SVN 7 Days Grp. Holdings Limited American Depositary Shares, Each Representing Three Ordinary Shares

Shanghai-based Home Inns & Hotels Management Inc. (HMIN) reported second-quarter 2012 adjusted earnings (in USD) of 17 cents per share, missing the Zacks Consensus Estimate of 21 cents. Moreover, the company also lowered its full year 2012 earnings per share guidance, based on the quarter results.

Adjusted earnings stood at RMB 1.08 per share, lower than the year-ago adjusted earnings of RMB 1.29 per share. On a reported basis, earnings were lower, at RMB 0.37 per share compared with the year-ago earnings of RMB 0.85 per share.

Quarter Highlights

Net revenue increased 60.6% to RMB 1.36 billion compared with year-ago net revenue of RMB 0.84 billion. The increase was attributable to substantial surge in revenues across the company’s leased-and-operated and franchised-and-managed hotels segments. However, revenue (in USD) stood at $214.1 million, missing the Zacks Consensus Estimate of $221.0 million.

Revenues from leased-and-operated hotels increased 60.7% year over year to RMB 1.30 billion, while revenues from franchised-and-managed hotels surged 55.9% year over year to RMB 149.7 million.

The overall occupancy decreased 480 basis-points (bps) to 89.2%. The decrease was attributable to overall unfavorable economic conditions and the lower occupancy rate of the Motel 168 brand, acquired in October 2011.

In the reported quarter, RevPAR (revenue per available room) decreased 8.6% year over year to RMB 149. The decrease was attributable to a decrease in occupancy as well as the impact of the lower ADR (average daily rate) at Motel 168. However, overall ADR increased 3.6% to RMB 173.

Reported income from operations increased 11.5% to RMB 120.4 million, while adjusted income from operations increased 7.3% to RMB 170.4 million.

Hotel Update

During the reported quarter, Home Inns opened 103 new hotels, which includes 32 new leased-and-operated hotels and 71 new franchised-and-managed hotels. The newly opened franchised-and-managed hotels include six Motel 168 brand hotels.  One each of leased-and-operated hotel and franchised-and-managed hotel were closed during the quarter.

At the quarter-end, the company had another 247 hotels contracted or under construction, which includes 75 leased-and-operated and 172 franchised-and-managed hotels.

As of June 30, 2012, Home Inns Group operated a total of 1,580 hotels, including 733 leased-and-operated and 847 franchised-and-managed hotels across 233 cities in China.  

Liquidity

Home Inns ended the second quarter with cash and cash equivalents of RMB 1.01 billion and total outstanding balance of convertible bonds, issued in 2007, of RMB 113.3 million (including principal and accrued interest).

Outlook

For the third quarter of 2012, Home Inns expects total revenues to be in the range of RMB 1,545 million to RMB 1,575 million.

For full year 2012, the company expects total revenues to be in the range of RMB 5,715 million to RMB 5,810 million, down from the previous guidance of RMB 5,815 million to RMB 5,910 million.

Our Take

We remain cautious about the strong earnings growth in coming quarters considering the company’s second-quarter results and lowered guidance of full year revenue growth. Based on this, we expect analysts to revise their estimates downward in the coming days. Currently, the Zacks Consensus Estimate for 2012 and 2013 are pegged at 40 cents and 92 cents, respectively.

Home Inns, which competes with the likes of 7 Days Group Holdings Limited (SVN), currently carries a Zacks #3 Rank, implying a short-term Hold rating. We also reiterate our long-term Neutral recommendation on the stock.

 
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