Monday, February 12, 2007

Color on quarter: (NASDAQ:CTRP)

Couple of firms are commenting on (NASDAQ:CTRP) following earnings relesed this AM:

- Piper Jaffray notes that as they expected, CTRP produced another solid quarter with a $1M and $0.01 upsides in revenue and GAAP EPS. While the level of upside was lower than in previous quarters, CTRP once again demonstrated its ability to outperform its conservative outlook. The hotel segment was especially strong with $1.5M upside to firm's estimate driven by robust volumes and pricing. Firm expects Ctrip to continue to deliver upsides as a result of the conservative guidance, strong execution, its No. 1 position in a healthy travel market, and its strengthening brand in China. They expect the increasing contribution of the fast growing air ticket segment to cause gross margins to decline by approximately 2% in '07, but this issue is not new to investors. Firm also expects the adoption of e-tickets to continue to be a catalyst for continued share gains.

PJ is increasing their price target to $63 from $46 but maintains Market Perform rating given the valuation constraints. Even with significant upside to '08 estimates, CTRP will still be trading at a hefty premium to its peers, and they simply cannot construct a scenario where further multiple expansions will occur, given that the target price is already assuming 40x 2008 EPS.

- Merrill Lynch notes Ctrip reported inline 4Q06 results today, the fourth quarter in a row that the firm found no needs to revise up their earnings forecasts based on its underlying operation. Although business remains solid and growth healthy, Ctrip's ability to shock and awe the street with consensus beating earnings may be ending in their opinion.

Management expects approximately 30% YoY growth in revenue (down from 50% in FY06) and 35% operating margin (ex share compensation and down from 40% in FY06), suggesting earnings growth in Rmb terms to slow down to 20% range in FY07 vs. 30.6% in FY06. The large drop in expected margin is due to increasing percentage of air ticket sales which has lower margins than for hotel business.

ML has revised up their FY07 and FY08 US$ earnings forecasts by 5% and 12% respectively largely due to translation effects of higher Rmb appreciation assumptions (about 5.5% p.a. over the next two years vs. flat previously).

Trading at 55x FY07e earnings (46x ex share compensation) vs. 28% expected eps CAGR FY07-09, 18x FY06A P/B vs. less than 30% ROE, they consider the stock's valuation stretched.

Notablecalls: Looks like a bad hair day coming for CTRP holders. Suspect there will be a bounce but that will not happen at least until the stock comes down toward the $64 level.

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