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China’s Elong Surges to Record on Tencent, Expedia Stakes

Elong Inc., China’s second-biggest online travel company, surged to a record after the nation’s largest Internet company bought a stake and Expedia Inc. increased its holdings.

Elong’s American depositary receipts jumped 57 percent to $26.58 at 4 p.m. in New York. The ADRs earlier rose as much as 75 percent to $29.60.

Tencent Holdings Ltd., which says it has more than 674 million users of its instant-messaging software, bought a 16 percent stake in Elong for $84.4 million to become its second-biggest shareholder behind Expedia, the companies said in a joint statement yesterday.

“The partnership is beneficial to both companies, especially Elong, which is focused on hotel growth,” said Fawne Jiang, an equity analyst at Brean Murray Carret & Co. in New York. “Tencent’s users will definitely drive up the traffic volume for Elong. Its solid hotel growth in the past five quarters has already outperformed its main competitor.”

Expedia, the biggest online travel agency by revenue in the U.S., increased its stake because “it remains positive in China and wants to stay in control of the company as a new big shareholder joins,” Jiang said. Expedia paid $41.2 million to add about an 8 percent stake to its holdings, bringing the total to 56 percent, according to the joint statement.

Elong’s “significant” price increase “speaks to the perceived potential associated with the news that came out today,” said Scott Kessler, head of technology equity research at Standard & Poor’s in New York. “U.S. companies are still committed to investing in Chinese Internet companies, and there still is great potential there.”

First-Quarter Earnings

Elong’s first-quarter net income rose 30 percent from a year earlier to 7.7 million yuan ($1.2 million), it said yesterday in a separate statement. The company forecast 15 percent to 25 percent growth in its net revenue for the three months ended in June, to as much as 149 million yuan.

The estimate is “reasonable” given its “strong” growth in April, said Jiang, who maintained a “buy” rating and raised the 12-month price target to $20 from $17. The target doesn’t factor in the potential earnings growth from the Tencent partnership, she said.

Elong allows users to book rooms at 19,200 hotels in 700 cities in China and offers airline ticket services, according to its statement yesterday.

Tencent, based in Shenzhen, China, fell 2.7 percent to HK$213.20 in Hong Kong trading. Expedia rose 2.4 percent to $25.56 on the Nasdaq Stock Market.

The ADRs of International Ltd., China’s biggest online travel agency and Elong’s rival, dropped 4.7 percent, the most in three months, to $44.18.

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