US firm releases China budget hotel report
NEW YORK, May 27 /PRNewswire/ — Brean Murray, Carret & Co. (BMC) yesterday launched research coverage of the China Economy Hotel Industry. In the report, Senior Analyst Fawne Jiang notes that the company has a favorable view on the industry and believes that it is at the onset of a multi-year expansion, bolstered by strong fundamentals. These include sustainable economic growth, low penetration of branded economy hotels and increasing demand from both leisure and business travel. BMC picks in the space include China Lodging Group (HTHT) and 7 Days Group Holdings (SVN) and assume coverage of Home Inns and Hotels Management (HMIN), all with Buy ratings.
“Compared with their U.S. lodging peers, we believe the top China economy hotel suppliers offer significantly higher growth potential with attractive valuations. We recommend allocating resources to the industry’s top performers to those who want to participate in China’s solid economic growth and increasing consumer spending,” stated Fawne Jiang.
According to the latest industry guidance, the sector is targeted to deliver average annual growth of ~30% over the next three years. Given the cyclical nature of the industry, the expectation is that the sector will grow in tandem with the upward economic cycle and expand at a rapid pace in 2010 and beyond.
“The China economy hotel industry is booming. The recent IPOs of China Lodging Group (March 2010) and 7 Days Group (November 2009) have sparked significant investor interest in the sector. We wanted to be at the forefront of research in this space and introduce these high quality, yet relatively new China ADRs to more investors,” stated David A. Dunn, Head of Capital Markets.
While competing in the same industry, the three companies are at different stages of growth, with distinct management focuses and growth strategies. Key highlights include:
— Home Inns (Buy): Proven industry leader with economies of scales. Home
Inns has the largest network in the sector, with 638 hotels in
operation as of 1Q10, accounting for ~17% of the total market share
and leading other operators by a significant margin. Home Inns enjoys
first-mover advantages with its established brand equity and
nationwide penetration (121 cities). In Brean Murray, Carret’s view,
the company could be a strategic long-term holding for investors
looking for China consumer exposure with relatively limited downside
— China Lodging Group (Buy): Premium brand warrants higher RevPAR. With
a clear niche positioning to capture the growing demand of the
mid-level business travelers, China Lodging has a focused growth
strategy through selecting prime store locations and building its
premium brand, which has enabled the company to command higher RevPAR.
With a relatively young fleet of hotels and an aggressive expansion
plan, Brean Murray, Carret believes the company is on a fast growth
track over the next few years.
— 7 Days Group (Buy): Scalable business platform offers substantial
operating leverage. Ranked #2 in the economy hotel industry by number
of hotels, 7 Days’ core competence lies in its fast network expansion
with effective cost control in place. Its strong commitment to an
e-commerce platform and its large membership has set the company
apart; Brean Murray, Carret believes its scalable business platform
offers substantial operating leverage in the long term.
About Brean Murray, Carret & Co.:
Brean Murray, Carret & Co. is a research-driven investment bank and asset management firm, dedicated to Small and Midcap growth companies and their investors. BMC focuses on delivering high quality investment ideas and investment banking services to institutional and corporate clients in the following 5 verticals: Consumer Products and Retailing, Healthcare, Natural Resources, Technology and private/publicly traded Chinese Companies. Services include equity research, investment banking, institutional sales and trading, and asset management.
Headquartered in New York City, the company also maintains offices in Boston, Chicago, San Francisco and Beijing, China. In addition, the company is well known for its sector specific investment conferences. For more information on the company, please visit www.breanmurraycarret.com.
Brean Murray, Carret & Co. is a member of the Financial Industry Regulatory Authority.
Source: Brean Murray, Carret & Co.