We reiterate our buy on TCOM with a revised PO of Rs 764 and consider more clarity on the unlocking of land value to act as catalyst to the stock price.
Core business momentum remains strong and we estimate FY16-19E data revenue CAGR of 14%, leading to overall EBITDA margins improving from 15 to 19% as contribution from high margin data business increases. We also estimate ROIC to improves from 6% in FY’16 to 12% in FY’19 led by improving margins are largely flattish capex. In Aug-16, the Indian government passed the Taxation Laws Bill, which should help in the eventual monetization of the land bank owned by TCOM.
As a result of the passed amendment, TCOM will not have to pay any capital gains tax when it transfers the land parcel – previously this had been a key disagreement point between TCOM & the government. In this note we explain in detail the steps that may lead to a future unlocking of land value . We decrease our discount on the value of land held by TCom from 75% to 50%.