Universal Travel Group (UTA:NYSE) is a consortium of six Chinese domiciled subsidiaries that provide air ticketing, hotel reservations and tour package services in China. Although competing with Wall Street darlings, ctrip.com (CTRP) and eLong (LONG.W), this young, small cap, derives a more balanced revenue source from its three segments with air ticketing providing 47% of profits, hotel reservations providing 23%, and package tours providing the remaining 30%. CTRP�s revenues are heavily weighted to online air ticketing and hotel reservations and LONG.W weighted almost entirely toward online hotel reservations. While CTRP and LONG bleed cash, UTA is experiencing triple digit revenue growth (yoy) in all segments, while holding $17 million in cash with no debt.
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China has the greatest worldwide internet usage, but 95% of these internet users do not transact business on-line. Millions of other Chinese citizens do not have access to the internet. Recognizing this ahead of the competition, UTA has initiated a program of providing TRIPEASY kiosks in hotels, office buildings, shopping malls, and train stations to accommodate travel arrangements for those without internet access and those unwillingly to transact purchases on-line.
UTA has also recognized the middle class growth potential in tier-two cities in China ahead of the competition. Accessing these fast growing tourism resources with strategic travel agent partnerships will greatly expand UTA�s customer base
�UTA�s earning�s growth, ROA, ROI, ROE are eclipsing the competition. An incredible net income efficiency ratio of $82,165/employee versus $8,106 for CTRP and -$937 for LONG.W are testimony to an efficient business model. All ! other ra tios of P/S, P/B, and free cash flow favor UTA over the competition. With a 5 year discounted cash flow model value of $23-$52 dollars and P/E of 11, this stock is selling at a deep discount.
UTA�s only negative is the low profit margin of packaged tours. Destination travel, housing, and entertainment packages are purchased from providers with limited room for mark-up. These lower margins weigh heavily on overall profitability, scaring Wall Street analyst and keeping this stock under the radar.
Because Chinese travel contracts in the winter and during Chinese New Year, the share price of UTA should pull back with 4th and 1st (2010) quarter earnings releases, so investors should look for an entry point below the present $13.00/share. My entry target is $10-$11/share.
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