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.
I’m sorry being a flip-flopper here, because I was bullish on its stock until last Thursday. But like many things in life, I think sometimes it’s worthwhile to have a second look, this is especially true on investment. It’s no good to hold on a stock “no matter what”, or “fall in love with a stock or a company”, because we don’t want to throw away our hard earned money. At least I don’t.
I bought some Home Inns (HMIN) again yesterday. Not surprisingly the stock dropped after I bought it, as things usually happen that way. But my time frame is from couple months to couple years, so I am not worried. The recent weakness of the stock is expected due to the new offerings and lock up expiration. Also I heard some rumors in China (two key managers left the company to join competitors recently, according to 21st century business herald). At the same time, the competition is heating up among budget hotels, as shown in this article from Pacific Epoch.
Occasionally I received spam text messages from unknown people. People want to sell cars, apartments, etc. But yesterday I got a message from Home Inns (Rujia), it promotes the post “Golden week”(May 1 to 7) sales: it will give one night free during May 6 to 10 if I stay in their hotels for 3 nights. I can not stop laughing.
Separately, Home Inns is selling more shares (stocks), it will get $30 m from the proceeds to build more hotels. The competition among economy hotels in China are heating up.
I made a mistake on the market cap of Home Inns (Rujia, just like home), in my previous post (corrected now). The correct number is stock price * number of shares, or
$44.93 * (32,283,906 / 2 + 5,874,237 ) = $839,479,146
The number of shares 32,283,906 is from its Q3 2006 report. 5,874,237 is the IPO shares on Oct 26, 2006. Note it’s 2006 revenue is about $73 m. So the market cap/sales revenue is about 11.5
Is it high? Yes it’s high among hotel industry. But not high if compared to SINA (also about 10 right now). Note HMIN is growing much faster than SINA these days (70% vs. 30%). I also looked at Baidu’s number, it’s market cap is $4.15 B, and est. 2006 revenue is $106.4 m. The ratio is about 39. BIDU is expected to grow at 68% by WRHambrecht’s James Lee (click on the PDF report). Note growth is only one factor here, we also need to look at the profit margin, etc. if we want to compare apple to apple.
I mean the stock (HMIN), not the motel because I am in the US now. I know it was a little speculative, but I think it’s ok to put 20% of my “mad money” into this even after the amazing run from $22 to as high as $34. I think there are many reasons account for this.
1) It has more than 100% year to year revenue growth; it’s opening new hotels like crazy. Initially I was a bit concerned with this kind of growth in China and I talked to a friend in 2nd tier city in China. My worry is the affordbility of RMB 180 room rate in 2nd tier or inland cities because the wages in coast cities are much higher than inland cities. It seems not a big problem. On the other hand, I think they (Rujia) got better rate for real estate and labor in those cities; in other words, I believe they can maintain the profit margin.
2) The analogy of China/US top chain hotel market share: top 10 US hotel chains have 60% US market share; currently top 10 China hotel chains have 6% of the China market share. This got many people excited about its potential growth. I noticed from Yahoo Finance that there are two articles on WSJ on this lately (although I have not read it). I heard about the following rule to spot the top of a stock: when a company (and its founders/CEO) is mentioned in all these business magzines, it may be at peak. But I think Home Inns is not there yet. Hotel is pretty boring concept in the US. Wall Street analysts just started to get excited on this.
3) From consumer point of view, I think it’s attracting people who used to stay at 3-star hotels (high end) and Zhao Dai Shuo (low end). 3-star hotels in China used to cost RMB400, but with promotion now you can get it for little more than 200. The Zhao Dai Shuo cost less than 150, but they don’t get private bathroom, free Internet…I think Home Inns got a lot business travellers from both of them.
In summary, I know I made a mistake by selling it too early, but it’s not too late to buy HMIN at its current price (32.50 to 33). Yes, from traditional valuation point of view, it’s insane to buy a stock with PE of 160 . But remember at one point, was Google a stock like that? The most important is, they need to deliver the growth as expected.
Home Inns (HMIN) and Mindray (MR) both reported their Q3 earning last week. I listened to both the conference calls. HMIN obviously did better with revenue growth: RMB 160.4 m, 106.3% year over year growth. Mindray’s revenue growth was 21.6% because of the anti-corruption campaign in Chinese hospitals. I think that growth factor determined the stock PE ratio at this time, HMIN is 162, MR is 51.
Personally I think one quarter’s number could be misleading. So let’s look at the first 9 months number. Mindray revenue growth is 41.4%; Home Inns is 125% (from RMB 176 m to RMB 396 m). So once again HMIN is the winner here. The reason again is HMIN is growing like crazy these days. They opened 25 new hotels in Q3 and have 56 hotels in development. But I still have some doubts in its growth.
1) Home Inns room rate RMB 180 is not expensive in China coastal area (where it got started), it could be a bit expensive in central and western part of the China, when we consider the wage difference here.
2) Competition: it’s heating up. Besides Jinjiang Star, Motel 168, Super 8, Home Inns’s founder Ji Qi started another chain called Hanting, which is slightly expensive than Rujia (Home Inns), and targeted business travellers.
So the question is: will HMIN’s growth be sustained for a while? My bet is their brand will help them grow for a while, but like anything else in business, nothing can grow 100% forever :-) Continue reading
Home Inns (Rujia, ticker symbol HMIN), which is due to IPO this week, is getting $ 1.0 billion orders for its $ 95 million listing (7.9 million shares in the range of $ 10 to 12, with over allocatement option of 1.185 million shares). See the article from Reuters here. Does anyone has the order vs. offering ratio (a.k.a. supply vs demand) for Baidu (BIDU)?
As of now I still don’t know the exact date of its IPO. But I saw this lastest SEC filings. From most sources it appears Oct 25 Wed is the debut date.
If you know Chinese, here is the coverage from Sohu.