Ctrip.com Flying to Higher Levels

We maintain our Buy rating on Ctrip.com International (CTRP - Snapshot Report), a leading consolidator of hotel accommodations and air ticket booking in China.  In spite of the Sichuang Earthquake, the company reported strong financial results for the second quarter of 2008, again exceeding market consensus estimates.

Its profit margin continued to improve due to strong revenue growth and increased commission per ticket sold. Ctrip’s results were driven by growth in all of its business units. We think Ctrip’s past results demonstrate that the company’s long-term growth story remains intact under almost all circumstances.

Ctrip primarily targets the fast-growing frequent independent traveler (FIT) segment as opposed to the traditional tour-group focused travel agencies. The company expects its growth to be driven by the expanding FIT segment. Moreover, the company has a solid competitive advantage with 95% of its hotel bookings revenue coming from star-rated hotels, which offer higher commissions.

Furthermore, Ctrip’s scalable and profitable business platform provides the company with a high degree of operating leverage. We expect Ctrip to further increase its operating leverage as it shifts customer bookings from call centers to the Internet, which is more cost-effective for the company.

Based on our estimate for fiscal year 2008, earnings per share, the company is trading at 46.7x, which is higher than the industry average. Based on our EPS estimate for fiscal year 2009, CTRP shares are trading at 32.4x, which is similar to industry average. Using a P/E multiple of 37.3x our fiscal year 2009 earnings per share estimate yields a target price of $50.00, which we believe reflects the company’s solid growth prospects.

Read the full analyst report on CTRP

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