-1H14 Revenue was RMB 2.54 billion, up 28.6%, and the operating costs increased quickly, up 43.5%

-Operating profit reached RMB 650 million with increase only 5%.

-Net profit growth to RMB 1.133 billion, up 78.6% yoy.

-EPS RMB 0.39 yuan, no interim DPS.

-Maintain "Accumulate¡¨, with changed TP of HK$8.73

The increase of total revenue lay on the increase of business volume especially data network and other revenue growth. At the same time, the operating costs increased quickly, offsetting the revenue growth. The company received 500 million RMB industry support subsidy from government, stimulating net profit strong growth.

How we view this

The Company has been piloting the business transformation with a view to improving new product development and market promotion while stabilizing the traditional market share, the efforts to this end include the construction of a new technology center and introduction of new generation GDS system, accelerating the development of emerging industries products based on mobile Internet end. The new-added research fellows of the Company have been available, now the research and development are going all out. As of the end of June, the number of ¡§Umetrip¡¨ team increased from more than 10 to 40, the registered users was still 1 million, but the number of activated users increased dramatically, rising from 5-6 million at the end of last year to 9 million now. According to the plan of the Company, the number of users will surpass 10 million at the end of2014.

The construction of the Company's new operation center in Shunyi District, Beijing is proceeding well but lowers than expected in 1H2014; the work is expected to be accelerated in 2H2014, and the capex budget of the year still stand at RMB2.4 billion.

Investment Action

We change the Company's estimated adjusted EPS to RMB0.42 and 0.48 in 2014 and 2015 respectively. According to the current situation of industry and the Company's comprehensive, based on 2015 EPS and 14.2 x P/E, we give the 12-month target price of 8.73 HK$, 10.5% higher than the last close, and we maintain the rating at Accumulate.

Government subsidy helps boost performance

TRAVELSKY's total revenue of 1H2014 was RMB 2.54 billion, up 28.6% compared with that of previous year. The increase of total revenue lay on the increase of business volume especially data network and other revenue growth. At the same time, the operating costs increased quickly, up 43.5% compared with that of the previous year, offsetting the revenue growth. The operating profit reached RMB 650 million with increase only 5%. The company received 500 million RMB industry support subsidy from government, stimulating net profit growth to RMB 1.133 billion, up 78.6% yoy with per stock RMB 0.39 without sending middle-term dividend.

The revenue from data network increased 80%

The revenue from data network and other channels increased to RMB 960 million, up 80% yoy in the first half year, accounting for 38% of the total revenue with an increase of 11 ppts. The main reason for increase lay on the way of bidding. Breakthroughs were also made in airport IT integration services, achieving revenue amounting to RMB 470 million, up 290% yoy. But at the same time, the costs amounted to RMB 440 million, up 300%. Company showed that the revenue of this business was "case by case" and its future depends on whether they could win the bid. Other two businesses: the revenue of network and other new business were RMB 250 million and RMB 240 million respectively, up 10% and 28% yoy.

The revenue from aviation information and settlement business increased steadily

It's main business: the revenue of aviation information increased to RMB 1.37 billion with 10.3% growth in the first half year owning to flight reservation the company deal with increased to 2.018 million persons with the increase of 10.5% compared with that of the previous year. The volume of inner flight reservation increased 10.7% while outer flight 7.5%. The season for slow growth of foreign airlines(double-digit growth to single-digit) are :transport capacity of foreign airlines slown and affluenced by negative events in the first half year especially the political turmoil in southeast Asia such as Tailland and Philippines as well as the event of Malaysia Airline. Currently, regulation shows that eight foreign airliness and thirty one agents were allowed to sell tickets, only accounting for 4% of total TRAVELSKY, which had little influence on the revenue from foreign airlines.

In addition, influenced by the growth of international routes, its settlements and clearing business reached RMB 210 million with the growth of 5%, accounting for 8.2% of the total revenue of company, declining nearly 2ppts.

New Businesses Going All Out, Operation Progress Followed

The Company has been piloting the business transformation with a view to improving new product development and market promotion while stabilizing the traditional market share, the efforts to this end include the construction of a new technology center and introduction of new generation GDS system, accelerating the development of emerging industries products based on mobile Internet end. The new-added research fellows of the Company have been available, now the research and development are going all out.

As of the end of June, the number of ¡§Umetrip¡¨ team increased from more than 10 to 40, the registered users was still 1 million, but the number of activated users increased dramatically, rising from 5-6 million at the end of last year to 9 million now. According to the plan of the Company, the number of users will surpass 10 million at the end of the year, and the Company will step up investment based on the business expansion.

The Company plans to establish a new operation center in Shunyi District, Beijing, the center will be an international headquarter occupying the land of 533,000 square meters and integrating the large data center, operation maintenance, smart office, research and development and logistics support into one, the investment for phase-1 work of which will be RMB3.655 billion, the phase-1 work will be put into use at the end of 2015. In the first half of the year, the work is proceeding well but lowers than expected; the work is expected to be accelerated in 2H2014, and the capex budget of the year still stand at RMB2.4 billion.

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