We see signs of turnaround at Asiatravel, an established online travel booking business and one of Singapore's darling stocks a couple of years back. In particular, we see strong earnings potential from two new revenue streams'B2C  flight packages and B2B TAcentre.com. These could drive up gross profits to levels that exceed 'xed annual operating costs of c. S$24mil, turning earnings positive. We think there is a strong chance of seeing positive  earnings  as  soon  as  within  the  next  few quarters, in line with management's con'dence and expectations outlined in a recent press release. There are some good reasons to share in their belief.

- B2C Flight Packages'1st in Asia and increases the average dollar value per booking at Asiatravel. The soft launch of the all'inclusive flight+hotel+tour packages (referred to as  flight packages) on an instant con'rmation basis by Asiatravel.com last quarter is the first such offering in Asia; they are not found on competitors' sites such as Expedia and Zuji. Though the barriers to entry in o'ering 'ight packages are not high, the sheer logistical planning involved suggests it is highly labour'intensive'we think it probably won't be soon before we see competitors o'ering them. The  'ight packages are of higher value than bookings of single hotel/'ight, and hence increase the average dollar value per booking. This is a huge plus point assuming the same or an increasing demand pool of website visitors.

-  B2B TAcentre.com'increases POS.  Launched recently, this B2B plaftorm offers Asiatravel's products to the offline retail travel agencies on an instant con'rmation basis. This increases the take'up rate of Asiatravel's inventory of airline/hotel/tour seats, and is a new scalable revenue arm that has a ~6% gross margin.

- Other catalysts:  multi-language capability and  'nancing options likes 12'months interest free installment payment plan. These initiatives entice a wider range of consumer to spend more easily and could aid in spurring sales. The latter is a proven catalyst that greatly facilitated sales at OSIM this year. We think continued marketing initiatives is also key to growing sales.

-  Valuations'Is Asiatravel worth only ~S$70mil?  Asiatravel currently trades at a mere market cap of S$73.4mil. NAV is ~S$30mil, and it is in a net cash position. It can be a tricky business valuing Asiatravel just based on its the P&L and Balance Sheet, because we think the value of the business lies in the intangible, which is ' proprietary relationships with over 6800 hotels and over 140 airlines, a database of 1.5mil unique website visitors monthly since 2011 and an established brand with 16 years of history. In addition, its business model is near infinitely scalable (website can handle up to millions of transactions at one go) at no marginal cost. It makes one wonder if Expedia Inc (a US$7.8bil market ap competitor) will 'nd it a steal to buy Asiatravel for just ~S$70mil ? Perhaps more than a steal, we think.

Source: AmFraser