Hotels: Stability and Indigestion at the Inn 中国经济放缓未损及经济型酒店稳定运营
I don’t know if it’s coincidence, but China’s top 3 US-listed hotel operators have all released their latest quarterly results on the same day, revealing a range of issues with a broader theme that points to stability in the industry despite China’s rapidly softening economy. The results from Home Inns (Nasdaq: HMIN), China Lodging Group (Nasdaq: HTHT) and 7 Days Group (NYSE: SVN) all tell slightly different stories, as each chain faces its own different issues. Based on my quick read, China Lodging seems to look the best right now, while Home Inns struggles with its recent mega-acquisition of Motel 168 and 7 Days faces operational issues.
All the results came out after markets closed on Wall Street, with Home Inns stock up a modest 1 percent in after hours trade while China Lodging and Seven Days were largely unchanged. The lack of reaction tells me that the results didn’t come as a big surprise to anyone initially, and the broader stability theme was probably reassuring.
For a preview of what we might see for these stocks when regular trading resumes on Friday, let’s take a closer look at the results. We’ll begin with industry leader Home Inns, which is still clearly suffering a hangover from its purchase last year of Motel 168 in a deal that valued the chain at about $500 million. (previous post) Previous owner Morgan Stanley was initially looking for a deal that would value Motel 168 at $1 billion or more, but had to settle for the lower valuation after no one agreed with its inflated view. Now we know why.
Inclusion of Motel 168’s results were partly responsible for a 70 percent tumble in Home Inns’ second-quarter profit, even as the acquisition helped Home Inns to notch 60 percent revenue growth. (earnings announcement) Home Inns also had to lower its full-year revenue guidance, citing weak performance from Motel 168 for the adjustment. These kinds of integration issues aren’t really too unusual for such a big acquisition, but clearly Home Inns has a lot of work to do for the rest of the year to show investors it made a good decision with the Motel 168 buy.
Let’s move on to China Lodging Group, operator of the Hanting hotel brand, whose results look the most solid of the 3 companies. China Lodging’s revenue rose 46 percent and its profit was up 70 percent, reversing a net loss the previous quarter. (earnings announcement) The company also posted solid gains in important industry metrics, leading it to revise up its 2012 full-year revenue outlook by 10 percent. Those strong numbers seem to point to confidence that China’s slowing economy won’t have a major impact on the company’s business through the rest of the year.
China Lodging’s strong figures contrasted a bit with 7 Days, whose revenue and profit both rose more modestly by about 25 percent for the quarter. (earnings announcement) The company’s key industry metrics posted little or no growth, and it forecast that full-year revenue would rise about 25 percent, equaling the growth rate from the second quarter.
While 7 Days’ numbers don’t have much excitement and seem to point to operational issues, they do at least also point to stability — a comforting factor as a rapid slowdown in China’s economy could lead many travelers to postpone their trips until the situation improves. On the whole, these results look broadly encouraging to me for the industry, even as both Home Inns and 7 Days face operational issues they will need to address soon to improve future performance.
Bottom line: New results from China’s top 3 budget hotel operators point to a stable environment for the rest of the year, giving Home Inns and 7 Days time to fix operational issues.
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