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The Chinese Sector That's Still Hot

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By George Leong for Investment Contrarians | Aug 31, 2012

The global travel industry is on an uptrend, with China rapidly becoming one of the top travel markets in the world for both domestic and international travelers, according to my stock analysis.

To deal with the increased travel, the country has been steadily building its road, rail, and air infrastructure that will make traveling in the country much easier for both domestic and international travelers. China has spent hundreds of billions on its railroad.

"China is the most attractive place in the world right now for hotels. That's why investment capital is racing there and why the major international brands are racing there too," said Patrick Ford, president of U.S.-based Lodging Econometrics. (Source:

China is the fourth top destination for tourism, but it is expected to become the number one destination by 2020, according to the World Tourism Association.

According to a research report, "China Tourism Industry Forecast to 2012," on, China will see major growth in its domestic travel from 2011 to 2013.

China's burgeoning travel industry is understandable. With a population in excess of 1.3 billion people and a rapidly rising middle class with money to spend on travel, the potential is significant, based on my stock analysis. Plus, there are the millions of foreign travelers with money to spend who have made Asia and China the premier travel destination for business and leisure. And, as wages increase, so will the spending on non-essential items, such as travel and recreation.

To handle the expected increase in travel, there is a push to build more hotels and motels across the vast country.

In the Chinese travel and hotel equities market, my stock analysis is that there are numerous operators that have excellent potential for the aggressive investor looking for growth areas.

Several of my favorite Chinese travel stocks include China Lodging Group, Limited (NASDAQ/HTHT), Home Inns & Hotels Management Inc. (NASDAQ/HMIN), and 7 Days Group Holdings Limited (NYSE/SVN).

All three companies have above-average, long-term share-appreciation potential, based on my stock analysis, but I will take a look at 7 Days Group.

On the chart, 7 Days has been on a steady decline, but, according to my stock analysis, the selling has been way overdone; this stock is a good contrarian situation.

(click to enlarge)Click to enlarge Chart courtesy of

7 Days is the third largest national economy hotel chain. It offers limited services under the "7 Days Inn" brand, akin to budget hotels and motels in the U.S. and Canada.

As of June 30, 2012, 7 Days Group operated 1,132 hotels, up from 944 hotels at the end of September 2011. The company has another 226 hotels under development. In total, it has 112,631 hotel rooms in 168 cities. In the second quarter, the occupancy rates were between 83.0% and 86.8%, depending on the hotel.

The nine analysts who follow 7 Days Group estimate the company will make $0.57 per American depositary share (NYSE:ADS) in 2012, followed by profits of $0.78 per ADS in 2013, which are both higher than previous estimates. Revenues are predicted to grow 27.2% in 2012 and 21.9% in 2013.

The growth metrics are far superior to the U.S. hotels, according to my stock analysis.

My stock analysis is that 7 Days Group may or may not have the greatest potential of the three stocks. Only time will tell, but what is for sure is that the travel sector in China is a key growth area.

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