Home Inns & Hotels' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Home Inns & Hotels Management, Inc. (HMIN)

Q1 2012 Earnings Call

May 10, 2012 9:00 p.m. EDT


Kelvin Lau – IR Director

David Sun – CEO

Huiping Yan – CFO


Justin Kwok – Goldman Sachs

Ella Ji – Oppenheimer & Co.

Billy Ng – Bank of America

Lin He – Morgan Stanley

Adam Krejcik – Roth Capital Partners

Vivian Hao – Deutsche Bank

Fawne Jiang – Brean Murray

Jamie Zhou – Macquarie

Chenyi Lu – Cowen & Co.

Tian Hou – T.H. Capital



Ladies and gentlemen, thank you for standing by for Home Inns’ first 2012 earnings conference call.

At this time all participants are in a listen-only mode. After management’s 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 would now like to hand the call over to your host for today’s conference, Kelvin Lau, Home Inns’ Investor Relations Director.

Kelvin Lau

Hello, everybody, and welcome to our earnings conference call. Our first quarter 2012 earnings results were released earlier and now available on the company’s website.

With us today is David Sun, our CEO, Huiping Yan, our CFO, who will be further discussing our performance for the past quarter. After the 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 US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As 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 laws.

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 to our CEO, David Sun.

David Sun

Hello, everyone, and thank you for joining us today to discuss our first quarter results. Our core Home Inns operational performance was stable and Motel 168 integration continued to generate positive results despite a tough market environment and similarly low travel volume in the first quarter of 2012.

We reported total revenue of RMB1.26 billion for the first quarter, which is slightly above our guidance. This 66% revenue growth included consolidated first quarter results from Motel 168 that we acquired on September 30, 2011. Excluding Motel 168, our core business generated revenue growth of 23% organic growth. This was mainly result from new unit growth while performance from our mature hotel group remained stable.

Most specifically, 716 hotels that were in operation for at least 18 months during the first quarter gained 1.3% in RevPAR on the same hotels base year over year. As of March 31, 2012, nearly 30% of total of 1,168 Home Inns hotels were located in the third-tier cities and below, where overall ADR are meaningfully low in general than upscale cities market. These low-tier cities are still on their way to achieve full economic expansion even with our unique geographic diversity [inaudible] average daily rates flat at RMB165 year over year and combined with an occupancy rate of 84.4% compared with 85.1% in the same period of 2011. We generated RevPAR of RMB149 compared to RMB150 a year ago. These operating results are reasonable [sound] and within our expectations for the first quarter.

Occupancy rate at Motel 168 was 17.4%, down from 73.5% in the previous quarter. ADR grew 3% to RMB158 from RMB154 in the fourth quarter of last year. The resulting RevPAR of RMB111 compared to RMB113 last quarter was in line with our expectations. During the first quarter, we further reduced the scale of food and beverage operations as Motel 168 by 10% from last quarter, but still achieved total RMB327 million of revenues, which was at the high end of our guidance in the fourth quarter.

Six months into integration, we focus our efforts on implementing effective sales and market initiatives, facility upgrades for enhanced customer experience, and a personnel training and motivation to drive performance improvement. The results of these efforts continue to be encouraging.

For the month of April, Motel 168 portfolio achieved RevPAR of RMB140, with 85% of occupancy rate and ADR of RMB165. Motel 168 is a significant investment we made for the future of our company. We are very pleased with the integration results so far, and we expect to achieved 80% or higher occupancy rate on a full-year basis.

Furthermore, we have begun building a developed pipeline for Motel 168 and at end of the first quarter, we had five leased-and-operated hotels and 21 franchised-and-managed hotels contracted and under construction. Given the integration results, we are confident in the future development of the Motel 168 brand and its contribution of the company.

Now, let’s turn our attention to profitability. Excluding Motel 168, underlying operation margin for core Home Inns including Yitel hotels was 4.7% compared 7.9% in the first quarter of 2011. There are two key factors impacting operating margins.

First, dilutions from 80 leased-and-operated hotels including three Yitel hotels that were in operation for six months or less during the quarter impacted the overall margin rates by approximately 5 percentage points. These hotels contributed limited revenue yet incur full operation cost. Our new hotels are ramping within [our expectations] and are expected to continue doing so in a stable growth environment. The new hotels’ dilutive impact will continue to diminish as we steadily expand our portfolio base and attain healthy mix going forward.

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