Some random thoughts on Chinese IPOs: Home Inns, New Oriental, Focus Media (Sina).
I stayed at Home Inns Zhongshan Park this time. This is a relatively new Home Inns hotel (it was operated as Shanghai Ningxia Hotel before joining the Home Inns family recently). One block away, I saw another Home Inns hotel: the 7 stars hotel which has been acquired by Home Inns this year.
In his annual letter to shareholders, Buffett said the “party is over”. He was referring to the insurance business, which is the cornerstone of Berkshire Hathaway.
It appears the party for the economy hotels in China is over too. You can read this Chinese article at Sina if you know Chinese. This is understandable because as the leader of this pack, Home Inns (Rujia, HMIN) got listed in the US in Nov. 2006, lots of money has been poured into this hot sector in China, notably the 7daysInn (fund by warburg pincus), Hanting (found by Home Inns founder Ji Qi, raised $85 million fund last year, about the same size of Home Inns’ IPO proceeds).
Now they are paying the price of over-investment and fierce competition thereafter. Let me quote the Chinese article:
English translation: JinJiang star hotel is located at intersection of WuZhong Rd. and GuiLin Rd., which is not a hot district in Shanghai. But along this less than 4km WuZhong Rd., there are more than 8 economy hotels including motel168, 7daysInn etc., and HanTing even has two hotels in this district!
(JinJiang Inn at Shanghai ChangNing Rd., March 2007, full size pic here.)
Stocks in review week of Dec 16 to Dec 22
1) I bought some MXB shares on Dec 19. After I read its prospectus more carefully, I found two things I don’t like: it will use the proceeds of the IPO ($225 m) and borrow some $425 m to pay the dividend to its parent, Morgan Stanley; Morgan Stanley still controls more than 90% of its share. So I put up a limited sell order at 29.30 for Dec 21.
On Dec 21 the stock opened at $29.50 and had a huge run from 3:00 PM EST till close. It closed at $33.72. This reminded me 3 years ago I sold my 51job (JOBS) two days too early.
Home Inns (HMIN) is raising fund through convertible bond (up to) $149 m (reuters news). It seems they still need the cash to expand.
Longtop got more analyst converge: Deutsche bank and Jefferies initiated with Buy with target price of $30 and $29, respectively. Quoted here:
Deutsche Bank initiates coverage on Longtop Financial Technologies (NYSE: LFT) with a Buy rating, setting a $30 price target, citing a great position within its quickly growing industry, unique barriers to entry and impressive operating results…
Jefferies initiated Longtop Financial (NYSE:LFT) with a Buy rating and $29 target, as they expect strong earnings growth over the next several years from an acceleration in P&L performance and the company’s attractive secular demand backdrop.
(image from thestockmasters.com)
Here is the Q2 results (Xinhua-PRNewswire). Besides revenue and earning, I’m more interested in the following numbers:
— During the second quarter of 2007, Home Inns opened 26 new hotels. As of June 30, 2007, the Home Inns hotel chain consisted of 171 hotels in operation with an additional 63 hotels under development, covering 66 cities in China.
MR closed above HMIN the first time since its IPO last Sept. MR closed at 30.89, while HMIN closed at 30.81.
This comparison is mostly for fun. But seriously I do think HMIN is increasing under competitive pressure in China. Here is another hotel chain, Hanting Hotels, founded by Ji Qi, the co-founder of Ctrip and Home Inns. Recently it raised $85 m from VC, this is no small change considering Home Inns raised about similar amount last Oct. through IPO. In last two years Hanting Hotels targeted mostly business travellers who are willing to pay more than CNY 268, but this has changed since early this year, as they entering into the budget hotels arena (head to head against HMIN). In the past HanTing’s profit margin is about 5% higher than HMIN. Of course one can argue that the “budget hotels” pie in China is growing too, so all the players will benefit. I am curious to learn more about this as I’m coming back to China very soon.
On the other hand, it’s far more difficult to enter into the medical device business where Mindray is in, that’s one thing I liked about this business.
Last but not least, Starbucks will raise the price of its beverage by 9 cents starting next week.
Heelys sold 5.1 million pairs of its walk/skate shoes in the US during 2006. Note in the US there are about 36 million kids between age of 6 to 14, Heelys’ core customer. In other words, every one out of 7 kids in the US got a pair of Heelys, which sells from $49.99. The question for Heelys is: how far can this go? Can they sell to the other 6 kids? Or can they make the existing customers come back?
As of last quarter, Home Inns (China) has 145 hotels in operation, with average 120 rooms per hotel (total about 18,000 rooms). Home Inns got about 268,000 members, which account for more than 40% of its sales (hotel stay). To make it simple, about 7,200 (= 18,000 * 40%) is reserved for the members. A quarter has 90 days, so there is 7,200 * 90 = 648,000 room nights. So on average each member stayed 2.5 (= 648,000/268,000) nights in Home Inns last quarter.
(Update June 25) Fuwei has a news release regarding this today.
(Update June 19) The stock (FFHL) got a big lift (18%) today. Major’s rule No. 2: stock moves when Major mentions it at stlplace, e.g., EDU (mentioned in June 9) and FFHL. Some speculative Chinese stocks got big move too, e.g. EFUT is up 30% today.
Seriously I am not saying Fuwei is a bad company. Its previous owner got big problems though. Do your own research before jumping in.
(Original June 18) I’ve paid attention to Fuwei Film Holding Limited (FFHL) since its IPO, as you may notice I’ve mentioned it couple times in my blog. Obviously things have take a turn lately, if you checked its stock price. I did not follow all the details until read this Chinese news. Let me summarize it because the aricle is in Chinese and it’s a bit long. In simple words: the owners and founders of Fuwei are suspected in “transfer state owned assets to personal pockets” through a bunch of “financial engineering activities”; they are under “Shuang Gui” (arrest in a better name) right now.
Here is a happy Home Inns customer (from Google Finance). On the other hand, here is a not-so-happy Home Inns customer, Kunwei, who (I believe) has stayed in the US and Singapore for an extended period time before returning to China.
So how do we make all of these? Not too much. The thing I want to say is everyone has his/her own criteria. Also things normally acceptable to one person/group may not be acceptable to another person/group, e.g., men normally have greater tolerance over female on cleaness, smoke etc. I think majority of Home Inns customers are happy with the hotels. They got what they paid for: a clean room, and a comfortable bed.
HMIN looked cheap these days, should we jump in and buy it? I have both MR and HMIN, and as a matter of fact, I bought some more HMIN after its disappointing earning report. My mistake. You may think because HMIN has been to $49, and now it’s trading $29.50, isn’t a big discount? Yes or No. I hope HMIN won’t go much lower because it is my largest holding now (I’m looking for opportunities to exit).