Business context and reporting period
This is Ctrip.com International, Ltd.’s Form 20-F annual report for the fiscal year ended December 31, 2017, prepared under U.S. GAAP. The filing does not report standalone 2017 Q4 results; the financial figures below are full-year unless stated otherwise. The company later became Trip.com Group Ltd.
Ctrip operates an online travel platform focused on accommodation reservations, transportation ticketing, packaged tours, corporate travel and related services. Qunar’s results are consolidated. About 80% of transaction orders in 2017 came through mobile channels.
Key financial metrics
Unless otherwise noted, amounts are RMB. The filing’s U.S. dollar translations use RMB6.5063 per US$1.
| Metric | 2017 | 2016 | Change or context |
|---|---|---|---|
| Net revenue | RMB26.78bn | RMB19.23bn | Up 39% |
| Gross profit | RMB22.10bn | RMB14.50bn | Gross margin 82.5%, versus 75.4% |
| Operating income/(loss) | RMB2.93bn | (RMB1.57bn) | Operating margin 10.9%, versus (8.2%) |
| Net income/(loss) attributable to Ctrip shareholders | RMB2.14bn | (RMB1.43bn) | Basic EPS RMB32.31; basic EPS per ADS RMB4.04 |
| Net cash provided by operating activities | RMB7.07bn | RMB5.27bn | Up 34% |
| Cash and cash equivalents | RMB18.24bn | RMB18.43bn | Year-end balances |
| Short-term investments | RMB28.13bn | RMB14.11bn | Year-end balances |
| Current liabilities | RMB42.16bn | RMB30.30bn | Includes current debt and other operating liabilities |
| Short-term debt and current portion of long-term debt | RMB16.32bn | RMB6.89bn | Includes notes classified as current |
| Long-term debt | RMB29.22bn | RMB34.65bn | Excludes current portion |
Net revenue by business in 2017: transportation ticketing RMB12.22bn; accommodation reservation RMB9.52bn; packaged tours RMB2.97bn; corporate travel RMB0.75bn; and other businesses RMB1.51bn. Transportation ticketing and accommodation together accounted for the majority of revenue.
Material changes versus the prior comparable period
- Revenue grew across major travel lines, led by transportation ticketing, up 38%, and accommodation reservations, up 30%. Management attributed growth primarily to higher booking volumes.
- Operating results returned to profit from a 2016 operating loss. Cost of revenues was broadly flat at RMB4.68bn, while net revenue expanded, lifting gross margin.
- Sales and marketing expense rose 42% to RMB8.29bn; advertising expense increased to RMB5.1bn from RMB2.8bn. Product development expense rose 7% to RMB8.26bn.
- Net income included significant non-operating and investment effects. Other income was RMB879m, including RMB1.37bn gain on disposal of cost-method investments and RMB469m foreign-exchange gain, partly offset by investment impairments. Equity in affiliates was a loss of RMB65m, versus income of RMB602m in 2016, which included a gain connected with the BTG/Homeinns share exchange.
- Operating cash flow increased to RMB7.07bn. Investing cash outflow was RMB15.23bn, mainly reflecting increased short-term investments; financing cash inflow was RMB8.02bn, principally from bank borrowings. Cash and cash equivalents declined slightly.
Outlook, risks and unusual items
- Outlook: Management expected travel demand in China to continue increasing and said existing cash, investments, operating cash flow and financing sources were expected to cover anticipated needs for at least 12 months after filing. The report gives no specific revenue or earnings guidance.
- Debt and liquidity: Convertible-note principal outstanding was approximately RMB28.1bn (US$4.3bn); the company also reported short-term bank borrowings of RMB8.7bn and long-term borrowings of RMB8.8bn. Contractual obligations totaled RMB48.41bn, including debt principal and interest. Holders’ put rights and maturities make timing of debt service important.
- Acquisitions and assets: Goodwill was RMB56.25bn and indefinite-lived intangible assets were approximately RMB11.8bn; no goodwill or intangible impairment was recorded for 2015–2017. Management’s impairment estimates depend on future business and cash-flow assumptions.
- Investment and unusual items: The company recorded approximately RMB1.38bn in investment impairment charges across available-for-sale, cost-method and equity-method investments. It also made a RMB536m provision for the Skysea loan/receivable and recorded a RMB367m contingent liability related to the planned wind-down of that venture.
- Operating risks: Risks include competition and promotional spending, reliance on hotel and airline suppliers, seasonality, economic or travel disruptions, cybersecurity and privacy, and the ability to integrate acquisitions and manage growth. The filing cites earlier airline cooperation suspensions affecting Qunar and changes to airline ticket-agent fees and rules.
- China structure and regulation: Some restricted businesses operate through contractual VIE arrangements rather than direct ownership. The filing warns that PRC authorities could challenge the arrangements or require restructuring, potentially affecting operations and consolidation. Currency controls can also limit movement of funds.
- Accounting and audit: The company adopted a new revenue standard from January 1, 2018, expected to change timing for some accommodation revenue recognition, but not materially affect annual revenue, net income or operating cash flow. Management and the auditor concluded internal controls were effective at year-end. The report also notes the auditor was not then subject to PCAOB inspection in China.
Most important facts an investor should verify
- Confirm the correct issuer and period: this is Ctrip’s FY2017 annual report, not a standalone Q4 filing, and the supplied filing text contains no clear Q4 income statement or cash-flow values.
- Reconcile reported profit to recurring operating performance, including the investment-disposal gain, foreign-exchange effects, impairment charges and share-based compensation.
- Review the debt schedule, near-term convertible-note put or maturity dates, borrowing covenants and the availability of cash and short-term investments for debt service.
- Assess whether growth and margins remain sustainable given sharply higher advertising and sales-promotion spending.
- Monitor investment valuations, Skysea wind-down exposures, goodwill and intangible-asset impairment assumptions, and the collectability of receivables.
- Evaluate VIE enforceability, PRC regulatory and foreign-exchange restrictions, and the audit-inspection limitation disclosed in the report.