Five Key Quotes from Home Inns on China's Outlook

There's a lot to be learned about the macroeconomic situation in China from the budget hotel chain Home Inns & Hotels Management Q308 conference call:

No impact from the global economic crisis:

We didn’t see a very significant impact by the economy, global economy or the slow-down of the Chinese economy [in Q3]… For the first months of the fourth quarter, we are still seeing the same trend [as in] the third quarter.

Four to five star hotels occupancy and revenue have gone down since August. I think mainly it’s caused by a global economy… and also the very strict Olympics visa issue… I think in 2009 the high-end; like four, five-star hotels will be impacted by the high-end customer reductions. But budget hotels… still haven’t seen any… significant change in the market.

Banking on tremendous growth:

We have a long-term or intermediate term business plan to reach about 1,000 hotels by the end of 2011… We believe that we will be self-funding by the end of 2010. If we open about 180 to 200 hotels a year will get to 1,000 hotels by the end of 2011... Our return on investment is about 20%. So to be self-funding, as long as our leased and operated hotel unit is growing at about 20%... we will become self-funding… by the end of 2010.

The number of new hotels in different markets, coupled with the overall reduced travel activity during the Olympic period did lead to our overall occupancy rate in the quarter declining to 85.9%... While hotels opening for over 18 months saw occupancy decline from 101% in the same period a year ago to 97%.

Which parts of China are thriving:

I think the occupancy today is overall this year in the hotel industry is declining because of a lot of reasons -- the earthquake, holiday change, and also the Olympics.

In north China, especially in Beijing, they are running at very strong occupancy and average daily rate… The south sites are running a little bit weak [on] occupancy and also the average daily rate. In western China, especially this year, [there’s] uncertainty because of the Sichuan earthquake.

They see the Chinese moving up in lifestyle:

The existing Home Inns customer will be moving up due to their personal career development and also their financial situation.

China’s stimulus package:

The stimulus package [demonstrates] the Chinese Government’s continued effort in stabilizing and improving the economy. We had already seen some of the methods being put into place in the second half of this year, especially [after] the downturn in the export industry in China earlier this year. More and more small businesses are getting credit from the banks compared to just six months ago… [The Chinese government] is giving special consideration to small and medium-sized enterprises, which will be beneficial to our business.

 

Comments

[j_remington:]

The FORWARD macroeconomic situation in China is yet to be determined. It would not be wise to load up on any Chinese stock. The bulk of the quoted statements are old news.

The prosperity in China needs a long rest. The government's stimulus package has no guarantee of being enacted any time soon.

2008 Nov 12 08:34 AM

[M.R. Henderson:]

Those quotes were supposed to be good news? While occupancy has begun going down, we believe we will be self-funding by 2010??? Looks like budget hotels are possibly following the five-stars down. The one bright spot is that medium sized businesses might be getting more loans. After the Wallstreet journal article headlining "China's Stimulus Will Work", which looked like it was written by someone from the China Daily, this kind of "optimistic" talk doesn't make me confident.

2008 Nov 12 10:22 AM