The online travel agent’s revenue rose 14% in the first quarter, but its latest report lacked discussion of an anti-trust probe into Trip.com, its top stakeholder and a key supplier
image credit: Bamboo Works
Key Takeaways:
- Tongcheng reported its revenue rose 14.4% in the first quarter, led by a 14.7% gain for its accommodations unit and a 60% jump for its hotel management business
- The online travel agent’s latest report failed to discuss an anti-monopoly probe launched in January against Trip.com, Tongcheng’s main supplier of hotel booking services
Double-digit revenue and profit growth weren’t enough to hide the big elephant in the room that online travel agent Tongcheng Travel Holdings Ltd. (0780.HK) failed to mention in its latest quarterly report released last Thursday.
That elephant is an anti-monopoly probe into leading online travel agent Trip.com (NASDAQ:TCOM) (9961.HK) announced in January, which will almost certainly have a major impact on Tongcheng when a final decision comes in the case. That’s because Tongcheng is part of Trip.com’s market dominance that is under investigation. Trip.com currently holds about 24% of Tongcheng’s shares, and is also the main supplier of hotel booking services that are one of Tongcheng’s top three revenue sources.
And yet despite that big overhang, Tongcheng makes no mention of the relationship in its latest quarterly report, which looks relatively positive, including 14.4% revenue growth and 16.4% profit growth in the three months to March.
But investors weren’t fooled by the positive numbers, with Tongcheng’s shares slumping 5% on Friday, the day after the latest report’s release. With the Friday selloff, Tongcheng’s shares are now down 33% since the start of the year, almost as bad as Trip.com’s 36% decline. Most of the slump has come since Trip.com confirmed on Jan. 14 that it was being investigated by China’s State Administration for Market Regulation (SAMR). Other reports said the probe was focused on the company’s dominance in China’s hotel booking market.
The selloff has sent Tongcheng’s price-to-earnings (P/E) ratio down to just 13, though that’s still roughly twice the 6.6 for Trip.com’s battered valuation. By comparison, the much smaller Tuniu (TOUR.US) trades higher at 16, while global giant Expedia (EXPE.US) trades at 19.
Truth be told, Tongcheng could ultimately benefit from this anti-monopoly probe, which …