Tongcheng Travel (TC) reported 2Q25 results: total revenue was RMB4.7bn, up 10% YoY, and was 1% better than both our forecast and Bloomberg consensus estimates; adjusted NP was RMB775mn, up 18% YoY, and was 5/3% better than our forecast/consensus, driven by better-than-expected operating leverage of core OTA business. OPM of the core OTA business expanded to 26.7% in 2Q25 (2Q24: 24.3%), 1.2ppts ahead of our forecast. Our 2025-2027E revenue forecasts remain largely unchanged, while we lift non-GAAP net profit forecasts by 1-2% to factor in better-than-expected unleashing of operating leverage.
　　Following the results announcement, we remain positive that TC will deliver solid core business earnings growth, and we are anticipating 24.3/22.1% YoY growth (was 24.0/20.0%) from core OTA OP/total non-GAAP NP in 2025E. Our DCF- based TP remains unchanged at HK$24.0, translating into 15.1x 2025E PE (non-GAAP). Maintain BUY.
　　Core OTA business revenue growth largely inline with expectation. In
　　2Q25, TC’s core OTA business revenue reached RMB4.0bn (85.8% of total revenue), up 13.7% YoY (1Q25: 18.4% YoY), and was 0.6% ahead of consensus driven by better-than-expected revenue growth in accommodation reservation services and others. In 2Q25, transportation ticketing services/ accommodation reservation services/other revenue achieved YoY growth of 7.9%/15.2%/27.5% (1Q25: 15.2/23.3/20.0%). The number of 12-month accumulated number of travellers served reached 2.0bn by end-Jun, up 7.2% YoY, compared to annual paying users (APU) increase of 10.2% YoY during the same period.
　　3Q25 outlook: anticipating largely stable YoY revenue growth on
　　sequential basis. For 3Q25E, we estimate TC to ink total revenue of RMB5.5bn, up 9.5% YoY, driven by 14.0% YoY revenue growth of core OTA segment, but offset by a 9.5% YoY decline in Tourism revenue. Within the core OTA business, we are looking for 8/15/33% YoY revenue growth for transportation ticketing/accommodation reservation (AR)/other business.
　　The tremendous revenue growth for AR could be driven by the solid growth in hotel room nights, in our view. Meanwhile, we are of the view that the acceleration in YoY growth of other revenue will be driven by robust growth of hotel management business, while the growth of transportation ticketing business should stay at a healthy pace.
　　Expecting a stable OPM for core OTA business YoY for 3Q25E on high
　　base. TC’s overall OPM reached 17.3% in 2Q25, up from 12.2% in 2Q24, among which OPM of core OTA business improved to 26.7% (2Q24: 24.3%), thanks to solid revenue growth which helped unleash operating leverage, as well as efficient marketing spending. We forecast OPM of core OTA to remain stable YoY at 31.1% in 3Q25E, as TC faces high base and expects to slightly increase marketing spending in a peak summer season.
　　For non-GAAP net profit, we are anticipating 12% YoY growth to RMB1.0bn driven by revenue growth, translating into 18.7% non-GAAP net margin (2Q24: 18.2%).