Home Inns & Hotels Management Inc. Q2 2010 Earnings Call Transcript - TheStreet

Home Inns & Hotels Management Inc. Q2 2010 Earnings Call Transcript

Home Inns & Hotels Management Inc. Q2 2010 Earnings Call Transcript
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Home Inns & Hotels Management Inc. (HMIN)

Q2 2010 Earnings Call

August 10, 2010 9:00 PM ET

Executives

Ethan Ruan – Investor Relations Manager

David Sun – Chief Executive Officer

Huiping Yan – Chief Financial Officer

Analysts

Chris Woronka – Deutsche Bank

Chris Zee – BNP

Adam Krejcik – ROTH Capital Partners

Justin Kwok – Goldman Sachs

Lin He – Morgan Stanley

Fawne Jiang – Brean Murray

Praveen Choudhary – Morgan Stanley

Howard Pueng – Analyst

David Freddi – RME Capital

Presentation

Operator

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Hello. And thank you for standing by for Home Inns 2010 Second Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. After managements prepared remarks there will be a question-and-answer session. Today’s conference is being recorded. If you have any objections you may disconnect at this time.

I’d now like to turn the call over to your host for today’s conference, Ethan Ruan, Home Inns Investor Relations Manager. Please proceed.

Ethan Ruan

Hello, everyone. And welcome to our earnings conference call. Our second quarter earnings results were released earlier and are available on the company’s website. With us today is David Sun, our Chief Executive Officer; and Huiping Yan, our Chief Financial Officer, who will be further discussing our performance for the past quarter. After their prepared remarks, David and Huiping will be available to answer your questions.

Before we continue, please note that the discussion today will include forward looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward looking statements involve inherent risk and uncertainties and such our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. Home Inns does not undertake any obligation to update any forward looking statements except as required under applicable law.

As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on Home Inns Investor Relations website at english.homeinns.com.

I will now turn the call over to our CEO, David Sun.

David Sun

Hello, everyone. And thank you for joining us today as we discuss our results from the second quarter. I’m excited to report another solid quarter, favorable micro-economic condition in China has led to increasing domestic travel volume both business and leisure, and it provides strong growth in the market with particularly the Shanghai World Expo has both effect to the travel and lodging industry in Shanghai and the surrounding area.

With the support of external environment our continued focus on strategic execution and operational discipline allowed us to capitalize our Home Inns strong brand and low custom base and achieve strong revenue increase and a significant profit and cash flow growth.

Home Inns second quarter revenue grew 26% year-over-year to RMB807 million, which came in at the high-end of our revenue guidance of RMB792 to RMB810 million.

Overall, average daily rate grew to RMB177 from RMB160 for the same quarter last year and the previous quarter, driven by 3% to 5% price increase at the majority of our mature hotels and higher price realization due to the strengthened economy.

Our occupancy rates increased to 96.4% from 92.4% in the same period a year ago and 90.5% in the previous quarter. With a high occupancy rate and carefully balanced price increases we achieved RevPAR of RMB171 for the second quarter, compared with RMB148 in the same quarter in 2009 and RMB144 in the first quarter of this year.

Out of a total of 674 hotels, 65 of Home Inns are Shanghai based, which benefited from the World Expo realizing our 50% rate premium starting mid-May with occupancy rate exceeding 100%. Further, our exciting result also came from outstanding performance by the entire hotel network this quarter. There were 466 hotels that have been in operation for at least 18 months in the second quarter. Their occupancy rate was 98%, compared with -- compared to 95% for this same 466 hotels a year ago.

ADR was RMB180, compared to RMB162 and the RevPAR was RMB176 against RMB152 in 2009. This is the third quarter where most occupancy rate and average daily rate improved incurred for a like for like comparison, indicating mature hotels healthy trend outperformance improvements.

Our existing hotels we have continued to mature and outperform, has helped absorb the dilutive impact from the new hotels opening and the more significant pre-opening expense in the coming quarters.

Our excellent results would not be possible without our low members who consider Home Inn their home away from home. We had over 3 million active individual members at the end of the quarter, 53% of our room nights were sold to non-corporate individual members this quarter.

During the quarter, we opened a net total of 36 franchise at managed hotels while developed additional 64 by the end of second quarter. Our well run franchise program is attracting more and more qualified franchisees to invest on the Home Inn brand.

Our new project development for lease and operated hotels built momentum as we ramped up team resources and the normalized performance geared. We ended the quarter with 34 of lease and operated hotels under development.

Our balanced approach to the mix of the two business models will ensure a healthy topline pipeline growth, stated bottom line expansion and strong cash generation. With the current pipeline visibility we are confident to open 65 to 70 lease and operated hotels, and 130 to 135 franchise and managed hotels in 2010.

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