Universal Travel Group Inc. (UTVL)

[skudaddy]

Some good news for UTVG (in bold)

http://seekingalpha.com/article/106938-ctrip-short-term-outlook-worsens?source=yahoo

Ctrip: Short-Term Outlook Worsens
PrintEmail Excerpts from Gilford Securities analyst Ashish R. Thadhani's recent note to clients on Ctrip (CTRP):

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Investment Conclusion. Our Hold rating remains in effect given the rapid slowing of Chinese economic activity and a neutral valuation stance (23x forward GAAP EPS). Due to decelerating growth, we are reducing our estimates as follows: 2008 GAAP EPADS to $0.87 on net revenue of $214 million (34% YoY growth) from $0.90 on $223 million; 2009 GAAP EPADS to $0.95 on net revenue of $261 million (22% YoY growth) from $1.20 on $304 million; and 2010 GAAP EPADS to $1.15 on net revenue of $319 million (22% YoY growth) from $1.55 on $398 million. Our model incorporates a conservative tax-rate assumption. We note that upcoming YoY growth comparisons have been made easier by weather, natural and event-driven disruptions throughout 2008. Near-term results will likely suffer from the deferral of non-essential business travel. However, air traffic volume has begun to recover after a 5% YoY contraction in 3Q – helped by the lifting of security/visa restrictions. We believe that CTRP can continue to outpace its peers – with the recent exception of packaged-tour player UTVG (36% organic growth, 26% operating margin in 3Q). In the present environment, it intends to acquire customers from failing rivals, strengthen its vendor relationships and usher cost control measures.

3Q08 Results. GAAP EPADS of $0.22 vs. $0.21 a year ago on net revenue of $54.5 million (27% YoY growth in dollar terms) beat our $0.20 estimate on $53.8 million. However, a lower tax-rate boosted results by 2.4 cents. Operating income of $15.7 million (28.8% margin) rose just 6% YoY and missed our $17.3 million estimate (32.2% margin). Profitability was impacted by price discounting on the part of airlines (10-15% lower vs. last year and ongoing in 4Q), although commission rates stood firm. Management noted continued expansion of the domestic hotel network (+36% YoY to 7,600) and active customer base (+51% YoY to 5.6 million). Net cash climbed to $226.7 million. During the quarter, Ctrip was recognized for the service delivered from its 4,000-employee call center to more than 100K travelers daily.



Noteworthy developments are summarized below.

August 2008. The board authorized a $15 million ADS repurchase program. In 2008, results have been held back by severe weather conditions (1Q), the Sichuan earthquake (2Q), disruption around the Beijing Olympics (3Q) and a slowing economy (4Q).
January 2008. To support growth in 2010 and beyond, Ctrip will invest $40-50 million through 2011 for building a second call center in Nantong (110 kilometers north of Shanghai).
August 2007. Rakuten sold its 13.3 million ADSs for $38 each to lock-in a 360% return over three years.
January 2006. Ctrip promoted COO/co-founder Min Fan to the position of CEO. James Liang, former CEO, continues to serve as Chairman.
October 2005. Ctrip announced that Ms. Jane Jie Sun will assume the position of CFO. Ms. Sun replaced former President/CFO Neil Shen, who joined VC firm Sequoia Capital but remains a board member.
July 2005. The Chinese government changed its currency policy. Over time, anticipated RMB appreciation should translate into higher dollar-denominated operating income, offset by near-term currency translation losses.
December 2004. Existing shareholders (including management) sold 7.7 million ADSs at $12.13 each.
June 2004. Ctrip attracted a $110 million investment at $8.25 per ADS from Rakuten.
December 2003. Ctrip raised net proceeds of $44.5 million from its IPO (at $4.50 per ADS).
Investment Thesis. Powered by rising GDP and disposable incomes, the Chinese travel industry is expected to sustain double-digit growth in coming years. Traditional agencies have been limited to a local/fragmented presence (due to licensing requirements) and focus primarily on tour groups. Pioneering consolidators like Ctrip offer selection plus savings to the individual traveler, and have become valuable aggregators of demand for the travel industry. Superior positioning includes the following: 85% of hotel reservation revenue is derived from bookings at three-to-five star hotels, where the commission per room is highest and room nights have grown 20%+ industry-wide in recent years. Ctrip boasts a nationwide supplier network, which assumes particular significance in a country with no hotel GDS. Market leadership has translated into a premium commission structure, i.e., 15% of the room rate or $10 per night. Ctrip has also sought to differentiate itself through service quality and innovation. Longer-term growth stands to benefit from continued expansion of hotel coverage and relaxation of travel restrictions, as well as recent implementation of an e-ticketing mandate.

CTRP is suitable for aggressive investors. In our opinion, principal risks include the following:

Deterioration of economic conditions or a slowing of travel demand in China.
Inability to secure adequate room availability under “guaranteed allotment” arrangements (that afford risk-free inventory and contribute three-quarters of hotel transaction volume).
Competition could pressure future profitability by way of lower commission rates and/or higher marketing expenses.
Disruptions affecting travel demand. This encompasses terrorist threats; geopolitical instability; catastrophic events; and spread of the H5N1 virus or a recurrence of SARS (necessitating closure of the Shanghai call center).
Correction in the U.S. markets.
Disclosure: None.