Found a Bug in Home Inns Rujia

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. 

Home Inns and Alibaba update

I got some more Home Inns (HMIN) today. Nothing fundamental has changed at Home Inns, as I said in my previous post.

Separately, Ma Yun, the big mouth at Alibaba, speaks again. We all know he likes to brag about how great will Alibaba become, but this time he is saying “China does not have a pure Internet company”. Duh? How about Baidu?

Home Inns Q1 Results

Here are the results. I listened to Home Inns Q1 conference call (see the scripts here).

Some of the positives:

1) Revenue growth 65% Year over Year. Profit did not follow because of foreign change loss, tax expense and share based compensation. Note the foreign exchange loss won’t be one time as they continue moving the IPO money (in USD) to China (RMB), and you know these days the USD depreciates (wrt RMB) non-stop.

Check into Home Inns HMIN again

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.

Spam Messages from Home Inns HMIN

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.

Home Inns Stock HMIN Looks Scary

I mean the stock for the short term, not the hotel. They reported the Q4 2006 and full year results today. Here is the result. It’s good number, but again the current stock price is way ahead of curve. Going forward they are “going to beep up franchise hotels in Beijing and China”, translated in plain English: franchise hotel does not generate much  revenue, the profit margin may not be as good as leased/operated hotel too. They expect a 60% to 70% top line growth for 2007, which is reasonable. But that may not satisfy the lofty expectation from the Street.

Reserve a Room in Home Inns

There are two ways to reserve a room in Home Inns (Rujia) Or other China Economy Hotels: by phone (400 820 3333 or 800 820 3333) or use the web (or ask your friend as a 3rd way). For Home Inns, my experience is reserve 2 weeks in advance for some of the “hot” locations such as Xu Jia Hui or Century Park in Shanghai. Unfortunately the reservation page is only in Chinese, but I think they have English speaking representatives on the phone. Alternatively you can use Ctrip and search for Home Inns. I used to get RMB 10 off this way.

Jinjiang Inn Hook up with Expedia

Zhao Huan Yan published his January report for China domestic hotels industry. I am interested to learn some update on the economy chain such as Jinjiang Inns. I noticed Expedia, the leading US online travel consolidator, is establishing partnership with Jinjiang Inn. It seems foreigners can use expedia to book the Jinjiang Inn soon.

(Update 04Feb07) I looked up expedia, it appears you can book many 2.5 stars (and up) hotels in Shanghai right now, some of them are belong to Jinjiang group (such as the famous Peace Hotel in Nanjing Rd Bund). Have not seen Jinjiang Inn (or Jinjiang Stars yet).

I vaguely remember the foreigners make up about 7 to 8% of guests for Jinjiang and Home Inns (Rujia). This includes the foreigners already in China. In other words, I don’t expect Expedia Jinjiang partnership to give Jinjiang Inn a huge leg up in this “foreigners market”.

Market Cap of Home Inns HMIN

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.

Home Inns Doubled from Debut

It’s about $44 now. Today IBD published an article about Home Inns. The author’s view is a little too optimistic: as I understand serious domestic competitor includes motel168, besides the Jinjiang Inn. I noticed Jinjiang Inn also offers free broad band Internet now, as this was a key differentiator for Home Inn/Ru Jia in the past. Super 8, the US motel Chain, is also expanding very aggressively in China.