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TravelSky Technology Steadily Flying Along with Chinese Aviation
Aspire, Hot Picks | 03 August 2015
By: Louis Wong
Articles (12) Profile

Previously, I have talked about China’s aviation sector “taking flight”, as China Eastern Airlines (0670.HK) and China Southern Airlines (1055.HK) have both issued positive profit alert for the first half of 2015 due to robust demand in the civil aviation market. As Chinese airlines are expanding their fleet of aircraft and launching new routes, there is one company that will stand to benefit from it, and that is TravelSky Technology Limited (0696.HK).

What Does the Company Do?

TravelSky Technology is the leading provider of information technology solutions for China’s aviation and travel industry.  It serves the needs of all industry participants ranging from commercial airlines, corporate clients, travellers and cargo shippers, to international organizations such as the International Air Transport Association (IATA) and government bodies. Its services cover the provision of information systems on flight control, air ticket distribution, check-in, boarding and load planning, accounting, settlement and clearing, etc.

The aviation information technology (AIT) services offered by the company comprise of electronic travel distribution (ETD) services and Airport Passenger Processing (APP) services. Its clients are made up of more than 30 commercial airlines in China and more than 300 foreign and regional commercial airlines.  In 2014, its ETD system processed approximately 424.6 million flight bookings on domestic and overseas commercial airlines. All major commercial airlines in China and more foreign and regional commercial airlines are using its APP system services, which has processed approximately 9.6 million of passenger departures in 62 airports last year.

The Company also provides accounting, settlement and clearing services to commercial airlines and other aviation corporations through its wholly-owned subsidiary, Accounting Centre of China Aviation Limited Company (ACCA).  Apart from being the world’s largest service provider of IATA BSP Data Processing, ACCA is also the largest provider of outsourced services and system products in revenue settlement and clearing in the aviation industry in China.  In 2014, it processed approximately 669 million transactions and 277 million BSP tickets.

Large Distribution Network with Strong Client Base and Results

TravelSky Technology’s travel service distribution network comprises of nearly 60,000 sales terminals owned by more than 7000 travel agencies and travel service distributors.  Its network processed over 335 million transactions last year. Through its cooperation with the Ministry of Finance and the Settlement Centre of the Civil Aviation and Administration of China (CAAC), the Company completed the “air ticket purchase platform for government departments and enterprises” last year.  Currently, more than 20 commercial airlines and over 1000 agents are using the purchase platform.

While the aviation industry is a rather cyclical industry, susceptible to economic swings, TravelSky Technology has shown its resilience against economic headwinds.  Its net profits have kept growing six years in a row from 2009 to 2014. For year 2014, its revenue increased 18.3% year-on-year to RMB5.33 billion and net profit attributable to shareholders jumped 37.1% to RMB1.65 billion.  With basic and diluted earnings per share of RMB0.56, it is currently trading at about 13 times Price-Earnings Ratio. Net cash inflow from operating activities amounted to RMB1.87 billion last year. With cash and cash equivalents of RMB1.99 billion as at December 31, 2014, its net gearing ratio was only 16.9%.

Currently it is the fourth biggest Global Distribution System supplier in the world and the biggest in Asia. It is predicted that in 2020, China’s civil aviation passenger traffic will top 700 million, which will render it the largest GDS supplier in the world.

Louis is one of the most experienced fund managers in Hong Kong and has more than 25 years of solid experience in the financial markets. He employs a strict criteria for choosing his stocks, which is deeply insistent on having a thoughtful and sophisticated analysis of the company before making any investment decision.

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