{"text":[[{"start":7.12,"text":"This article only represents the author's own views."}],[{"start":10.52,"text":"The wheels continue to turn in China’s crowded and evolving ride-sharing market, as online travel agent Tongcheng Travel Holdings Ltd. (0780.HK) nears completion of its offer to take over the sinking Dida Inc. (2559.HK). The deal, first announced in late June, crossed a major milestone this week as Tongcheng’s offer received valid acceptances from investors holding 51.74% of Dida’s stock as of Aug. 5, Tongcheng said in a public filing this week."}],[{"start":41.46,"text":"That acceptance level isn’t surprising, since five major investors holding 53.7% of Dida’s stock indicated they would sell their shares when the original deal was announced on June 29. Tongcheng offered to pay HK$1.3875 for each Dida share, representing a slight discount from its trading levels at the time, valuing the deal at HK$1.42 billion ($181 million). Tongcheng said it would also pay a special cash dividend of HK$1.1745 upon the completion of all conditions for the deal."}],[{"start":75.32,"text":"The purchase marks the second major acquisition for Tongcheng since it bought the hotel business from struggling real estate giant Wanda last year for 2.5 billion yuan ($370 million). Tongcheng got both assets for relative bargains as each seller is under big pressure. Wanda is struggling to repay a huge volume of debt, as it suffers in China’s prolonged real estate downturn."}],[{"start":97.48,"text":"Meantime, Dida is also sinking, as it struggles with a difficult business model and stiff competition not only from other ride-sharing companies, but also from a rising new generation of robotaxis. Reflecting that, Dida’s revenue fell 36.2% last year to 502 million yuan, as it sunk into the red in the second half of the year. Its stock has lost about three-quarters of its value since its 2024 IPO when it sold shares for HK$6 apiece."}],[{"start":126.26,"text":"The deal really does look like a good fit for both Tongcheng and Dida, which may explain why Tongcheng’s shares have risen about 10% since the purchase was first announced."}],[{"start":136.72,"text":"Tongcheng is one of China’s leading travel agents, with 10% to 15% of the country’s massive travel market. Its positioning is relatively unique, focused on China’s smaller cities, compared with most rivals that tend to focus on more affluent top-tier markets like Beijing, Shanghai and Shenzhen. Tongcheng says that among its 250 million registered users, 87% come from such smaller markets."}],[{"start":162.56,"text":"Dida has a similar focus on those same smaller markets. The company is also relatively unique in the ride-sharing sector with its focus on shared carpooling services. By comparison, larger rivals like DiDi Global and CaoCao (2643.HK) offer mostly more traditional services with one driver and one rider per trip. The carpooling model means one driver typically stops to pick up several passengers on a single trip, and then drops off each at their destination."}],[{"start":189.32,"text":"That model offers far lower prices than the one-passenger-one-driver model, but it also means that travelers need significantly more time to reach their destinations. Dida calls those long travel times its main “pain point,” and has previously said it is developing technology that can better optimize routes for individual drivers. But its brand of cheap services is quite well-suited to smaller markets that are typically more price sensitive than big cities."}],[{"start":214.56,"text":"Sum greater than the parts?"}],[{"start":216.24,"text":"Tongcheng says it can use its myriad resources, not only financial but also its large user base, to help Dida improve its technology and efficiency to better compete with larger ride-sharing companies, many with similar deep-pocketed backers."}],[{"start":229.8,"text":"Tongcheng “intends to pursue a deep integration of its established mass travel ecosystem with (Dida’s) asset-light carpooling model, with the aim of building a comprehensive ‘door-to-door’ smart mobility platform covering both inter-city and intra-city transportation,” Tongcheng said in its original announcement. “By combining (Dida’s) mobility services capabilities with (Tongcheng’s) extensive user base, the enlarged group would be well positioned to offer seamless, end-to-end transportation and travel solutions to a broader user base with higher retention.”"}],[{"start":261.12,"text":"Tongcheng is also inheriting a relatively solid company in terms of its balance sheet, even if Dida’s revenue is sinking. Dida had 967 million yuan in cash last year, equal to about two-thirds of its current market value. What’s more, the company had a far smaller 566 million yuan in indebtedness, most of that in trade and other payables."}],[{"start":285.88,"text":"The other place where Dida looks attractive is its gross margins, which are quite high thanks to its asset-light model that requires drivers to provide their own cars, combined with its carpooling system that yields higher revenue per trip. The company’s gross margin stood at 66.3% last year, compared with about 40% for U.S. giant Uber (UBER.US) and just 9.4% last year for CaoCao, which has much higher costs because it owns all of the cars in its fleet."}],[{"start":314.64,"text":"Toncheng’s gross margin last year was also 66.3%, making these two companies look quite compatible based on that metric. Still, we should also point out that Dida’s gross margin was an even higher 72% in 2024, showing the number is rapidly dropping and Tongcheng will need to move quickly to stabilize the situation."}],[{"start":336,"text":"Dida is also facing competition on a number of other fronts. One of the biggest is the rise of aggregating platforms operated by companies like Baidu (BIDU.US; 9888.HK) and Amap, which allow small ride-sharing companies to easily find customers while avoiding the high costs of developing expensive proprietary apps like Dida’s. Another challenge is coming from a growing new generation of robotaxis operated by the likes of Baidu, WeRide (WRD.US) and Pony AI (PONY.US). But for now, at least, most of those services are still in the pilot phase, and all should be mostly confined to big cities initially when they start to commercialize."}],[{"start":370.24,"text":"Then there’s always the chance that Tongcheng could attempt to privatize Dida completely, which could provide some upside for Dida shareholders if it offers a premium for the stock. But even without such a buyout, the Tongcheng investment could make Dida’s stock attractive again, with potential to halt its sliding revenue and return to growth and profitability, if the latter can take advantage of the resources and synergies offered by its new majority owner."}],[{"start":401.56,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1786137567_8871.mp3"}