improvement through refined marketing strategies and optimization in user subsidy provided; 2) international business turnaround from loss-making stage and start to contribute profits. We are looking for 25%/18% YoY growth for core OTA OP/total non-GAAP NP. Accounting for better-than-expected operating efficiency improvement, we lift 25/26E net profit forecasts by 2/3%, and revise up our DCF-based TP to HK$24.0, which translates into 16x 2025E PE (non-GAAP). Maintain BUY.
　　Core OTA business delivered in line with consensus revenue growth.
　　In 4Q24, TC’s core OTA business reached RMB3.5bn (82% of total revenue), up 20% YoY (3Q24: 22% YoY), and was in line with consensus, among which transportation ticketing services/ accommodation reservation services/others revenue achieved YoY revenue growth of 17%/29%/15% YoY (3Q24: 21/22/24%). The number of twelve-month accumulated number of travellers served reached 1.93bn by end-Dec, up 9% YoY, compared to annual paying users (APU) increase of 1.5% YoY during the same period. The cross-sell ratio between transportation ticketing and other business and products was largely stable QoQ at 12% in 4Q24, while TC targets to increase to 13-15% in the medium term.
　　1Q25 outlook: healthy OTA business revenue growth driven by accommodation reservation. For 1Q25E, we estimate TC to ink total revenue of RMB4.4bn, up 13% YoY, driven by 17% YoY revenue growth of Core OTA segment. Within the Core OTA business, we are looking for 14%/24% YoY revenue growth for transportation ticketing/accommodation reservation (AR) business. We see support for the robust revenue growth of AR to come from: 1) 12% YoY growth in hotel room night growth; and 2) increase in hotel take rate aided by optimization in user subsidy.
　　Expecting solid earnings growth in 2025E driven by operating efficiency improvement. Driven by optimization in user subsidy and unleashing of operating leverage aided by solid revenue growth, OPM of core OTA business expanded to 26.9% in 2024 (2023: 25.4%), and we expect this positive trajectory to sustain in 2025 amid the backdrop of a stabilized industry competitive landscape. Combined with the impact of reversal of loss-making international business to profitability stage driven by user subsidy optimization, we are anticipating 25% YoY growth for OP of core OTA business, and expecting a further OPM expansion to 28.5% in 2025E. Our 2025E revenue is inline with consensus while non-GAAP NP forecast is 5% ahead of consensus.