China International Capital Corporation (CICC) has released a research report reiterating an Outperform industry rating on TONGCHENGTRAVEL (00780), with a target price of HK$22. This target implies a valuation of 12x and 10x Non-IFRS P/E for 2026 and 2027 estimates respectively, representing a potential upside of approximately 40%. The company is currently trading at 8x and 7x Non-IFRS P/E for the same periods.

For the first quarter of 2026, TONGCHENGTRAVEL reported revenue of RMB 5.01 billion, a year-on-year increase of 14%, which was 2% above market expectations. This outperformance was primarily driven by stronger-than-anticipated results in the accommodation and hotel management segments. Non-IFRS net profit attributable to shareholders reached RMB 936 million, exceeding market forecasts by 2.8%, corresponding to a Non-IFRS net profit margin of 18.7%.

The report highlights robust performance in the company's outbound travel and hotel management businesses, alongside effective cost control measures. Key details include: 1) Outbound Travel: In Q1 2026, the outbound segment contributed nearly 6% to the combined revenue from transportation and hotel bookings. International air tickets alone accounted for 6.5% of total transportation revenue. During the May Day holiday period, outbound accommodation room nights grew by nearly 50% year-on-year. It is projected that international accommodation room nights will increase by over 40% year-on-year in Q2 2026. 2) Hotel Management: As of the end of March 2026, the number of hotels in operation exceeded 3,200, with an additional 1,900 in the pipeline. The hotel management business drove other income in Q1 2026 to surpass market expectations. Other income is expected to grow 37% year-on-year in Q2 2026. 3) Profitability: The adjusted net profit margin for Q1 2026 increased by 0.8 percentage points year-on-year, primarily due to optimized operational leverage. The company believes that adjustments to its marketing strategy and workforce optimization can partially offset the negative impact of the macroeconomic environment. It is estimated the company's full-year 2026 Non-IFRS net profit will reach RMB 3.85 billion, with the profit margin improving by 1 percentage point year-on-year to 18.3%.

Risk factors include macroeconomic uncertainty, potential shortfalls in expense control, risks associated with investments and mergers & acquisitions, and regulatory risks.