What DB and the market both like: hotel volume and international growth    Ctrip reported 3Q revenue of RMB7.9bn (+42% YoY, 3% ahead ofDBe/consensus) and a non-GAAP OPM of 22% (+4ppts YoY, beating DB/streetestimates by 1ppt/2ppts). Hotel revenue beat our number by a healthy 7%,thanks to penetration into lower-tier cities and expansion of its internationalpresence. For 4Q, management guided revenue growth of 25-30% YoY,supported by robust growth in hotel volume and the improving take rate ofSkyscanner.    What concerns the market but not DB: product changes on cross sales    Ctrip is continuously changing cross-sale products to achieve a better userexperience, at the cost of short-term monetization. Management indicated thatthe process would most negatively impact revenue growth in 4Q17and 1Q18.We forecast a slowdown in organic revenue growth in 4Q17and 1Q18to 19-21% YoY. If we include Skyscanner’s contribution, 4Q revenue growth shouldbe 29% YoY. We believe the market is concerned about the revenueslowdown. We expect the negative impact to be short term, while the benefitsof gaining the trust of customers should be long term. Given the current lowservice quality in the travel and OTA industry, better VAS and cross-sale itemsshould benefit the company’s revenue and customers’ experience. Ctrip isalready a leader in service quality. The recent product change should enhanceits leading edge.    Takeaways from conference:    For 4Q, management guided for 25-30% YoY revenue growth foraccommodation, +20-25% YoY for transportation, +30-35% YoY forpackaged tours and +10-20% YoY for corporate travel.    Ctrip continues to penetrate lower-tier cities via comprehensive productsand its offline franchise model partnered with Bestone. Qunar hotelrevenue in tier 3/4cities maintained over 80% growth in the past threequarters.    International air ticketing achieved triple-digit growth, driven by 250%growth in ticket volume booked through Skyscanner after rolling out thedirect booking model. The strong momentum of Skyscanner could partiallyoffset the negative impact of product changes in 4Q.    Maintaining Buy rating and target price of USD62    We maintain a Buy rating on Ctrip and target price of USD62. We lower ourrevenue forecast by 4% for FY18due to the cross-sale model change yet raiseFY19E revenue by 1% on better user experience. Our target price is based on1.1x PEG against an FY17-19E EPS CAGR of 56% and USD1.01FY17E non-GAAP EPS. Key risks: 1) strong competition in the hotel market and 2)unsuccessful investment integration.

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