Part 2 of How to Invest in 2008 Beijing Olympics Series.
In my first post, we talked about Home Inns & Hotels Management Inc. (HMIN), and expounded upon HMIN's hotel expansion projections and profit potential from increased traffic during the 2008 Olympics in Beijing.
HMIN provides lodging for Beijing tourists, but they have to book their trips, don't they?
#2: Ctrip.com International, Ltd (CTRP)
Based in Shanghai, China, Ctrip.com is a booking and hotel accommodations provider for much of China's tourist demographic.
Ctrip.com Company Report
Ctrip.com International, Ltd. (Ctrip) is a consolidator of hotel accommodations and air tickets in China. The Company aggregates information on hotels and flights, and enables its customers to make hotel and flight bookings. Ctrip also sells packaged-tours that include transportation and accommodations. The Company targets its services primarily at business and leisure travelers in China. Ctrip acts as agent in all of its transactions and does not take any inventory risks with respect to the hotel rooms and air tickets booked through the Company. Ctrip derives its hotel reservation, air-ticketing and packaged-tour revenues through commissions from hotels (primarily based on the transaction value of the rooms), air tickets and packaged-tour products, respectively, booked through its services. In March 2006, the Company formed a wholly owned subsidiary, C-Travel International Limited.
In a nutshell, Ctrip International, Ltd. operates a similar business model to that of Expedia.com or Travelocity, two well-known US travel booking websites. The Chinese ticket and airlines booking agent generates revenue from commissions, and owns zero inventory or liabilities.
Backed by a healthy balance sheet of $0 long-term debt and $100 million in cash, Ctrip can profit from 3 red hot trends in the China tourist market for the upcoming 2008 olympics in Beijing:
- 2008 Beijing Olympic Spending Will Reach $4.5 Billion – Increasingly high traffic & exposure surrounding the 2008 Olympics in Beijing provides plenty of monetization opportunities for Ctrip. The company will pocket a chunk of this revenue by arranging hotel & air bookings, packaged tour events, and advertisements sold on their websites and travel guidebooks. Additional working capital may lead to future acquisitions, allowing Ctrip to expand their businesses much faster.
- 9 out of 10 people visiting for Beijing 2008 Olympics will visit other Chinese cities – This is music to Ctrip's ears! Chinese tourists will seek packaged tour deals to explore other destinations within China.
Ctrip can keenly bundle invoices and correspondence with advertisements for their packaged tour business, and squeeze more revenue per customer from tourists who booked travel arrangements under the accommodations business.
- Overseas Visitors have grown 7% YOY since 2001 Beijing Olympic Announcement – Best of all, the Beijing Olympics has created a lot of “curiousity” and “wonder” about China and its society. Tourism is up since Beijing won the right to host the 2008 Olympics back in 2001, and has accounted for most of Ctrip's recent growth.
If the 2008 Olympics is a huge success, China will compete with the US & France as the most visited countries in the world. Right now, France is the most visited country in the world, and receives over 75 million visitors per year.
Increased tourism & annual visiting leads to long-term profitability for Ctrip, a leader in China's tourist industry. Who knows what Ctrip's stock will trade at 2 years from now.
To Ctrip, the 2008 Olympics in Beijing is a blessing from God. Ctrip can improve the distribution of their company's revenue model, enjoy a hefty surge in revenue and earnings for the entire tourist season, and better strengthen Ctrip's global brand.