Tongcheng Travel reported 4Q24 revenue of Rmb4.2bn (+35% YoY) and adjusted net profit of Rmb660m (+37% YoY), higher than our expectations, thanks to higher-than-expected core OTA operating profit margin. We raise 25E EPS forecast from Rmb1.32 to Rmb1.38, raise 26E forecast from Rmb1.52 to Rmb1.57, and introduce 27E forecast of Rmb1.74. We raise target price from HK$22.5 to HK$24.8, with 35% upside potential, we maintain a Buy rating.
　　Solid growth of core OTA business. In 4Q24, the company’s core OTA revenue increased by 20% YoY, with accommodation reservation revenue up by 29% YoY and transportation ticketing revenue up by 17% YoY. Annual paying users improved 1.5% YoY and reached a record high number of 238m. ARPU improved 44% YoY, and average user transaction frequency increased from 5.5 in 2019 to 8.1 in 2024.
　　Outbound travel business to breakeven in 2025. During 2024, the company’sinternational hotel room nights increased by 110% YoY and air ticketing volume increased by 130% YoY. Outbound travel is expected to contribute to high-single digit of accommodation reservation and transportation ticketing revenue at the end of 2025, from 5% during 4Q24.
　　“Chengxin” AI system. The first travel-exclusive generative AI "Chengxin" released by Tongcheng Travel has been integrated with DeepSeek in March. It can help users create more personalized travel itineraries. Chengxin has been integrated into multiple external generative AI platforms and mobile devices to expand the company’s user reach.
　　Maintain Buy. We are optimistic about the long-term structural growth of the online travel industry. We believe the company has relative high certainty in domestic consumption. The improvement in marketing efficiency is expected to improve profit margins, and outbound tourism is expected to provide an additional growth driver.
　　We maintain a Buy rating.
　　Risks. Revenue growth may fall short of expectations. Intensified competition could lead to margin erosion.