Business Context and Reporting Period
This Form 20-F is the annual report for Ctrip.com International, Ltd. (Trip.com Group Ltd.) for the fiscal year ended December 31, 2009. The company is a leading travel service provider in China, specializing in hotel reservations, air-ticketing, and packaged tours. It operates primarily through wholly-owned subsidiaries and contractual arrangements with affiliated Chinese entities (Variable Interest Entities) due to foreign ownership restrictions in the PRC. The company is incorporated in the Cayman Islands and its American Depositary Shares (ADSs) are listed on the NASDAQ Global Select Market.
Key Financial Metrics (Year Ended Dec 31, 2009)
| Metric | 2009 (RMB '000) | 2009 (US$ '000) |
|---|---|---|
| Net Revenues | 1,988,007 | 291,245 |
| Gross Profit | 1,537,404 | 225,231 |
| Gross Margin | 77.3% | 77.3% |
| Income from Operations | 687,366 | 100,700 |
| Net Income (Attributable to Shareholders) | 658,974 | 96,540 |
| Diluted EPS (Ordinary Share) | RMB 18.69 | US$ 2.74 |
| Cash and Cash Equivalents | 1,434,618 | 210,173 |
| Total Assets | 4,156,760 | 608,969 |
| Total Liabilities | 1,170,051 | 171,413 |
| Shareholders' Equity | 2,986,708 | 437,555 |
Note: US$ amounts are translated at the rate of RMB 6.8259 to US$ 1.00 as of December 31, 2009.
Material Changes vs. Prior Period (2008)
- Revenue Growth: Net revenues increased 34% to RMB 1.99 billion (US$ 291 million), driven by a 33% increase in hotel room nights sold and a 39% increase in air tickets sold.
- Profitability: Net income attributable to shareholders rose 48% to RMB 659 million (US$ 97 million). Operating income increased 49% to RMB 687 million.
- Segment Performance:
- Hotel Reservation: Revenue up 25% to RMB 956 million (45% of total revenue).
- Air-Ticketing: Revenue up 35% to RMB 888 million (42% of total revenue).
- Packaged-Tour: Revenue up 62% to RMB 177 million (8% of total revenue).
- Cost Structure: Cost of revenues increased 38% to RMB 451 million, primarily due to growth in air-ticketing and packaged-tour businesses and an increase in customer service personnel to 5,700. Operating expenses increased 22% to RMB 850 million.
- Cash Flow: Net cash provided by operating activities surged 74% to RMB 1.03 billion (US$ 151 million). Net cash used in investing activities increased to RMB 762 million (US$ 112 million) due to acquisitions and investments in Home Inns.
Guidance, Outlook, Risks, and Unusual Items
- Strategic Investments: The company increased its stake in Home Inns to approximately 18% through open market purchases and a private placement of US$ 50 million. In February 2010, the company entered into an agreement to acquire 90% of Wing On Travel's travel service segment for approximately US$ 88 million, subject to shareholder approval.
- Dividends: No dividends were declared or paid in 2009, compared to RMB 112 million paid in 2008.
- Share-Based Compensation: Total share-based compensation expense was RMB 131 million (US$ 19 million). In February 2009, the board reduced the exercise price of unvested options, and in December 2009, extended the expiration dates of 2005/2006 options, resulting in incremental compensation costs.
- Key Risks:
- Regulatory Structure: Reliance on contractual arrangements with affiliated Chinese entities (VIEs) to operate in restricted sectors (air-ticketing, travel agency, telecommunications). Changes in PRC laws could invalidate these arrangements.
- Economic Sensitivity: Business is highly sensitive to the Chinese economy, global economic downturns, and travel industry disruptions (e.g., H1N1, natural disasters).
- Competition: Intense competition from other consolidators (eLong, Mangocity), traditional agencies, and new online platforms (Qunar, Taobao).
- Supplier Relationships: Dependence on non-exclusive relationships with hotels and airlines; risk of suppliers increasing direct sales or offering better terms to competitors.
Important Facts for Investor Verification
- VIE Structure Validity: Verify the continued legal enforceability of the contractual arrangements with affiliated Chinese entities under evolving PRC regulations.
- Home Inns Investment: Monitor the performance of the 18% stake in Home Inns and the potential for impairment if Home Inns' stock price declines below the purchase price.
- Wing On Travel Acquisition: Confirm the closing of the US$ 88 million acquisition of Wing On Travel's travel segment and the integration risks involved.
- Dividend Policy: Note the suspension of dividends in 2009 and the company's discretion regarding future distributions, which are also subject to PRC restrictions on repatriating profits.
- ADS Ratio Change: Be aware that the ADS to ordinary share ratio changed to 1 ADS = 0.25 ordinary share effective January 21, 2010; historical data in the filing has been retroactively adjusted to reflect this.