Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Equity Bottom-Up

After <a href="https://www.smartkarma.com/entities/180" target="_blank" data-smartkarma-citation="entities:180:1">Ctrip.com International (ADR) (CTRP US)</a> recently surprised investors by raising US$2.1 bn via new equity and convertible notes (see <a href="https://www.smartkarma.com/insights/ctrip-com-surprises-markets-with-new-equity-and-convertible-note-issuance" target="_blank" data-smartkarma-citation="insights:5702">Ctrip.com Surprises Markets With New Equity and Convertible Note Issuance</a>), some observers speculated that most of these funds will be used for new investments outside the Chinese online travel space. Should this turn out to be true, we would be puzzled, even alarmed. What could be the possible rationale for further acquisitions outside CTRP's core business (it invested over $640 mn outside the core business in H1)?We believe any attempts to increase scale or product breadth via M&amp;A would be misguided. In our view, CTRP's problem is not that it lacks scale or a sufficiently broad product offering. Rather, we believe CTRP's problem is that it already has ample scale and a sufficiently broad product offering...but it still can't generate positive returns!CTRP's past investments outside its core business in China -- and the potential for more in the near-term -- are troubling. If we held CTRP's ADSs, we would much prefer that management focus on improving profitability in the existing online travel agency business in CHina, and that it do so soon. The reason for the urgency is that, in our view, some of CTRP's addressable markets are no longer growing, and a few of its addressable markets are actually shrinking.Note that we employ a very specific definition of CTRP's addressable markets. For example, in the case of air travel ticketing, we do not view total Chinese air ticketing revenues (domestic, international, ancillaries) as CTRP's addressable market. In reality, CTRP's addressable air travel ticketing market is made up of only those air ticketing revenues that are available to intermediaries (ie, not including the airlines' direct sales). Looked at this way, CTRP's addressable markets are in most cases significantly smaller than total available market revenues; and in a few cases its addressable markets are already shrinking due to dis-intermediation by travel service providers.

After Ctrip.com International (ADR) (CTRP US) recently surprised investors by raising US$2.1 bn via new equity and convertible notes (see Ctrip.com Surprises Markets With New Equity and Convertible Note Issuance), some observers speculated that most of these funds will be used for new investments outside the Chinese online travel space. Should this turn out to be true, we would be puzzled, even alarmed. What could be the possible rationale for further acquisitions outside CTRP's core business (it invested over $640 mn outside the core business in H1)?We believe any attempts to increase scale or product breadth via M&amp;A would be misguided. In our view, CTRP's problem is not that it lacks scale or a sufficiently broad product offering. Rather, we believe CTRP's problem is that it already has ample scale and a sufficiently broad product offering...but it still can't generate positive returns!CTRP's past investments outside its core business in China -- and the potential for more in the near-term -- are troubling. If we held CTRP's ADSs, we would much prefer that management focus on improving profitability in the existing online travel agency business in CHina, and that it do so soon. The reason for the urgency is that, in our view, some of CTRP's addressable markets are no longer growing, and a few of its addressable markets are actually shrinking.Note that we employ a very specific definition of CTRP's addressable markets. For example, in the case of air travel ticketing, we do not view total Chinese air ticketing revenues (domestic, international, ancillaries) as CTRP's addressable market. In reality, CTRP's addressable air travel ticketing market is made up of only those air ticketing revenues that are available to intermediaries (ie, not including the airlines' direct sales). Looked at this way, CTRP's addressable markets are in most cases significantly smaller than total available market revenues; and in a few cases its addressable markets are already shrinking due to dis-intermediation by travel service providers.

Tough Road Ahead: Some of Ctrip.com's Key Addressable Markets Are Shrinking

On the morning of September 6th in New York, <a href="https://www.smartkarma.com/entities/180" target="_blank" data-smartkarma-citation="entities:180:1">Ctrip.com International (ADR) (CTRP US)</a>  announced two new fundraising initiatives. CTRP will sell 22.5 mn new ADS, equivalent to 4.9% of outstanding ADS, and in addition the company will issue $750 mn in convertible senior notes. Assuming no over-allotments, and full conversion of the notes, we estimate these initiatives will result in approximately 8.5% dilution for existing shareholders. CTRP shares initially traded down around 5% on the news.…

On the morning of September 6th in New York, Ctrip.com International (ADR) (CTRP US)  announced two new fundraising initiatives. CTRP will sell 22.5 mn new ADS, equivalent to 4.9% of outstanding ADS, and in addition the company will issue $750 mn in convertible senior notes. Assuming no over-allotments, and full conversion of the notes, we estimate these initiatives will result in approximately 8.5% dilution for existing shareholders. CTRP shares initially traded down around 5% on the news.…

Ctrip.com Surprises Markets With New Equity and Convertible Note Issuance

United States

Makemytrip Ltd. offers travel services over the Internet.  The Company operates websites that allow travelers to research and plan trips and book airline tickets, hotels, packages, rail tickets, bus tickets, and rental cars. Makemytrip also offers access to travel insurance.

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Makemytrip Ltd (MMYT US)

Tough Road Ahead: Some of Ctrip.com's Key Addressable Markets Are Shrinking

After Ctrip.com International (ADR) (CTRP US) recently surprised investors by raising US$2.1 bn via new equity and convertible notes (see Ctrip.com...

Daniel Hellberg

Ctrip.com Surprises Markets With New Equity and Convertible Note Issuance

On the morning of September 6th in New York, Ctrip.com International (ADR) (CTRP US) announced two new fundraising initiatives. CTRP will sell...

Daniel Hellberg

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