Ladies and gentlemen, welcome to the First Quarter 2019 Ctrip.com International Limited Earnings Conference Call. My name is Aaron. I will be the moderator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes. Now, I will hand the call to Senior IR Director, Michelle Qi. Please begin.

Thank you, Aaron. Good morning, everyone, and welcome to Ctrip’s first quarter of 2019 earnings conference call. Joining me today on the call are Mr. James Liang, Executive Chairman of the Board; Ms. Jane Sun, Chief Executive Officer; and Ms. Cindy Wang, Chief Financial Officer. During this call, we will discuss our future outlook and performance, which are forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in Ctrip’s public filings with the Securities and Exchange Commission. Ctrip does not undertake any obligation to update any forward-looking statements, except as required under applicable law. James, Jane and Cindy will share our strategy and business updates, operating highlights and financial performance for the first quarter of 2019, as well as outlook for the second quarter of 2019. After the prepared remarks, we will have a Q&A session. With that, I will turn the call over to James. James, please?

Thank you, Michelle. Thank you everyone for joining us on the call today. We are happy to report that our first quarter results reflect our continued confidence in China travel industry as well as in our own ability to execute and embrace any changes. We deliver solid year-over-year results. Revenue growth of 21%, reaching RMB8.2 billion; our operating profit grew 50% year-over-year. In April, we announced a share exchange transaction with Naspers for MakeMyTrip. Today, I would like to share with everyone the strategies that we will use to drive our business expansion as well as to reiterate our view on MakeMyTrip investments. First, our major growth drivers looking forward, we will continue to create long term value for our shareholders, primarily through organic expansion with focuses on expanding our customer base and deepening user engagement. First, we still have a long way ahead to unlock the full potential of our China customer base, although our travel demand remains strong, especially from lower tier cities. So far, we have only reached just 25% to 30% of the population in the first tier cities and much less than 10% in lower tiered cities. Second, we will work hard to enhance engagement with our existing customers. Our five year cohort data shows average spending per user on our platform continues to increase with around 10% CAGR, regardless of which tier city our customers are from. Thirdly, we're well prepared to offer high quality services to customers outside of China. Trip.com is one of our rising stars. The team capitalized on experienced resources accumulated from serving the large China end market and works hard on building brand awareness in the global travel market. To capture these opportunities, we’ll continue to invest organically in the following areas: technology, product innovation, and global service capabilities.…

Thank you, James, for sharing our major growth drivers and our rationale behind MakeMyTrip investment. Over the last 20 years, we worked extremely hard to attain Ctrip’s position in the industry as one of the largest global OTA. In addition, being attentive and adaptive to our customers’ feedback. We also invested heavily to capitalize new emerging opportunities. I will now share with you the progress our team has made in strengthening our position across all the business lines. First, I will give an overview of our customer base. Our group level MAU reached 210 million in the first quarter, thanks to robust CapEx growth from the core Ctrip brand and our global platform. This quarter, we had continuously impressive traffic acquisition and conversion along the subsequent increase -- subsequent increases in ROI, largely due to our efficient product driven marketing campaigns and our ever proving service quality. In addition, we are continuing and opened more offline stores in our targeted cities nationwide. We're also expanding these stores’ product coverage from packaged tour to include in-destination functions, offering currency exchange, and local attraction tickets as among other examples. By combining our online and offline channels, we have been able to further penetrate into the targeted cities where we continue to see around 30% user growth of Ctrip brand. Secondly, I will give an overview on the quarter’s users’ engagement. As one-stop cargo platform, we continue to innovate and strengthen our product offerings to meet the ever evolving needs from our customers. We currently offer over 60 products and services, yielding our outstanding results for the quarter. The new products we launched last year are beginning to yield fruit. Trip Moments, which is similar to Travel Instagram, continued to gain traction among travelers, with over 1 million daily active users during Q1.…

Thank you, Jane. Thanks, everyone. For the first quarter of 2019, Ctrip reported net revenue of RMB8.2 billion, representing a 21% increase from the same period in 2018. Accommodation reservation revenue for the first quarter of 2019 was RMB3 billion, representing a 21% increase from the same period in 2018, primarily driven by increase in accommodation reservation volume. Ctrip branded low star hotel room nights increased about 60% year-on-year. In domestic, mid to high-end hotel segment, we continued to outperform the industry with double the industry growth rate. International hotel growth more than doubled industry growth rate. Transportation ticketing revenue for the first quarter of 2019 was RMB3.4 billion, representing a 16% increase from the same period in 2018, primarily driven by an increase in ticketing volume. Air ticketing business maintained very strong volume growth, mainly driven by [indiscernible] growing outbound travel demand and the robust growth of Skyscanner and trip.com. Trip.com’s air ticketing volume recorded triple digit growth for the 10th consecutive quarter. Ground transportation, including train ticketing, bus ticketing, ticketing and car services, registered very healthy volume growth in this quarter. Packaged-tour revenue for the first quarter of 2019 was RMB1 billion, representing a 25% increase from the same period in 2018, primarily driven by an increase in volume of organized tours and customized tours. In the first quarter, GMV through our offline franchise stores continued to deliver triple digit growth year-on-year. Customized tours also delivered high double digit growth rate this quarter, as demand shifts to more personalized product. In addition, to better address the demand for high end customers, we officially launched a premium customized tour platform in March, with products covering more than 80 countries and regions across the world. Corporate travel revenue for the first quarter of 2019 was RMB238 million, representing a 32%…

[Operator Instructions] Our first question, Alex Poon from Morgan Stanley.

Hi, good morning, James, Jane, Cindy and Michelle. Congratulations on very good results. I have a question regarding the recent trade tension. Can you share with us what do you think about the possible scenarios in terms of the impact on your domestic business and also your international business separately? And regarding the international strategy, does this trade tension affect any of your strategy in future or in the near term? I see that the revenue guidance of 16% to 21% year-over-year is slightly slower than first quarter revenue growth. Is that already factored in some of the concerns that you have for the trade tension?

Yeah, thanks for the question. Yeah, there will be uncertainty in the macro environment and especially on the business sentiment, but compared to other industries, the travel is relatively robust. I think we observed the domestic travel business in China is still growing at a very robust rate and outbound is still doing well and the non-Chinese business, trip.com, is doing very well. I think, the trade tension will force lot of the Chinese companies and other companies that are serving the Chinese market to have closer integration with Asia, Europe and those countries, and that actually can increase the activities -- cross country activities, including travel between those countries. So on the one hand, the China to US travel might have some negative impact. But that's only a small part of the overall international tourism market and most of the markets are our market within Asia and within Asia will probably be -- we see more activities because the companies in China, those companies need to have closer, more tight integration with other Asian countries. So I think, overall, we’re still very optimistic in the long run about the growth prospects both domestically and internationally.

In terms of the guidance, as James explained, macro uncertainty definitely will impact all companies and at Ctrip, we always tend to be more prudent, given some shorter uncertainties related to the status of the recent trade war. And we did observe some slowdown in the industry data. Nevertheless, what we always focus is to maintain or even increase our growth multiples compared with the industry growth rate in general. And given the current very low penetration rate across all targeted markets, especially in the second and comparatively lower tier city users in China, we strongly believe that we have the potential to at least double our existing targeted customer pool in China market. And, for example, in the first quarter, we actually intentionally increased our ROI thresholds in certain channels, and we continued to see very stable growth of our MAU and new transacting and adding more new transacting customers. And at the same time, on top of acquiring new customers, we also have many projects internally to improve our user engagement as explained by Jane. So in summary, our growth rate might be impacted due to industry slow down, but we will make sure that we will be more effectively gaining more market share [indiscernible].

Our next question, Alicia Yap from Citigroup.

Hi, good morning, James, Jane, Cindy and Michelle, thanks for taking my questions and congrats on the solid results. My question is related to your current and future globalization strategy. So can you help us frame your priority among the various stages and progress of your global travel initiatives? For example, you have expanded successfully into quite a number of Asian countries through the trip.com brand, and it seems like trip.com also is thinking about expanding to more European cities this year. And given your recent transactions on MakeMyTrip.com in India, could you perhaps help us frame your investment priority and business extension for your international strategies? What other countries that you decide to further expand through the trip.com versus something like you will strike a deal similar to MakeMyTrip.com in other countries. Or any color that you can provide on the international expansion strategy will be helpful. Thank you.

Sure, thanks, Alicia. I will cover your question from a different perspective. First of all, organic growth is always our focus. We strongly believe that only when we grow very strongly internally, then our opportunity will unfold. So we invest heavily in building a very robust technology platform to make sure it can expand not only in China, but in Greater China, Asia, and later on. So we focus quite a lot in our technology and open platform and also services. And secondly, with regard to geographic location, I think we started as a Chinese company, hosting Chinese customers’ travel within China. And gradually we take our customers to Greater China area and then further expand into Asia. And now, customer with their GDP per capita is increasing, they travel further to Europe, to Australia, New Zealand, et cetera. So, with our strength and coverage in different products, we're offering more and more products to help our customers to reach different travel destinations. And thirdly, following our customers’ footsteps, we are able to build a network that not only will be utilized by Chinese customers, but also our customers from Greater China area, et cetera. And in terms of the brand, I think our investment in Skyscanner has enabled us to do a direct booking on another search program and has been very successful and recently we also announced a share exchange on the MakeMyTrip because we believe that market in the future will import lot of opportunities since it has the second largest economy and very young population. So we are positive on that. With our own brand, trip.com, it's growing at a three digit growth and leading by our strong product in air ticket, et cetera. So our strategy in the global places is, first of all, following our customers’ needs from China to the rest of the world. Secondly, to leveraging the scale we have to build a network that not only can serve the Chinese customer, but also is helpful for other people to use. And thirdly, in the brand strategy, right now, we have Skyscanner and Ctrip parallel in different markets, covering different customers in different continents.

Our next question, Binnie Wong from HSBC.

My first question is actually on the improvement in the operating margin, it has been better than expected, if we look at the non-GAAP operating margin here. Can you remind us, in terms of the sales and marketing or maybe in your product development, what are some of the key efficiencies you have been seeing? Because I think in the opening remarks, Jane mentioned about more effective acquisitions. So if you can give us more color on that will be very helpful. And how should we think about our margin target down the road since we have been achieving better than expected operating margins here. And then very quickly is just on our 2Q outlook, how should we expect that across the different product line? Thank you.

Thank you, Binnie. We actually achieved the operational efficiency -- increase our operational efficiency across all business line items. For example, we closely monitored our marketing based on the ROI of every single channel. And despite the sequential decrease on the marketing investment level, actually, we were able to maintain a very stable MAU traffic growth and momentum of new transacting users, new transacting user acquisitions, and Ctrip brand’s user growth in our targeted cities maintained at around 30% year-on-year. And this proved that, thanks to our investments in technology and the very comprehensive product platform as well as the vast service platform we built, we are able to prove that we have a very resilient and scalable business model and hopefully the most profitable travel business model. And in terms of the guidance for each of the business line items, for the accommodation reservation business, in the second quarter, we expect that it will increase around 19% to 24% and transportation revenues will continue to grow at around 12% to 17% year-on-year and the packaged tour business will grow about 20% to 25%. Corporate travel will grow about 15% to 20%.

Our next question, Wendy Huang from Macquarie.

First, management, can you give us a sense of the margin profile difference between your domestic and also international vendors? And also for your different things on Ctrip transportation, hotel, et cetera, so how should we think about this geographic mix impact on your ARPU and in the longer run?

Wendy, sorry, can you repeat your first question?

First question is about different margin profile of your international and domestic business.

Okay. Yes. So, in terms of the -- within the international business, actually, there are different buckets. And so far, the largest one is still the outbound business. Our average outbound business is the selling price, the ADR or the selling price on average is much higher than our domestic product and at the same time, the service as well as the product investment is at a similar level compared with the domestic. So generally, our international business is more profitable than the domestic business, thanks to the outbound business. And in terms of the trip.com, it’s still at very early stage and they have a very disciplined sales and marketing strategy. But we are still in the early stage and in the early stage of the investment cycle. And your second question is about the hotel.

My second question is about the ARPU and also the take rate changes across the different business of transportation.

Oh, yeah, our take rate. I think, it's quite consistent in the past couple of quarters across all the business line items. And in terms of the selling price of ADRs, with more contribution from the outbound business and our average selling price will trend up a little bit, but it will also offset it by our further penetration into the lower tier cities because our lower and our targeted lower end of the business also growing very robustly.

Maybe follow up on that, actually, I just want to get a sense about the [Technical Difficulty] different dynamics going on. So what's the trend for this year and also next year.

It has been quite stable and consistent in the last couple of quarters. And we don't expect, so far, we don't expect any significant increase or decrease on the take rate.

Our next question, Ronald from Goldman Sachs.

My question first is on just your revenue guidance based on different segments. So we see mostly the deceleration into the second quarter has been from transportation. Is that partly on when we see the airline numbers, April has been quite weak. And so how has the labor days of May been trending and are we sort of more being conservative based on the April trends on that deceleration in transportation revenue guidance. And just follow-on on that, with 17% EBIT margin, non-GAAP second quarter guidance about ’18, at the midpoint, 18.4. How are we seeing that for the full year? And we mentioned about, I think you mentioned about 20% for 2020 in the loss cause, so how do we see this mid-term margin tracking based on a very strong performance so far? Thank you.

Yes. We did observe that a slowdown in the industry data that also one of the reasons why we tend to be more prudent in terms of giving guidance, but as I said, our key focus internally is just focusing on how much percentage we can outpace the industry growth and gaining market share. And given we already have the best product, most comprehensive product in place as well as the highest of service standards, compared with other players in the market, Ctrip business model proved to be more resilient and to be more profitable. So we think that the 2020 operating margin target so far is very achievable for us.

Our next question, Natalie Wu from CICC.

Hi, thanks for taking my question. You've mentioned that you've reached 210 million MAU this quarter. Last quarter was 200 million. And correct me if I'm wrong, I remember that you've mentioned that 200 million MAU level in several quarters last year already. Just curious, you actually become more prudent in terms of sales and marketing spending in the first quarter, how come the MAU started to grow under this backdrop? Is there any shift of focus for your sales and marketing spending to enhance efficiency? And also for the newly acquired users, is there a major difference in terms of the demographic features compared with your existing users one or two years ago? Do you observe any difference in terms of the transaction pattern, frequency or dollar amount, et cetera. Thank you.

So for MAU, rather than stressing on the numbers, we improved the quality of the customers. As we discussed, there are a couple of things we have done very successfully. First of all, we try to attract customers through our innovation on the product. For example, Trip Moments is very similar to Travel Instagram and we know young people nowadays, rather than writing their travel journal, they prefer to use video or picture to express where they are and what they like. So we have established very young group of -- young team, led by young CEO to establish this product. And so far, it’s very successful that we already have exceeded 1 million DAU after the launch, and these customers have already expressed their interest in travel. And following the successful launch of the new product, we are going to add booking functionality to convert the content driven customers into our transactional customers. So we always believe rather than spending money in the low ROI channel, it's better for us to innovate our own product and make sure our platform is a closed loop one stop shopping platform. So the customers can see the content, plan their trips, book their trips, and we serve them during the trips and when they come back, they will see that through our content again. And so far, these efforts have played very well. So, going forward, we will continuously innovate our products, mainly focusing on the things that customer needs for their trip before, during and after their journey. So that's one thing we do. And secondly, because the market has a little bit uncertainty, we also are very disciplined looking into different channels and make sure every dollar we spend generates very good return from a long term perspective. So these are the things we have done so far, which demonstrated a very strong return for us.

Yeah. To answer your question on the exact number of the MAU, because we have a seasonality, travel in general has a very strong seasonality. First quarter is not the highest season for the travel business. And we actually, although we controlled ROI very tightly on the sales and marketing channels, but we did see very healthy growth on our users. For example, the Ctrip brand user growth in our targeted cities maintained at around 30% year-on-year and the Skyscanner, although majority of their business are still in the European countries, but their MAU continue to grow at around 20% year-on-year.

Our next question, James Lee from Mizuho Securities.

Jane, I was wondering, maybe you can address competitive activity here, let's say in the low star hotel, you guys did really well at 60% year-over-year growth, and maybe help us understand, from a competitive point of view, has your key competitor kind of become less competitive in a market that allow you to gain market share there or is it do you do anything specific in the market to gain market share? Should we think about this competitive easing as potentially something tactical that's done on your competitor side or do you think this is more sustainable? And my second question is relating to the May holiday. We noticed that this year is a little bit longer than last year. I was wondering if you’re seeing any benefit you’re getting from the extended activity for that holiday period.

Sure. Thanks, James. In terms of competitive landscape, we focus a lot on our internal strength. So what we have done are two-fold. One is in the domestic market, we have innovated lots of new products, such as package tour with air plus hotel, high speed railway package, which enable us to further penetrate into the second tier and third tier cities, which is very difficult for travelers to travel to on the weekend without the high speed rail. So that has been very successful. And thirdly, we also opened many offline stores, which give us strong penetration into the cities that people have never seen Ctrip before. So continuously, we will further penetrate into these cities and areas to strengthen our product offerings as well as the brand exposure. And globally, I think also led by our air ticketing product, we're able to understand where the customers’ interests are, and when they land in certain cities, we also make our product as comprehensive as possible. So that has been very well received among our high end customers. Thirdly, your question on May holiday, yes, it was a big boost for the leisure travelers, because it's only four days, we have seen domestic travel has enjoyed a strong growth and a pickup in the different destinations. And we offer a very comprehensive product to make sure our customers are very well informed as to what they can enjoy, what kind of attraction tickets they can buy, what kinds of local transportation they will be able to have. So, the May holiday has demonstrated a strong execution on our team to take our customers anywhere within China and around China.

Our next question, Gregory Zhao of Barclays.

Congrats on the strong quarter and thanks for taking my question. So my first question is about your hotel business. So now, we can see more and more hotel franchise are promoting their own brand and encouraging direct booking on their websites. And at the same time, we can see Ctrip results expanding your own brand at low star hotels in lower tiered cities, we just want to understand the overall strategies in hotel business. And a quick follow up about your outbound travel. So would you please give us an update of your outbound travel, the destinations by revenue contribution like the top 5 or top 10? Thank you.

Sure. So for hotel chain, I think each business has their own strengths and different products to offer. For OTA, I think our strength is the comprehensive offering of products. Not only the customers can find hotel product on our platform, they can also find air ticket product, high speed railway tickets, transportation, rental cars and steam inflammation, et cetera. So it's very convenient. So, if your customer looking for different products and book it one stop, I think OTA provides a very good offering to the customers. So -- and we are very strong in technology, information, service and product, so that's our strength. Hotels, obviously, they have their strengths that they will demonstrate their value to the customers, but in the long run, I think it will co-existent and collaborate in a long run that that is better strategy. And secondly, for outbound business, outbound business will become a very good uplift for our products because more and more customers cannot only offer travel domestically, but they also will be able to travel in an international space and Ctrip has lots of advantages. First of all, our air ticket is the largest in the whole world. So we’re able to work with different airlines, utilize their products to take our customers anywhere, any place in the whole world. And secondly, once the customer has informed us where they want to go, we can also provide the information within the cities, within the areas and providing local transportation, providing the local attraction tickets to them. So for our customers, outbound travel, when they book with Ctrip, they have peace in mind that everything will be taken care of. So right now, the outbound plus international travel accounts for 35% of our revenue contribution. If we work continuously to improve our coverage and price and product offering, in the future, that number can continuously improve to 50% in the next 5 to 10 years.

Our next question, Tian Hou from T.H. Capital.

The question is yesterday, the railroad officials in China, they had an announcement on their website, which is they added one function, the function is really convenient for the customers to replace their ticket and/or to slap ticket and I do believe this is one of the strengths of Ctrip in the past. So I wonder what could be the impact for Ctrip in this front in the future. Thank you.

We are closely monitoring the market and as always, we will make sure that Ctrip has the best products in place to serve our customers. And more importantly, train ticket has become our traffic engine by helping customers to solve their pain points in the past couple of years and we will continue on that track and we are seeing improving cross sell performance from train to all other product lines within Ctrip platform. Thank you.

Our next question, Juan Lin from 86Research.

Congrats on the solid set of results and thank you for taking my questions. I have two questions. The first one is on international business. Could you please break down the contribution of international business for each business line? And the second question is for hotel, lower tier city hotels? I wonder what are the volume, GMV and revenue contribution to the lower tier or by the lower tier city to our hotel business and what is the margin trend for business in lower tier city?

In general, our international business contribute about 35% of our total revenue, in which outbound travel actually contribute the vast majority within the international bucket. Across different business line items, accommodation reservation international Hotel contribute about the 20%, 25% of our total accommodation revenue and air ticket -- actually, international air ticket has already become the key growth drivers for our air ticket business and for packaged tour business, international outbound travel contributes about half of our total revenues. For the comparatively lower tier cities, of course, the ADR is lower and we intentionally set very competitive pricing because people in those lower tier cities, at least from the very beginning, they tend to be more price sensitive. So in terms of the, we intentionally have the best price to attract those users. But thanks to the very automatic platform we build, even in the lower end or lower tier cities, we have profit generating from that segment.

Thank you. Due to time constraint, I would now hand the session over to Michelle Qi for closing remarks. Please go ahead.

Thank you. Thanks to everyone for joining us today. You can find the transcript and webcasts for today's call on ir.ctrip.com. We look forward to speaking with you on our second quarter 2019 earnings call. Thank you and have a good day.

Thank you very much.

Thank you.

Thank you. Bye.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.