Home Inns & Hotels Management's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Home Inns & Hotels Management Inc. (HMIN)

Q2 2012 Earnings Call

August 9, 2012 9:00 p.m. ET


Kelvin Lau - IR Director

David Sun - Chief Executive Officer

Huiping Yan - Chief Financial Officer


Jamie Zhou - Macquarie

Chenyi Lu - Cowen & Company

Ella Ji - Oppenheimer

Grace Lam - Citi

Billy Ng - Bank of America Merrill Lynch

Adam Krejcik - ROTH Capital Partners

Justin Kwok - Goldman Sachs


Kelvin Lau

Hello, everyone, and welcome to our earnings conference call. Our second quarter 2012 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 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 U.S. 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 second quarter 2012 results. Since the first quarter of 2011, overall Chinese market experienced low growth post Chinese New Year holiday season. Previously, manufacturing and export dependent geographic [areas] continued to showing unfavorable year-over-year comparison and overall micro economy continued to be weak with no clear sign to recovery.

Facing such deceleration in the operating environment, the company was able to achieve solid overall performance with double-digit organic revenue growth, continued positive integration results at Motel 168, and increased productivity gain on [second] quarter cost. Total revenues for the second quarter increased 60.2% year-over-year to RMB 1.4 billion, including revenues of RMB 377.4 million from Motel 168. Excluding Motel 168, our core business revenues 18.5% to RMB 1.1 billion at the high end of our guidance.

Despite market softness, occupancy rates was still healthy at 92.1% compared with 94% in the same quarter last year. RevPAR of RMB 157 this quarter compared with RMB 153 in the same quarter last year was consistent with changes in market conditions. It is worth to emphasize that 790 mature hotels under Home Inns and Yitel brands that have been in operation for at least 18 months, maintain the same RevPAR of RMB 168 as that in the second quarter last year. This reflects the strength of our core business portfolio to weather economic downturns and their potential of resilient growth when the market rebounds.

Secondly, what was also encouraging was that our three Yitel brand hotels that opened in the second half of 2011 are tracking positive ramp up performance quarter-over-quarter and contributing to our total top line growth meaningfully. This adds validation to our product design and market position of this upscale brand and it confirms that effectiveness of our motel brand strategy.

Total revenues for Motel 168 came below our previous guidance due to worse than expected market conditions and accelerated overhaul of the food and beverage operations. About 55% of Motel 168 lease-and-operated hotels are located in the Yangtze Delta region, including Jiangsu and Zhejiang province, with relatively more concentrated manufacturing and export dependability impacted by the overall structural form of the China economy.

Net of this fact however, Motel 168 continued to achieve improvement in occupancy rate without decreasing average daily rates. Second quarter occupancy rate for Motel 168 increased to 80.8% from 70.4% in the first quarter of 2012, and from 74.6% in the second quarter of 2011. Our integration efforts are generating positive results. Meanwhile, we furthered our initiatives to restructure Motel 168 food and beverage operations in the second quarter. Part of the room revenue growth was offset by the sharp reduction in food and beverage revenues. The immediate benefit of such initiative were reduced costs associated with an inefficiently stressful structure of food and beverage operations.

We are in the process of ramping a more profitable food and beverage in line with that of the Home Inns brand. On the development front, we opened a total of 103 new hotels, including 32 new lease-and-operate hotels and 71 new franchised-and-managed hotels, of which six were franchised-and-managed Motel 168 hotels. We are on track to open a total of 330 to 360 new hotels in 2012. At the end of second quarter, we have a robust pipeline of 240 fellow hotels contracted or under constructions. Of which, 75 were lease-and-operate hotels and 172 were franchise-and-managed hotels.

Since our rebuilding of development pipeline post-global financial crisis in 2009, we have built a strongest franchise hotel pipeline as of the end of second quarter. We are well prepared to further leverage our proven franchise management program and platforms to maximize our brand value. Franchising is an increasingly important component of our business.

Our membership program continued to strengthen. As of June 30, 2012, the Home Inns group had 9.2 million unique, active non-corporate members. Increase from 4.3 million as of June 30, 2011. 57.8% of room nights were sold to active non-corporate members during the second quarter of 2012. With our integrated member royalty program, our membership will continue to provide a stable revenue base across all our hotel rents.

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