Chinese OTA Tongcheng-ELong heads for $1B Hong Kong IPO amid increasing competition

Tongcheng ELong joins the IPO bandwagon at the Hong Kong bourse.

By Robin Moh on Mon Jul 09 2018

Ctrip-backed Tongcheng-Elong Holdings Limited , an online travel agent (OTA) established through the merger of Tongcheng Network and E-dragon Holdings Limited (eLong) in December 2017, is heading Hong Kong for an initial public offering (IPO) to raise between $1 billion to $1.5 billion.  

Tongcheng offers a wide range of online travel booking services while eLong focused on hotel business. The merged entity are backed by OTA market leader Ctrip and Chinese internet giant Tencent.

While Ctrip is generally considered the market leader in China’s OTA space, since March 2018 Meituan-Dianping has reportedly surpassed Ctrip’s hotel booking volumes. Hong Kong-listed Internet major Tencent Holdings  maintains stakes in both Tongcheng-ELong and Meituan.

Source: Tongcheng ELong Prospectus.

The merged entity’s transport ticketing gross merchandise volume (GMV) reached 80 billion yuan (US$12.31 billion) in 2017, according to details in its IPO prospectus filed with Hong Kong Exchanges and Clearing. In 2016, the two separate firms posted a combined transport ticketing GMV of 50.5 billion yuan.

The growing revenue opportunity that China’s online travel sector represents is attracting the interest of a number of players. Information from research company iResearch indicates that the gross merchandise volume (GMV) of China’s online travel market expanded by 39.8 per cent in compounded growth between 2013 (US$47 billion) and 2017 (US$181 billion), while Chinese tourists reportedly spent $115.29 billion internationally and $720 billion domestically.

Source:  Tongcheng ELong Prospectus.

Despite the overall increase in the volume of monthly average users (MAUs) and monthly paying users (MPUs), the declining growth these metric have seen in relation to its core transportation ticketing and accommodation reservation services is potentially an area of concern.

The growth of accommodation reservations has been comparatively flat since 2015, while its transportation ticketing business posted a compound annual growth rate (CAGR) of 52.53% from 2015 to 2017.

Source: Tongcheng ELong Prospectus.

The firm is conducting an IPO at a time when it is heavily leveraged, with the last few years seeing its financial liabilities grow. With reduced growth in revenue and gross profits  over the last few year, it also suggests Tongcheng-ELong has maintained weak cost controls in a highly competitive market.

Editor: Ben Jiang & Shiwen Yap