China stock pick Home Inns beats on earnings
The budget hotel chain then lowers its guidance for rest of 2013.
Home Inns and Hotels Management (HMIN) reported second quarter earnings and revenue above analyst projections -- and then lowered guidance for the full 2013 year.
Earnings of 47 cents a share (excluding one-time items) were 3 cents a share above the Wall Street consensus. Revenue climbed 10.5% year over year to $261 million against the $250.3 million consensus.
Below the top line numbers the company reported good news on the integration of the 281 hotels it acquired from Motel 168 in May 2011. Occupancy rate at the Motel 168 properties improved to 82.1% from 80.8% in the quarter, although that still trailed the 87% occupancy rate for the company as a whole.
RevPAR (Revenue per Available Room) improved by 2.3% at the Motel 168 properties to 132 renminbi. For the company’s hotels as a whole RevPAR climbed to 145 renminbi in the quarter. That was better than the 131 renminbi in the first quarter but below the 149 renminbi in the second quarter of 2012.
Guidance for the third quarter and for all of 2013 is likely to disappoint the market, however. The company lowered its projections for revenue to a range of 6.35 billion renminbi to $6.5 billion renminbi from May guidance for a range of 6.6 billion renminbi to 6.8 billion. For the full year the company now projects revenue growth of 10.1%-12.7% versus an earlier projection of 14.4%-17.9%.
However, the company left its earnings projections at former levels. By tweaking the mix of company owned and operated new hotels versus franchised hotels it plans to open in 2013, to include more franchised operations with their higher profitability, Home Inns and Hotels expects that it will be able to meet former earnings guidance for 2013. Wall Street currently projects the company will grow earnings by 27% for the year.
The new hotel development plan envisions opening 400 new hotels in 2013 with 330 to 335 of those to be franchised.
I wouldn’t be surprised if the New York traded ADRs sell off Tuesday on this news. I’m not happy that the company has lowered revenue guidance -- but I am glad to see this Chinese company managing for earnings, rather than blindly going for growth. I’d buy on the dip.
As of Monday I’m keeping my target price at $37 share. Home Inns and Hotels Management is a member of my Jubak’s Picks portfolio.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own not shares of Home Inns and Hotels Management as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund’s portfolio.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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