Managing Director, Zero One, Zero One

Vincent Fernando, CFA

20 years of experience researching capital markets in Asia and the USA.

Managing Director, Zero One

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Zero One

Founded in 2015, Zero One produces independent investment research and provides corporate finance advisory services with a focus on both listed and private technology companies. Founder Vincent Fernando has over 20 years of experience in US and Asia capital markets.

Independent Investment Research

Equity Bottom-Up

Tongcheng Travel Holdings  / Equity Bottom-Up

China lower tier cities driving online travel agency (“OTA”) market growth. As of 1H19, lower tier cities accounted for ~90% of the growth in online hotel reservations as Tier-1 cities OTA penetration approach Western developed market levels.Favorable demographics with 85% of Tongcheng-Elong users from lower tier cities. Tongcheng-Elong (“TCEL”) reached 250m monthly active users in August 2019 with the majority from lower tier cities. This contrasts with Trip.com ("TCOM") which only has ~52% of users from lower tier cities.Lower tier cities travel spend is set grow multiples higher. China’s 5-Year Plan has allocated the majority of travel infrastructure (e.g. new airports, railways, etc.) towards lower tier cities, while disposable incomes in Tier-2 and Tier-3 cities are forecasted to match current levels of Tier-1 cities within the next decade.TCEL userbase implied valuation is 1/7th the price of TCOM’s. Based on the latest publicly available data, TCEL’s market capitalization per user is US$13.5 versus TCOM’s US$96.1. TCEL’s users remain significantly cheaper than TCOM’s even when factoring the ARPU difference (TCOM’s ARPU is only ~4x more than TCEL’s).Fears about competition are overblown. TCEL’s paying user conversion is 2.8x more efficient than Meituan-Dianping’s thanks to the Company’s monopoly rights to operate travel portals in WeChat Wallet. TCEL also beats out TCOM in terms of engagement while remaining stickier than Meituan Hotel.Fair value of HK$21.8 representing 75% upside. Assuming the purchasing power of lower tier city users reaches parity with today's Tier-1 city users by 2030, we believe that the value of each TCEL user can grow to US$96.1 (value of each TCOM user today). This would imply a valuation of US$24.0B by Year 2030, which we bring to a present value of US$5.9B (HK$46.3B) using a 15% discount rate.

China lower tier cities driving online travel agency (“OTA”) market growth. As of 1H19, lower tier cities accounted for ~90% of the growth in online hotel reservations as Tier-1 cities OTA penetration approach Western developed market levels.Favorable demographics with 85% of Tongcheng-Elong users from lower tier cities. Tongcheng-Elong (“TCEL”) reached 250m monthly active users in August 2019 with the majority from lower tier cities. This contrasts with Trip.com ("TCOM") which only has ~52% of users from lower tier cities.Lower tier cities travel spend is set grow multiples higher. China’s 5-Year Plan has allocated the majority of travel infrastructure (e.g. new airports, railways, etc.) towards lower tier cities, while disposable incomes in Tier-2 and Tier-3 cities are forecasted to match current levels of Tier-1 cities within the next decade.TCEL userbase implied valuation is 1/7th the price of TCOM’s. Based on the latest publicly available data, TCEL’s market capitalization per user is US$13.5 versus TCOM’s US$96.1. TCEL’s users remain significantly cheaper than TCOM’s even when factoring the ARPU difference (TCOM’s ARPU is only ~4x more than TCEL’s).Fears about competition are overblown. TCEL’s paying user conversion is 2.8x more efficient than Meituan-Dianping’s thanks to the Company’s monopoly rights to operate travel portals in WeChat Wallet. TCEL also beats out TCOM in terms of engagement while remaining stickier than Meituan Hotel.Fair value of HK$21.8 representing 75% upside. Assuming the purchasing power of lower tier city users reaches parity with today's Tier-1 city users by 2030, we believe that the value of each TCEL user can grow to US$96.1 (value of each TCOM user today). This would imply a valuation of US$24.0B by Year 2030, which we bring to a present value of US$5.9B (HK$46.3B) using a 15% discount rate.

2020年の確信度：Tongcheng-Elong（780：HK）はTrip.comにとって主要な買収ターゲットとしてオーバーウェイト