The neutral rating of Ctrip, and lowered its target share price from 53 to 50 dollars

Ctrip reported Better-than-expected first-quarter revenue, mainly because of the good fundamentals of China's travel market, which was 4 times times faster than the first quarter of 2013. However, Ctrip's earnings per share in the first quarter were flat to the average analyst's estimate of 0.12 dollars, as operating margins fell by 1100 basic points to 12%. Ctrip expects operating margins in the second quarter to remain in the first quarter, meaning the year-on-year decline of more than 1000 basic points. We expect the profitability of Ctrip to increase in 2014, but the margin will remain low due to mobile product development and coupon activity. The low cost of switching to other services and the increasing competition in the market mean that it will be difficult for Ctrip to continue to achieve a similar or higher operating profit margin for the next few years than it did before 2013. We maintain a "neutral" rating and a constant valuation ratio, which means a 50 dollar target share price.

First-quarter results were mixed: revenues were slightly higher than average and earnings per share met expectations

Ctrip's first-quarter revenue was $254 million, above analysts ' average of $245 million trillion, largely due to a big increase in total mobile transactions, up from 4 times times the year-on-year growth rate (mobile bookings accounted for 40% of the total bookings in the first quarter, up from 10% in the same period last year). The growth rate of hotel bookings accelerated, with a year-on-year growth of 67%, up from 55% in the fourth quarter of last year. In the first quarter, traffic ticket bookings increased 71% year-on-year. A stable marketing environment (a small drop in hotel coupon charges for hotel business revenues to 18%), mobile development investment, and the development of other travel operations led to non-US GAAP operating profit margins of 12%, down from 23% in the same period last year. Ctrip estimates that net revenue in the second quarter will rise 30% to 35% year-on-year (in renminbi), up 5% from the previous quarter's revenue forecast.

Expected operating margin to remain relatively stable in the short term

Ctrip forecast that the second quarter of the non-US general accounting standards operating profit margin will be flat, that is 12%. This is mainly due to continued investment and mobile business, as well as sales marketing campaigns. Based on the unchanged marketing activities and investment level, Ctrip Management expects that in the remainder of the year, operating margins will rise in the third quarter, but the fourth quarter will fall. In other words, the changes in operating margins in the third and fourth quarters were mainly due to normal seasonal fluctuations.

Margin to rebound time is not clear, maintain a "neutral" rating, the target price reduced to 50 U.S. dollars

Ctrip's profit margins will remain low, but in a fast-growing and competitive market, the company is taking the necessary steps to ensure market share. It is not clear when China's competitive travel market will calm down, so we think it is prudent to assume that Ctrip's operating margin continues to fall below 20% in the next few quarters.