Home Inns, 7 Days In Travel Slowdown 中国酒店行业增速放缓
Leading hotel operators Home Inns (Nasdaq: HMIN) and 7 Days (NYSE: SVN) have just reported their latest quarterly results that show a looming slowdown in China’s fast-growing travel sector, reinforcing a similar picture to emerge last week from rival China Lodging (Nasdaq: HTHT). The slowdown appears to be the result of several factors, most notably a massive expansion spree by not only these budget hotel specialists but also by big global high-end brands like Marriott (NYSE: MAR) and Intercontinental (London: IHG) in China. The other big factor is China’s broader economic slowdown, which has undercut demand as both leisure and business travelers cut back on their spending.
If past experience is any indicator, 2013 is likely to be a weak year for the highly cyclical industry, but we could see a nice rebound in 2014 as the economy recovers. Accordingly, any investors looking to buy into the rebound might wait until the middle of this year, by which time a looming sell-off sparked by this latest series of downbeat earnings reports is likely to ease.
All that said, let’s take a look at the latest reports from Home Inns and 7 Days, the latter of which is in the process of de-listing its share from the New York Stock Exchange in a privatization bid. Both companies reported that growth slowed in the fourth quarter of last year, and forecast further slowdowns in the current year, echoing similar sentiment last week from China Lodging, operator of the Hanting chain of hotels. (previous post)
Let’s look first at Home Inns, China’s largest publicly listed hotel operator, whose revenue increased about 12 percent in the fourth quarter — a sharp slowdown from the 46 percent growth it posted for all of 2012. (results announcement) The company’s net income for the quarter plunged 80 percent and it actually reported a net loss for the full year, dragged down by the loss-making operations of its recently acquired Motel 168 chain. It forecast revenue growth would remain sluggish this year, rising about 16 percent from 2012.
After plunging as low as $17 last summer, Home Inns shares have rebounded strongly and now trade at around $30. The shares were largely unchanged after this latest report came out, but I suspect they will come under pressure in the months ahead as its growth continues to slow.
Meantime, 7 Days’ results looked slightly better, with fourth-quarter revenue up 28 percent, the same as the growth rate for the entire year. The company’s profit grew nearly 8 percent, which was down sharply from the 36 percent gain for the whole year. Like Home Inns, 7 Days forecast revenue would rise about 16 percent for the year, or only about half of 2012’s growth rate.
As I’ve said above, the results from all 3 of China’s US listed hotel operators point to a similar slowdown that is quite common for this sector. All 3 companies are taking advantage of that slowdown to position themselves for the next uptick, most notably by embarking on major new building sprees. China Lodging plans to expand its hotel count by about a third this year, and Home Inns and 7 Days plan to increase their count by about 20 percent and 27 percent, respectively. Home Inns also recently entered into an agreement with outdoor advertising specialist Tiger Media to sell billboard space on its properties, providing a strong potential new source of revenue.
All things considered, the sector and these stocks are likely to sink from their recent highs in the months ahead as the current downturn sets in. But I do expect to see the situation start to improve by about this time next year, at which time all 3 companies should be well positioned to capitalize on the next industry uptick.
Bottom line: The latest results from Home Inns and 7 Days point to a growing hotel industry slowdown which should last most of this year, with the next uptick likely by mid 2014.
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