Hotel Growth Story Sputters 酒店业增长停滞
Hotel operators must surely remember 2010 with fondness, as the year that saw Shanghai host the World Expo also saw their business boom with room prices rising by 20 percent or more and occupancy rates near 100 percent. But much has changed over the last 2 years, as reflected by the latest uninspired results from 7 Days Group (NYSE: SVN) and China Lodging Group (Nasdaq: HTHT), 2 of the nation’s biggest budget hotel chain operators.
Both companies continued to post respectable revenue and profit growth for their latest reporting quarter; but nearly all of that came from opening new hotels, even as business at their existing properties stagnated. The trend is hardly limited to the budget hotel space, as a recent report said that the broader China market has become saturated with new hotels as developers rushed to open new properties to capitalize on a growing travel boom.
With supply now more than sufficient to cover demand, look for hotel operators like 7 Days, China Lodging Group and Home Inns (Nasdaq: HMIN) to continue opening new hotels and hunting for acquisitions to satisfy investors who want more growth.
Let’s take a look at the latest numbers, starting with 7 Days’ latest earnings that show its revenue and profit grew 26 and 43 percent, respectively, in the second quarter. (company announcement) The company also forecast its revenue would continue to grow at a similar rate in the fourth quarter, boosted by new hotel openings.
But perhaps most revealing and worrisome was an industry metric called revpar, which measures how much revenue a hotel is getting for each room at its properties. Revpar for 7 Days was actually down 5 percent for hotels that the company leases and manages. That’s certainly not an encouraging figure, especially for companies that were seeing their revpar rise by as much as 50 and 60 percent as recently as 2010.
The figures for China Lodging, operator of the Hanting chain of hotels, painted a similar story. Revenue and profit were both up a healthy 43 percent and 63 percent, respectively, in the second quarter, though the company did forecast that revenue growth would slow sharply in the current quarter. (company announcement) But again, the most dispiriting element for investors was China Lodging’s revpar figures, which were up just 1-5 percent for the quarter.
All 3 of China’s major listed hotel operators are looking for ways to excite investors, including new M&A and a recent management-led privatization bid by 7 Days. (previous post) In one of the latest M&A moves, China Lodging added the Starway brand to its portfolio; and last year Home Inns made headlines with its purchase of the Motel 168 chain for $500 million. (previous post)
There’s clearly still room for more consolidation at the China lodge, and I’m eagerly awaiting the next big mega-merger which is likely to come next year. That could lay the foundations to create China’s first truly regional sector powerhouse, which would truly be an exciting new story. Until then, look for more similar unimpressive earnings reports that show slowing profit and revenue growth, even as declining returns per individual hotel room start to accelerate.
Bottom line: The latest hotel results show stagnating returns for China’s major hotel companies, with continued weakness likely in the year ahead.
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