• Tue
  • Oct 21, 2014
  • Updated: 1:47am
PUBLISHED : Thursday, 07 March, 2013, 8:07pm
UPDATED : Thursday, 07 March, 2013, 8:08pm

Hotels: Hanting slows, Home Inns' ad play

China Lodging's major expansion and Home Inns' new advertising tie-up look like good moves to position the companies for future growth as the hotel sector heads into a downturn


Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young’s China Business Blog (www.youngchinabiz.com), commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, “The Party Line: How the Media Dictates Public Opinion in Modern China.”

The latest results from China Lodging Group (Nasdaq: HTHT) are showing the highly cyclical hotel industry may be headed into a new downturn, while industry leader Home Inns (Nasdaq: HMIN) is taking an interesting new tack into the outdoor advertising business in its search for new revenue sources.  Let's start our look at the latest hotel news with China Lodging, operator of the popular Hanting chain of hotels. The company's stock is now trading near a 52-week high, as China's hotel industry has made a steady comeback following a downturn that began in late 2010 after the Shanghai World Expo.

Based on its latest results, now might be a good time to sell those shares, as the figures seem to point to a prolonged slowdown. The one positive point in the report is that China Lodging appears to be positioning itself for the industry's next uptick, with ambitious plans to boost its hotel count by about a third this year alone.

Most of China Lodging's fourth-quarter numbers send the same message, namely that growth peaked earlier last year and is slowing as we head into 2013. China Lodging's fourth-quarter profit was up 40 per cent, not a bad figure but down from the 52 per cent growth for all of 2013. Likewise, fourth-quarter revenue grew 36 per cent, also down a bit from the full-year figure of 43 per cent growth.

The slowdown looks likely to continue into 2013, with the company forecasting around 31 per cent revenue growth in the current quarter and slowing to around 27 per cent for all of this year. As a longtime hotel watcher, I can say with confidence that this kind of slowdown is very common for the high-cyclical industry and probably isn't company specific. Still, company stocks do tend to move in sync with the cycles, meaning China Lodging shares could come under pressure in the year ahead.

As I said above, the company does seem to be positioning itself well for the next upcycle, with plans to open about 350 hotels this year. That equates to about a 30 per cent increase over its current hotel count of 1,035, indicating the company is confident about the future.

From China Lodging, let's move on to Home Inns, which is also trading near a 52-week high and will report its latest quarterly results next Monday. The Home Inns news actually comes in a press release from another company, Tiger Media, which says it is in a deal to sell billboard advertising space at Home Inns' various hotels around China. 

Tiger says it will launch its first two billboards on Home Inns properties in Shanghai later this summer, with more properties to follow. This kind of deal looks like a smart move for Home Inns, as many of its properties are located in high-traffic areas that would be attractive to advertisers. Home Inns is also taking the shrewd tack of working with an advertising specialist like Tiger, rather than trying to develop this kind of new service outside its core area by itself.

With a stable of 1,700 hotels in more than 200 Chinese cities, Home Inns also looks like an attractive advertising platform for a partner like Tiger. If the business moves ahead smoothly, look for this relationship to generate some important new revenue for Home Inns in the next two years, which could help offset slowing growth from the looming industry downturn.

Bottom line: China Lodging's major expansion and Home Inns' new advertising tie-up look like good moves to position the companies for future growth as the hotel sector heads into a downturn.

To read more commentaries from Doug Young, visit youngchinabiz.com


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