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More about Home Inns and Mindray

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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 🙂 

As to Mindray, its revenue grew at 53.1% annually (compound) from year 2003 to year 2005. This quarter’s slower growth was due to the goverment new regulation. While I don’t want to speculate its next quarter, I think the “year end spending crunch” should help them get a better growth number next Q. The more important thing, from long term perspective, I believe they got a good management team, R&D resources (570 engineers!), and low cost manufacturing. All these should continue help them to expand domestically and internationally. There are already some talks about “being Huawei of Medical devices”, which I don’t necessarily agree, but I do feel comfortable with their position for now.

Disclosure: I do own Mindray (MR) stocks.

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