Growth Slows at the China Lodge 汉庭酒店增长放缓
China’s slowing economy is taking a toll on the nation’s hotel sector, where growth has dipped solidly into the single digit percentage range in the latest preliminary results for China Lodging Group (Nasdaq: HTHT), operator of the Hanting and Starway brands. Investors were clearly unhappy about these latest results, which are likely to be reflected throughout the industry when China Lodging and its 2 main listed rivals, Home Inns (Nasdaq: HMIN) and 7 Days (NYSE: SVN), report their results in the weeks ahead.
China Lodging Shares tumbled 8 percent after it announced the preliminary figures, approaching an all-time low, while 7 Days shares fell 6 percent to an all-time low. Interestingly, Home Inns shares actually rose 1 percent, perhaps because the shares are already quite low and also perhaps because the company is seen as a potential consolidator for the industry following a recent string of acquisitions. (previous post)
Let’s look at China Lodging’s announcement, which shows its revenue per room, the most widely watched industry indicator also known as revpar, was up 4 percent in the second quarter, about half the growth rate of 9 percent in the first quarter. (company announcement) Hotels open for 18 months or more also saw their revpar growth slow, though at a slower rate, to 7 percent in the second quarter from 10 percent in the first. Clearly the trends aren’t good for China Lodging, and if things continue in this direction it could see even slower growth in the third and fourth quarters and possibly even slip into revpar contraction by the end of the year.
All this is a huge change for an industry that posted some of its strongest years in 2008-2010, as the economy boomed and the sector got a lift as tourists flocked to high-profile events like the Beijing Olympics in 2008 and the Shanghai World Expo in 2010. With no such big events planned for the near future and the Chinese economy slowing sharply, companies are looking to mergers and acquisitions to keep their overall revenue growing and boost their market share as they wait for better economic times to return.
In that regard, Home Inns has been one of the more aggressive players, making last year’s biggest purchase when it bought the Motel 168 chain in a deal that valued the company at $500 million. More recently, it also purchased a chain of hotels in Anhui province in a much smaller deal as well.
The latest share price moves may indicate investors think Home Inns is a bit better positioned to weather the current slowdown, though clearly all companies will feel quite a bit of pain at least until the end of this year and probably into the first half of 2013. Low company valuations could also lead to some M&A during that period, perhaps even involving one or 2 of the big players, as everyone waits for the current slowdown to bottom out and for bigger growth to return.
Bottom line: China’s hotel sector is likely to see little or no growth for the rest of the year, with consolidation picking up as big players look for bargains.
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