Tongcheng Travel reported 1Q25 revenue of Rmb4.38bn (+13% YoY) and adjustednet profit of Rmb788m (+41% YoY), higher than our expectations, thanks tohigher-than-expected core OTA operating profit margin. We raise 25E EPS forecastfrom Rmb1.38 to Rmb1.41, maintain 26E forecast of Rmb1.57, and maintain 27Eforecast of Rmb1.74. We raise target price from HK$24.8 to HK$26.5 with 21% upsidepotential, we maintain a Buy rating.
　　Robust growth in domestic operations. In 1Q25, the company’s core OTA revenueincreased by 18% YoY, with accommodation reservation revenue up 23% YoY andtransportation ticketing revenue rising 15% YoY. Monthly paying users (MPUs)increased 9% YoY to 46.5m, while annual paying users (APUs) grew 8% YoY to 250m,both hitting historical highs. The domestic hotel take rate is expected to rise 0.5pptsQoQ to 9.5-10% in Q2, primarily driven by reduced subsidies. For 2H25, hotel revenuegrowth is projected to be led by pricing and room night volumes. Hotel average dailyrate (ADR) growth is expected to turn positive in 2Q25, and the proportion of three-starand above hotels on the Tongcheng Travel platform has seen an upward trend.
　　The outbound travel business is expected to turn from loss to profit this year. In1Q25, outbound flight tickets contributed c.5% to transportation revenue, andoutbound hotels accounted for a low single-digit proportion of hotel room nights. By theend of the year, outbound flight tickets and hotels are expected to contribute more than7% to flight and hotel revenue. The loss amount from outbound flight tickets in 1Q25decreased QoQ, and the business is expected to achieve profitability for the full year.
　　Maintain Buy. We are optimistic about the growth certainty of the online travelindustry and the stability of its competitive landscape. Tongcheng Travel is ahigh-certainty target in domestic demand consumption. The improvement in marketingefficiency and the expansion of outbound travel are expected to drive marginenhancement, while the hotel management business is also poised to provideadditional growth drivers. We maintain a Buy rating.
　　Risks. Revenue growth may fall short of expectations. Intensified competition couldlead to margin erosion.