Hotels: Room for Consolidation 经济型酒店行业或加速整合

By newsdoug on May 10, 2012

Hanting Hotels operator slips into the red China’s second and third biggest US-listed hotel firms, 7 Days (NYSE: SVN) and China Lodging (Nasdaq: HTHT), have just released their latest quarterly results, showing that growth has returned to the industry after a difficult 2011, but that competition remains stiff with room for more consolidation. The results are really quite a mixed bag, but both companies showed healthy revenue growth, with Seven Days’ top line up 30 percent and China Lodging, operator of the Hanting hotel chain, up an even stronger 53 percent. (7 Days announcement; China Lodging announcement) But their bottom lines both looked quite weak, with 7 Days reporting a small profit of about $3 million while China Lodging slipped into the red with a loss of about $1.5 million. In terms of outlook, both companies saw revenue growth continuing at about 30 percent, the result of aggressive expansion and growing demand from newly affluent Chinese consumers with extra money to spend on traveling. In terms of broader context, the budget hotel industry is clearly not a very profitable one, as reflected by China Lodging’s reporting of a loss and the fact that 7 Days’ profit was just 3.5 percent of total revenues. Shareholders seem to have liked the 7 Days results a bit more, bidding up the company’s shares 4 percent after it announced the figures while China Lodging’s shares were unchanged. Still, shares of both companies now trade near 52-week lows, reflecting the challenging environment for a sector that is both promising in terms of growth but also quite competitive and in need of consolidation. The sector turned in a disappointing 2011 after a boom the previous year when occupancy and room rates soared largely due to a big jump in business in Shanghai during the city’s World Expo. We started to see some consolidation after that, with industry leader Home Inns (Nasdaq: HMIN) buying smaller chain Motel 168 for about $500 million last year, and 7 Days buying another small chain called Huatian for a more modest $20 million. (previous post) But with many of the big global names like France’s Accor (Paris: AC) and Britain’s InterContinental (London: IHG) also getting into the budget space, competition is likely to remain intense. Accordingly, look for more consolidation to occur, with smaller money-losing chains the likeliest targets and even a bigger name like China Lodging potentially getting purchased over the next 2 years.

Bottom line: The latest results from 7 Days and China Lodging show a growing but highly competitive budget hotel sector, with accelerating consolidation likely in the next 2 years.

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