Home Inns & Hotels Management: A Place to Lay Your Weary Head

"We'll leave the light on for you" is a catch phrase everyone knows here in the States -- Motel 6 (and other similar, budget hotel/ motel chains) have been a staple in this country for years. Now, the budget hotel model has hit China, and not a moment too soon. With the influx of tourist dollars, not to mention the rapid growth of international business in Mainland China, the need for economy hotels is going through the roof.

Home Inns & Hotels Management Inc. [ADR] (HMIN) is a one-stop shop in the world of economy hotels and inns -- in other words, it develops, leases, operates, franchises and manages the properties. The chain, which is headquartered in Shanghai, started in 2001 and is China's number one economy hotel chain, with hotels in 50 cities and growing.

Home Inns is performing like gangbusters and rapidly expanding to keep up with the demand for low cost accommodations. In 2006, it doubled its profit to a net income of $6 million, while at the same time nearly doubling its number of hotels to 134. Having all of those hotels means nothing if they are not full. Not a problem for Home Inns: its occupancy rate is 93%.

There is no question that others are jumping into the "We'll leave the light on" game in China. Locally-grown companies as well as foreign chains like Super 8 are making plays in the market. Can Home Inns stay ahead of the competition? I think so. As it pours its income into new hotels, and keeps those hotels filled, it is improving on margins and thus bettering its revenue per room. This is a bet -- and bed -- I'm willing to make.

Type of stock: A Chinese chain of budget hotels with a rapid expansion strategy matched with a terrific occupancy rate and ever growing demand.

Price target: Currently trading in the $35 range, I think this company's stock could see another upswing once China comes back. It has hit as high as $49.50 this year, and given its good financials, the rapidly growing marketplace, and its jumpstart on the competition, I can see this one as a double by next year.

HMIN 6-month chart

Comments

[Chimin Sang]

It is a good article, but it may not serve a good purpose.