Morgan Stanley reiterates Cheng rating of $76.8

In the morning of July 31, Beijing time, Morgan Stanley released a study today, reiterating its "overweight" (overweight) rating of Ctrip (NASDAQ:CTRP) and raising its target price from $50.50 to $76.80.

The following is a summary of the contents of the report:

Fiscal year 2014 second quarter earnings outlook

We expect Ctrip's second-quarter revenue growth to continue to be strong, boosting operating leverage and profitability over the next few quarters. We reiterated our "overweight" rating on Ctrip stock and raised its target price to $76.80.

Changes：

Earnings per share in fiscal year 2014 are expected to rise from 4.44 US dollars to 5.06 dollars;

Earnings per share in fiscal year 2015 are expected to rise from 7.82 US dollars to 8.56 dollars;

Earnings per share in fiscal year 2016 are expected to rise from 9.67 US dollars to 11.84 dollars;

The target price was raised from $50.50 to $76.80.

-Sales are expected to be strong in the second quarter and outlook for the third quarter is solid:

We expect Ctrip's second-quarter sales to grow by 34% per cent year-on-year (compared with the previous 30% to 35% per cent increase in corporate management), and not according to the US General accounting standards operating profit margin of 14%, down 9%-10% from the same period last year, but up 200 points compared with the first quarter. Mainly due to seasonal factors and the impact of operating leverage. We forecast Ctrip's third-quarter sales growth of 33% per cent year-on-year.

-Profit expectation adjustment:

We will increase the revenue forecasts for fiscal year 2014, 2015 and 2016 respectively by 5%, 9% and 12%, mainly because we expect to achieve faster growth in hotel bookings and Ctrip bookings. We will also increase the earnings forecasts for fiscal year 2014, 2015 and 2016 by 14%, 9% and 22% respectively, Ctrip.

In view of the increase in earnings expectations, we will raise the Ctrip target price based on the cash flow discount method to $76.8, while lowering the discount rate from 13% to 12% to reflect the improvement in Ctrip performance Outlook, which is accelerating the growth of its market share. According to current stock prices, Ctrip 2015 and 2016 are expected to be 40 to 50 times times the middle of the interval and 30 to 40 times times the middle of the interval, and its 2015 fiscal year to 2017 fiscal year between the annual growth rate is expected to exceed 40%.

-The volume of hotel bookings and traffic ticket bookings are growing strongly:

Ctrip estimates that the volume of hotel bookings in the second quarter increased by 50% to 60% per cent year-on-year, but was partially offset by a decline in the average selling price (15%). The average price drop is due to changes in its sales portfolio (growth in sales from lower-priced cities) and hotel discounts (at present its 100% per cent discount cost is counted at the cost of revenue, compared with only two-thirds for the same period last year). Ctrip estimated that the hotel's preferential cost of the chain stability, in the Hotel commission sales accounted for 18% of the proportion.

Ctrip estimates that total traffic ticket bookings in the second quarter grew 50% to 60% per cent year-on-year (the year-on-year growth rate of ticket bookings would still be over 30%) but were partially offset by a fall in the price of trains and bus fares (ticket prices dropped 10% to 25%).

-profit margins are expected to improve in the second half:

While Ctrip is expected to continue to invest heavily (such as branding, price competition) to gain market share, we expect the rate of decline in profit margins to slow in the second half (down 500 to 700 basis points year-on-year, compared with 900 to 1000 basis points for the first half), Mainly due to strong revenue growth and operating leverage.

In view of the strong growth in bookings and the increasing acceptance of online and mobile booking services, we believe that Ctrip may be able to cut back some discretionary marketing spending (such as television commercials) by the end of the year, thus enabling its profitability to rebound in 2015 years.

-The trend towards acceptance of online and mobile booking services is encouraging:

In the first quarter, Ctrip moved more than PC bookings for the first time, representing more than 40% per cent of total transactions (compared to 30% per cent of PC bookings), well above 10% per cent over the same period last year. The growth of online transactions should increase overall scalability, Ctrip said, while mobile subscriptions tend to lead to higher conversion rates and repeat business rates. Search engines remain Ctrip's second-largest channel (10%), but as mobile traffic grows, Ctrip's reliance on the PC search engine should decline.

-A growing role in China's leisure tourism market:

Ctrip has recently invested in a number of peer companies, such as the leading online leisure tourism platform, which focuses on outbound travel services, and the same travel network (leading local attractions ticketing services). In our view, such a strategic alliance should provide Ctrip with a business force and avoid potential irrational price competition.

-Investment Theme:

We believe that the Ctrip market pricing has taken into account the weakness of the outlook for profit margins in 2014, and that the robust implementation of its investment plan could lead to profitable upside in the second half of 2014 and 2015 years. We anticipate that Ctrip's investment activities will accelerate its acquisition of market share and may lead to operational leverage that should help Ctrip strengthen its market position in order to capture business opportunities in the field of mobile and leisure tourism services.

-Main value driving force:

Ctrip's share of the hotel room night and ticket market is likely to grow, with new services such as group tours, business trips and overseas tours becoming the new growth engine.

-Potential irritant factors:

Further growth in market share and rebound in pricing have accelerated sales growth;

-Target price risk:

The rate of return has slowed as companies continue to invest and perform poorly, and competition from traditional online travel agencies such as Nasdaq:long and new rivals has increased; China's weakening economy could slow the growth of the tourism industry, and uncontrolled events such as flu could hurt the tourism industry. (Tangfeng)