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Viking Global’s Halvorsen Dumps International, Ltd. (ADR) (CTRP) For Qunar Cayman Islands Ltd (QUNR)

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While the rest of the world is worried about the hard landing of China’s economy, or the bursting bubble of its stock market, Andreas Halvorsen is busy adjusting his fund, Viking Global‘s exposure to the travel industry of the world’s second-largest economy. According to two recent filings with the Securities and Exchange Commission, the fund has decreased its holding in International, Ltd. (ADR) (NASDAQ:CTRP) by over 60% to 1.68 million shares valued at $122.27 million, while adding some 9.15 million shares to its Qunar Cayman Islands Ltd (NASDAQ:QUNR) holding, lifting the total stake to 10.16 million shares valued at $422.45 million. In International, Ltd. (ADR) (NASDAQ:CTRP)’s case, the stake represents about 5.2% of the company’s outstanding stock, while in Qunar Cayman Islands Ltd (NASDAQ:QUNR)’s case the holding stands at 6.5% of the company’s shares.

Andreas Halvorsen

Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 139% over the last 34 months and outperformed the S&P 500 Index by 81 percentage points (see the details here).

Andreas Halvorsen
Andreas Halvorsen
Viking Global

The $10.21 billion company, International, Ltd. (ADR) (NASDAQ:CTRP), helps its customers book tour packages and guided tours both within China and abroad. These customers also include corporate clients, whose travel needs are catered by Ctrip. Halvorsen’s move to change focus might have to do with the high valuation of International, Ltd. (ADR) (NASDAQ:CTRP). Currently the stock is trading at an exceptionally high forward earnings multiple of about 56, which is one of the highest among its peers in the lodging industry. Viking Global has held a stake in the company since the second quarter of 2014. The stock has risen nearly 22% since then, which includes a steep rise of almost 60% so far this year. In contrast the lodging industry has only been able to post 9% gains year-to-date.

Viking Global might have been quick to cut its stake in International, Ltd. (ADR) (NASDAQ:CTRP) as many analysts including Piper Jaffrey and UBS are extremely bullish on the stock, with price targets that respectively offer 56% and 40% upsides to the current trading levels, despite the high valuation. When you take into account that the jump in Chinese passengers in the previous three months was the largest in the last two years and that ticket sales constituted 38% of International, Ltd. (ADR) (NASDAQ:CTRP)’s revenues in 2014, the targets are not so unrealistic. Moreover, the company is also on route to expand its margins, which were previously depressed by management to extend the company’s market share. Now that Ctrip is the second-largest player in the industry and has a 38% stake in eLong, the industry leader, pricing competitiveness could be heading to more profitable levels.

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