TravelSky Technology Ltd

HKEX:696

Earnings Call Analysis

TravelSky Achieves Notable Growth in H1 2023

In the first half of 2023, TravelSky rode the wave of civil aviation's resurgence, marking a robust revenue increase and operational improvements. Revenue soared to RMB 3.3 billion, a 45% hike, while total income hit RMB 1,338 million, surging 173% in basic and diluted earnings per share. Profits for shareholders clocked at RMB 1.2 billion. Specifically, Aviation Information Technology Services revenue doubled to RMB 1.89 million from RMB 802 million the previous year. The staff costs rose modestly by 3.67%, commission and promotion expenses jumped 38.7% due to increased system processing and customer demand, while costs for hardware and software dipped owing to reduced project volume in system integration services.

Comprehensive Business Performance

The company has aligned its operations with forecasted expectations while achieving advancements across various sectors including business development, scientific innovation, and social responsibility. There was significant progress in the company's core business operations, driven by seizing opportunities in the industry's recovery, manifesting in a 143% increase in passenger processing to 283.9 million. This achievement marks an 84.2% recovery compared to pre-pandemic levels in 2019. Technological strides were made with the implementation of the intelligent cabin control system and ATOMS, enhancing digital efficiency within the aviation field. The commitment to technological innovation is evident through the realization of 48 patents and recognition as a national enterprise technology center, reflecting the company's dedication to industry leadership and scientific advancement.

Strategic Collaborations and Services Expansion

Key service expansions included agreements with Korean Air to provide New Distribution Capability (NDC) solutions and engagements with significant airport projects, strengthening the company's market presence in aviation information technology. These initiatives are expected to bolster the company's service offerings and provide diversified revenue streams going forward.

Technological Innovations and ESG Efforts

The company has not only achieved technological milestones such as the launch of an all-in-one integrated airline control system but has also actively fulfilled its social responsibilities. Emphasizing sustainability, the company has operated with high system reliability and effectively supported major national events. Furthermore, the company's commitment to ESG includes improving governance structures and setting strategic goals, highlighting its dedication to long-term sustainable growth. The initiation of the first digital Renminbi solution in civil aviation underscores the innovation within its offerings.

Economic Outlook and Shareholder Value

Despite global economic complexities and uncertainties, the company remains optimistic about China's long-term economic prospects and is committed to providing higher quality services to customers while offering steady returns to shareholders. The emphasis on creating sustainable shareholder value underpins the company's strategic objectives for the latter half of 2023 and beyond.

Focus on NDC Business Development

The company has made strides in supporting domestic airlines with the adoption of NDC, a modern method allowing airlines to distribute their content more effectively. Notably, the pandemic has impacted the revenue proportion from NDC, but the company is actively working to increase its contribution in the future.

Earnings Call Transcript 2023-Q2

[Huang Rongshun, Chairman and General Manager]

[Abrupt Start]

While the company's business operation results are in line with our forecast, progress has also been made in business development, scientific and technological innovation, social responsibilities and other developments.

Firstly, the company has seized the opportunities presented by the industry’s recovery to focus on high quality development of our core businesses. We have more technological requirements in emerging businesses areas, and further expanded our market presence. In terms of aviation information technology services and other technical services.

The company have processed approximately 283.9 million passengers for domestic and international commercial airlines goods, electronic travel distribution system ETD representing a period-on-period increase of 143% and the recovery to 84.2% of the same period in 2019. And the intelligent cabin control system created the first cabin control management process through digitization project in China which was officially put into use by first customer China United Airlines.

The all-in-one operation management system ATOMS for airlines have been put into use by 10 airports. Digital Travel Retail Platforms TRP for airlines continue to make progress in building the project capacity with a number of contractors, customers reaching 19.

In terms of settlement and clearing services efforts have been made to build a third-generation passenger revenue management platform that aligns with the trends of the new distribution capability NDC and ONE ORDER. In terms of distribution information technology services, the company has recently signed a new contract with Korean Air for its new distribution capabilities solutions for foreign and regional airlines. The distribution system platform for intelligent new retail provides a wide range of diversified air travel products.

In airports information technology services, the company leveraged the driving force of implementing informationization, digitization and intelligence in smart airport construction. It actively participates in projects such as Lanzhou Zhongchuan International Airport, Zhuhai Jinwan Airport. And it has contributed to the successful launch of the new terminal at Fuyang Xiguan Airport. The civil aviation transit passenger service platform has been put into operation in more than 200 airports, and supported the landing of a trunk and branch communication and a full network connection mobile -- model and were awarded a license by CAAC.

In terms of exploring the innovative business scenarios. The Declaration Pass supported the safety assessment on data outbound of aviation enterprise. And the Digital Currency Pass had been put into operation in Changsha airports and became the first digital Renminbi solution in the airport in civil aviation. Secondly, we have further improved our technological innovation system and put more efforts on the breakthrough of key technologies leading to the deep integration and the development between industries and businesses.

We were recognized as the first national enterprise technology center of the civil aviation industry obtained 48 patents, including 42 invention patents, and has won eight awards in Civil Aviation Science and Technology Award and the Science and Technology Progress Award of China Communications and Dealer Transportation Association an all-in-one integrated and intelligent command system for airlines has been successfully developed.

Research and Application of Green and Intelligent Technologies of Green Data Center of Civil Aviation has won the Science and Technology Progress Award of China Communications and Transportation Association. The independently developed Air Travel Chain has obtained a filing number of information surveys under blockchain issued by Cyberspace Administration of China and became the on-service civil aviation blockchain platform and has -- was awarded the title of Model Enterprise of Blockchain Innovation of China.

And thirdly, the company has actively fulfilled its social responsibilities and comprehensively intrinsic security level and has the full rate guarantee this secure operational civil aviation information system effectively fulfills this role as the neuro center of China's aviation. The company’s system operates mostly with the ability rate of exceeding 99.9%. It has successfully completed the task of ensuring the operation of such events as the Spring Festival travel rush the National People's Congress and the China Central Asia Summit. The company is actively promoting the carbon and neutrality technology innovation system.

And it's also accelerating the introduction of health, patient cultivation of innovation, minded its talent and it has obtained approval for national level postdoctoral research. And it continues to improve their state of compliance system and obtain the Level 4 certification and the National Data Management Capability Maturity Assessment Model. And additionally, it was included in the Hong Kong Hang Seng SCHK Exchange China Central SOE ESG leading index.

In the second half of 2023 against the backdrop of global economic landscape, being complicated and coupled with a multiple unstable and uncertain factors. The basic characteristics of China's long term economic growth has not changed. So we will strive to provide the customers and civil aviation passengers with higher quality, more convenient services and for shareholders and investors to create a stable and sustainable return on your investment. So here, I sincerely hope that you will continue to support the development of TravelSky. I hope that we can join hands and view a better future together. Thank you.

[Unidentified Company Representative]

Thank you. Thank you, Chairman. Now let's welcome Ms. Li Jinsong, Deputy General Manager and Chief Accountant, to give you a review about the financial performance on the first half of the year. Because Mr. Lee is on a business trip, so he will join us online.

[Li Jinsong, Deputy General Manager and Chief Accountant]

Dear investors and analysts. Good morning. I'm the Deputy General Manager and Chief Accountant of TravelSky. First, I would like to thank you for your long-term attention and supports to the company. In the first half of 2023, with a recovery of the demanding civil aviation transport, TravelSky has achieved substantial growth in revenue and notable improvement in operational performance. In the first half, we have a total operating income of RMB3.3 billion, a 45% [indiscernible]. The operating cost is [indiscernible], and we have a total income of RMB1,338 million. And the basic and diluted earnings per share is 0.41%, again a 173% increase.

And the profits attributable to the shareholders is RMB1.2 billion. In terms of the changes in our main revenue in the first half -- and for our revenue in Aviation Information Technology Services it has reached RMB1.89 million. Which has been a substantial increase from year, RMB802 million. And also with the impact of the timing of the airport acceptance and, and the period-on-period decrease in numbers and scale of projects meeting completion acceptance resulting in a decrease in our revenue from our system integration services.

And additionally, due to the increase in agent’s business volume, the volume of data and that's what has amounted to RMB5,000, which is a decrease from the same period last year. Furthermore, thanks to the recovery of the passenger volume. Our online payment transaction has increased with RMB710 million of revenues.

And in terms of main costs, our staff cost has increased mainly due to the period-on-period increase in our staff remuneration and social, the costs has -- it has increased by 3.67%. Our period-on-period depreciation and amortization has remained stable. And the affected by the growth of system processing volume and customer demand, the commission and promotion costs has increased by 38.7%. And also, the total technical maintenance has increased. And due to the decrease in the volume on integration projects, the cost of hardware and software has also decreased period-on-period. In addition, the payment business costs increased period-on-period with business volume.

The operation costs has also increased. So in the second half of 2023, to seize the opportunities of the recovery and to strive for steady development. Thank you Ms. Li.

[Unidentified Company Representative]

Now we will come to the Q&A session. And now we let's invite our conference secretary to announce the procedures.

[Operator]

[Operator Instructions] Now let's welcome the first question. So the first question is from Nishan [ph] Securities.

[Unidentified Analyst]

This is about the per passenger transaction fee. We have noticed that in the first half of 2023 the per passenger fee that we have [technical difficulty].

[Unidentified Company Representative]

So, to answer your first question. Regarding the increase in our per passenger transaction fee. So overall we have a stable policy in terms of our per passenger fee per transaction for our airlines. So, you have noticed very correctly that in the first half of the year the airline fees has decreased. That is the main reason behind that, that the travelers the number of travelers has substantially increased in the first half of the year. According to our pricing strategy, we have taken letter of pricing strategy so, which means that when passenger volume increase, our per passenger pricing will decrease. But all-in-all such an increase would not affect our substantial revenue. So, that's my answer.

[Unidentified Analyst]

I have three questions. The first question is regarding [indiscernible]. We have noticed in your results that in the first half of this year the cost of in technical services [indiscernible]. Next question is about the NDC, which you have introduced just now. [Indiscernible] how many airlines has applied [indiscernible].

The acceptance of products, we were impacted by the COVID-19, so this does impact to our revenue in the first half of the year. [Indiscernible] we are expecting of completing in the second half of the year. We also have more projects that have been completed on the [indiscernible].

[Unidentified Company Representative]

Okay, I would like to take your question regarding to the NDC business. I think that the reasons are mainly in the following. The first is that both domestic airlines that we have supported them in the construction and establishments of the hosting businesses and to help them to conduct key businesses. And this sales platform will help domestic airlines to do marketing and use multiple measures to have NDC.

And the second is about the foreign airlines. For foreign airlines, the NDC product has been a converging platform. And we have a product called a Sky Wing [ph] to help them to put their sales efforts into that. And these two platforms both domestic and international ones have been accredited by IATA ARM System.

And the third reason is that because we have been impacted by COVID-19 pandemic, the proportion of NDC revenue is now relatively small in our NDC total revenue. But we are actively putting our efforts on this regard and hopefully we will see a larger proportion in the future. Thank you.

[Unidentified Company Representative]

So our Chairman will take the question regarding to the equity based incentive program. In our company TravelSky paid a lot of attention on this equity based incentive programs and this is also a very, very strong and useful mechanism for a listed company for its long term growth. And this equity based incentive program has to go through procedures various procedures. First is that we need to abide by the policies set by the regulator in terms of selecting the rights recipients of the incentives and we also need to set reasonable performance indicators and then there will also be a decision making process in selecting these recipients.

And then such a plan will be submitted to the remuneration committee of the Board for them to review and approve with such a plan. And then we will submit such a plan -- program to the Hong Kong Stock Exchange for their review. And then with our Board resolution and our plan, and then we will finally submit that plan to our shareholders for their decisions, and currently we are actively pushing forward our next based incentive plan and hopefully we will have a reasonable and rational plan in the future. Thank you.

[Unidentified Company Representative]

So we have received online question from CICC. And she has two questions. The first is with regards to our other revenues. We have noticed that the company has registered quite impressive revenues in other business segments, does it mean that the performance in the latter half of the year would be more significant?

And can we forecast that we will have a 14% year-on-year growth for the whole year. And we have also seen that the technical support services and also payment businesses are doing remarkably and are these services and business revenues sustainable? The second question is pertains about equity based incentive. So what are your future plans? Thank you.

[Unidentified Company Representative]

So to answer your question about the other businesses revenue. As you have rightly stated that we have registered quite impressive revenue performance in terms of payment and technical services. These are largely attributed to the recovery in our civil aviation transport industry. Because the traveler’s numbers have been increased. So, these are reflected in our revenue in the payments business and also the technical service businesses.

The total revenue for the first half of the year of this technical service is RMB312 million with a period-on-period increase of 40%. These are largely due to the phenomenal increase in the passenger volume and also driven by the need. As far as if this such a high growth will be sustainable over the whole year. We hope that with the recovery in the civil aviation industry and the travelers we expect to see a very stable and sound momentum in the increase. Thank you

[Unidentified Analyst]

So, this question is from [Indiscernible] Securities, he has two questions. The first is that in recent years, the investors have been paying a more closer attention to ESG. So I would like to ask that is TravelSky has an overall governance structure over ESG? The second is on carbon neutrality, the two carbon goals. So I would like to ask that what are the plans or if there's any achievements made with regard to carbon peaking covering neutrality and also receiving of energy? Thank you.

[Unidentified Company Representative]

So to answer your question, the first one is about the ESG. The company has put high on his agenda about ESG governance. And in our company we have a three tiered ESG comprehensive system for governance. So the first tier is in the Board of Directors. So they are the highest institution to oversee and review ESG plans. We also have the Strategic and Investment Committee to chart out our sustainable development plan. And we also have our supervision and risk control committee, who will supervise about this risk arising from ESG matters.

So, in such a three tiered systems, we will avoid -- we have also set different tasks and assignments for our subsidiaries and different branches for them to implement this plan. So with this coordinate inspection from the top management level, to the implementation level, we have a sound ESG system within our company. And for the year 2022, we have improved our ESG indicators and set our goals. So in the future, I think with the more efforts made and the attention from the Board of Directors, we can have an overall and comprehensive ESG system for development.

Regarding your second question about carbon peak and carbon neutrality. SkyTrax [ph] has a target for the carbon peak, the year would be 2030. And in our digital center and data center, we have made a range of measures in terms of green development to reduce energy use and for high quality development. The first is that in our digital center, we have reduced our use in the power, electricity power and we have leveraged various measures including collecting surplus heat and also using the river water for cooling down, so as to reduce our energy consumption and the POE number has been reduced to less than 41.3.

This was such like a patch, we are certified by the Industrialization and Information Ministry as China's green to the toll center. And also for our energy consumption, in our industrial garden, we have also made measures in terms of reducing consumption in electricity and also taking various measures in the cooling, so that our carbon peak and carbon neutrality goals will be met. And we have also dedicated special task force in our judicial centers to accelerate this process. Thank you.

[Unidentified Company Representative]

So, this question is from Guotai Securities. In this year, we have seen a very rapid recovery in aviation in the aviation passengers and the traditional other market has been recovered and we have seen a strong momentum of development in the summer travels season. So, would you like to please share with us about your forecast in the structure of your customers and the travelers? So what traditional down season still be down season?

[Unidentified Company Representative]

So, to answer your question, indeed, that in post pandemic period, we have seen a very fast rapid and orderly recovery in our passengers both for domestic flights and also international flights. So for the month of July alone, that the passenger recovery rate has been impressive and our system processing volume has a period-over-period increase of 0.61%, which is bigger than a number in 2019.

And for the cumulative processing volume of from January to July, for the first seven months, our system processing volume is 346 million, which is equivalent to 86.73% of that of the same period in 2019. And to see from the airlines perspective, our domestic airlines processing volume for domestic flights has reached the level of 99.19% compared to 2019, which is almost the same level. And for the international flights of domestic airlines and also for foreign airlines and regional airlines their recovery has been respectively 29.60% and 39.45%. So they are also recovering.

So to put in nutshell, we can see that from both domestic and international flights trend, for domestic flight, I think they will reach the forecasts and estimates that we have set at the beginning of the year of their recovery. And for foreign airlines and regional airlines they will follow a gradualistic development trends. Thank you.

[Unidentified Company Representative]

So, this question is from Morgan Stanley. First question is about the system integration revenue confirmation. So, for the second half of the year, can we see a confirmation of such revenue or is it still uncertain or unstable? Second question is about the other payments. We have seen, but there is an increase in other payments compared to the last year. So, I would like to find out which specific areas are these payments? The third question is about the increase in the commission and promotion fees we have seen an increase in this regard. So, which business has proven the increase in such fees. Thank you.

[Unidentified Company Representative]

So, to answer your question about the first one is the integration system revenue. As our Finance Manager, Li has just pointed out that because we are affected by the airport construction projects, which have not been accepted, so, that was a major source of the lack of income. And we foresee that in the second half of the year, such a decrease will be slow down and we can forecast that for the whole year of 2023 our revenue in the integration system will be close to the revenue in 2022. So it will be stabilized.

For your second question about the other fees payable is that, because of the dramatic increase in the passenger volume and our partnership with third-party payment companies, there is quite a large transaction with such companies for example, our payments business has increased by 200% and other business has increased by 80%. So, in such a backdrop in context, our payments -- our payables have increased. In terms of the receivables, we have also increased very lightly compared to 2022, it is also driven by the increase of the passengers. But in total -- our total revenue will have a 45.6% increase, so compared with the receivables and payables increase are quite healthy. Thank you.

[Unidentified Analyst]

One last question. [Indiscernible] Umetrip. What about now, do you have any plans to list in the stock market?

[Unidentified Company Representative]

I will take your question regarding to the Umetrip listing plan. For Umetrip, we are now -- they are in the process of financing, they have go through the first, the second and the third round for financing. They're now in the third round. And for going public in the future, we will assess and evaluate their capital and business development positions and to make arrangement. But now I haven't received any updates on this regard right now. Thank you.

Translator, so that’s the end of our conference. Thank you.