China Travel Co Ctrip Buys Taiwan Co Stake; Tourism Mkt Opens

By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–China’s biggest travel service company has acquired a controlling stake in the No. 1 online travel company in Taiwan, betting on the growing cross-strait tourism market that had been closed for 60 years.

Shanghai-based Ctrip.com International Ltd. (CTRP) has raised its stake in EZ Travel Co. (2717.OT) to more than 50%, its second-quarter financial report showed. It also raised its stake in China’s biggest budget hotel chain, targeting the increasing number of Taiwanese visiting China.

Taiwan opened its doors to mainland tourists last July, shortly after Ma Ying-jeou, chairman of the Nationalist Party who favors closer ties with the mainland, was elected president.

Nearly 380,000 mainland tourists have since visited the island, according to Taiwan’s tourism bureau. They brought $768 million in revenue to the island in the first year. Surveys suggest 70% of the mainland’s 1.2 billion people expect to visit Taiwan at some point.

“We see the market slowly stabilizing,” said Jane Sun, chief financial officer at Ctrip. “From a strategic perspective, the alliance with EZ Travel is very important for us because the government is working hard to make sure the travel restrictions are very prudently lifted.”

She also expects to see an increase in the number of direct flights between China and Taiwan.

Ctrip reported Tuesday that its second-quarter profit surged 33% to 159 million yuan ($23.4 million), topping analysts’ expectations. Total revenue rose 26% from a year ago, driven by rising air travel and hotel bookings. The company’s market share is five times bigger than its nearest competitor, eLong Inc. (LONG), a unit of Expedia Inc. (EXPE).

Analysts at Piper Jaffray raised their target price of Ctrip shares to $55 from $44. Shares are changing hands at $51.76, up slightly. Over the last 12 months, shares have traded between a low of $16.41 and high of $55.88.

Since the Communist Party took control of the mainland in 1949, and Nationalists withdrew to Taiwan, mainland tourists had been forbidden from visiting Taiwan and bilateral investment was subjected to tight scrutiny.

Relations started to thaw after Ma was elected, and politicians have increased bilateral visits, pushing through major breakthroughs in bilateral ties. In April, China Mobile Ltd. (CHL) offered NT$17.77 billion (US$542 million) for a 12% stake in Taiwan’s Far EasTone Telecommunications Co. (4904.TW). If approved, it would be the largest cross-strait business deal in more than 60 years.

On Thursday, China’s UnionPay, the country’s dominant payment network similar to Visa and Mastercard, announced mainland tourists can use its transaction service in major Taiwan cities from Aug. 7.

“We see the increasing use of broadband Internet, and also increasing use of credit cards [among middle-class Chinese],” said Michael Orlson, an analyst at Piper Jaffray. “We see the overall e-commerce growth in China, and as part of that, we see online travel growth in the foreseeable future.”

After attracting millions of visitors during last year’s Beijing Olympics, mainland businesses are now awaiting next year’s World’s Fair in Shanghai, an event that’s a “definite positive” to the tourism industry, said Orlson.

Such events will benefit Home Inns & Hotels Management Inc. (HMIN), which just reported its second-quarter net income jumped 13 times to CNY100.4 million from CNY7.5 million a year ago.

In May, Ctrip bought more than 7 million shares of Home Inns, China’s biggest budget hotel chain, for $50 million. The purchase increased Ctrip’s stake in Home Inns to 18%. Ctrip said it doesn’t have plans to further increase stakes in Home Inns. Nanpeng Shen, a co-founder of Ctrip, founded Home Inns.

“The two companies work under different business models, so it doesn’t make sense that Ctrip would take risks to enter the hotel business,” said Hao Hong, an analyst at Brean Murray Carret & Co.

 

-By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com