Bank of America Merrill Lynch to hold Ctrip's target price down to $63

Beijing time December 10 afternoon news, BofA Merrill Lynch today released a study to maintain the "buy" rating of Ctrip (NASDAQ:CTRP) shares, and cut the target share price to 63 U.S. dollars.

The following is the full report:

Aggressive marketing campaigns offset growth in mobile business margins

Ctrip reiterated the company's plan to drive sales growth over the next 1 years, rather than increase profitability. According to the management of Ctrip, the company plans to: 1 The fourth quarter to start active Mobile hotel booking coupons to deal with the Arts Dragon's 0 Commission discount activities. This will cover more than 50% hotels on the mobile end, accounting for the proportion of total revenue will reach a higher single-digit number. In addition Ctrip will continue normal hotel and ticket coupon activities. 2 in the electric business industry's "double 12" event to promote the introduction of gift cards. 3) The combination of television and other offline media to carry out the general brand activities.

We expect most of the financial impact to occur in the fourth quarter of 2013 and in the first quarter of 2014, while margins will not be affected much in the 2014-year period. The increase in mobile bookings will include higher repeat purchase rates and drive profit margins. But Ctrip may continue to push the proceeds into marketing campaigns to further boost sales.

We believe that the price war is likely to promote the travel agent industry's faster integration, so that the market to Ctrip, where and the art dragon and so on a few long-term leaders concentrated. But it also means there is limited room for profit margins in the next year. We will carry Ctrip's 2014 and 2015 revenue forecasts are cut by 3% respectively to reflect the higher coupon discount rate, and reduce operating profit margin by 1% and 1.3% respectively to reflect higher marketing costs. However, considering the market integration, we maintain the composite growth rate of 2015 to 2018 of the expected 25% unchanged. We cut our target share price from 68 to $63, based on the DCF valuation method.

Further analysis of user channels

Ctrip said that despite the absence of any coupons, the call center channel has maintained a growth rate of about 10%. At present, call center accounted for about 30% of the total number of Ctrip. The positive-price order makes the profit margin of this channel similar to the growth channel. At present, the PC channel accounted for about 40% of the volume of Ctrip, the growth rate of 50%, while the mobile channels accounted for about 20% of the volume, the growth rate reached 4 times times.

Currently, PC channels account for 20% to 25% of Baidu traffic, most of which come from search marketing. At the mobile end, Ctrip relies more on apps than mobile browser searches. So Ctrip expects that, although Baidu plans to further highlight where organic search results are going, it has limited impact on the company.

With regard to outbound travel (about 10% per cent of bookings), half of Ctrip's orders were completed through its own hotel network, which cushioned the company's reliance on Priceline partnerships.