Tuesday, January 09, 2007

Calls of Note Part 5

- Goldman Sachs is a bit cautious on Ctrip.com International (NASDAQ:CTRP) saying they believe initiatives by the government to adopt e-ticketing across all platforms by the end of 2007 have prompted optimism that large travel consolidators with capability to install e-ticketing system will aggressively take market share from fragmented local travel agents. Firm estimates Ctrip's and eLong's 2006 air-ticketing combined air-ticketing market share at 10%. Firm share the view that secular trend favors large travel consolidators, but believes substantial e-ticketing market share gain by Ctrip is unlikely in 2007.

Firm believes Ctrip's share price may come under pressure given: 1) Ctrip is trading at 38X 2007 non-GAAP diluted EPADS (vs 18X for US peers) and 30X 2008 with 2007-10 tax earnings CAGR of 32% and 2007E ROE of 36%. 2) They believe 2007 revenue guidance may disappoint when the company guides upon 4Q2006 results announcement in February. GS expects Ctrip to guide 2007 revenue growth of 30%-35% versus their 2007/2006 forecast of 47% and 2006 guidance of 40%. They lower their 2007 earnings by 5% assuming margin pressure from higher revenue contribution from lower margin air-ticketing, but increase 2008 earnings by 3% assuming more aggressive air-ticketing market share growth.

Maintains Neutral. Tgt $47 (up from $44).

Notablecalls: I would not be surprised to see some weakness in CTRP following the call. The stock is trading at a hefty multiple. I would definitely not want to overstay my welcome as CTRP is a notorious bouncer.

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