Home Inns Announces Un-audited Financial Results for the First Quarter 2007
Home Inns & Hotels Management Inc. (NASDAQ:HMIN) , a leading economy hotel chain in China, today announced its un-audited financial results for the quarter ended March 31, 2007.
First Quarter 2007 Highlights
• Total revenues for the quarter increased 65.5 % year-over-year to RMB183.1 million (US$23.7 million).
• Income from operations was RMB15.9 million (US$2.1 million), an increase of 24.9% year-over-year. Excluding share-based compensation charge, income from operations (non-GAAP) was RMB17.6 million (US$2.3 million), up 34.7% year-over-year.
• Net income for the quarter was RMB3.0 million (US$0.4 million). Net income was negatively impacted by non-recurring charge of RMB6.1 million (US$0.8 million) for re-measurement of net deferred tax assets. Excluding this impact, net income (non-GAAP) was RMB9.1 million (US$1.2 million).
• EBITDA (non-GAAP), defined as earnings before interest, taxes, depreciation and amortization, was RMB25.8 million (US$3.3 million), representing a 22.3% increase year-over-year. Excluding foreign exchange losses of RMB6.1 million (US$0.8 million) and share-based compensation expenses of RMB1.7 million (US$0.2 million), EBITDA (non- GAAP) was RMB33.7 million (US$4.4 million), up 56.6% year-over-year.
• Diluted earnings per share amounted to RMB0.04 (US$0.01), and diluted earnings per ADS was RMB0.09 (US$0.01). Each ADS represents two of our ordinary shares. Excluding the non-recurring charge for re-measurement of net deferred tax assets, diluted earnings per share (non-GAAP) would be RMB0.13 (US$0.02) and diluted earnings per ADS (non-GAAP) would be RMB0.26 (US$0.03).
• During the first quarter of 2007, Home Inns opened 11 new hotels. As of March 31, 2007, the Home Inns hotel chain consisted of 145 hotels in operation with an additional 48 hotels under development, covering 53 cities in China.
• Occupancy rate for our Home Inns hotel chain was 86% in the first quarter of 2007, compared with 90% during the same period in 2006 and 90% in the previous quarter.
• RevPAR, defined as revenue per available room, was RMB151, compared with RMB157 in the same period of 2006 and RMB165 in the previous quarter.
'We are pleased with our first quarter results given that we typically experience lower occupancy rates during the Chinese New Year holidays,'' said Mr. David Sun, Home Inn's Chief Executive Officer. ''We are maintaining our leadership position in the economy hotel industry in China and continue to capitalize on our early mover advantage by rapidly expanding our geographic coverage and increasing penetration in existing markets.''
As of March 31, 2007, the Home Inns hotel chain consisted of 97 leased- and-operated hotels and 48 franchised-and-managed hotels in operation, with an additional 36 leased-and-operated hotels and 12 franchised-and-managed hotels under development, covering 53 cities in China. The average number of rooms per hotel in operation is 120.
First Quarter 2007 Financial Results
For the first quarter of 2007, Home Inns reported total revenues of RMB183.1 million (US$23.7 million), representing a 65.5% increase year-over- year.
Total revenues from leased-and-operated hotels for the first quarter of 2007 were RMB174.6 million (US$22.6 million), representing a 60.7% increase year-over-year. The Company opened 3 new lease-and-operated hotels during the quarter.
Total revenues from franchised-and-managed hotels for the first quarter of 2007 were RMB8.5 million (US$1.1 million), representing a 327.0% increase year-over-year. The Company opened 8 new franchised-and-managed hotels during the quarter.
Occupancy rate for the entire Home Inns hotel chain was 86% in the first quarter of 2007, compared with 90% in the same period in 2006 and 90% in the previous quarter. RevPAR in the first quarter of 2007 was RMB151, compared with RevPAR of RMB157 in the same period in 2006 and RMB165 in the previous quarter. The decrease in occupancy rate and RevPAR comparing to the fourth quarter of 2006 was primarily due to the impact of the Chinese New Year which typically results in decreased business travel activities. Compared to first quarter of 2006, we entered into more new cities and second-tier cities in late 2006 and the first quarter 2007. Hotels in these cities usually take slightly longer time to ramp up.
Total operating expenses for the quarter were RMB156.7 million (US$20.3 million). Total operating expenses excluding share-based compensation expenses (non-GAAP) were RMB154.9 million (US$20.1 million) or 84.6% of total revenues, compared to 82.8% in the same period of 2006, and 81.4% in the previous quarter. Factors that led to these changes are discussed in detail below.
Total leased-and-operated hotel costs were RMB136.2 million (US$17.6 million), representing 78.0% of leased-and-operated hotel revenue compared with 76.5% for the same quarter in 2006 and 74.2% for the previous quarter. The percentage increase from the previous quarter was primarily due to the impact of the Chinese New Year, and the percentage increase year-over-year was due to the lower occupancy rate discussed previously, as well as higher number of new leased-and-operated hotels under construction.
Selling and marketing expenses were RMB4.1 million (US$0.5 million), an increase of 144.1% year-over-year and a decrease of 5.1% sequentially. The increase year-over-year was primarily attributable to increases in advertising activities during the quarter.
The first quarter's general and administrative expenses were RMB16.3 million (US$2.1 million). General and administrative expenses excluding share-based compensation (non-GAAP) were RMB14.6 million (US$1.9 million), or 8.0% of total revenues, compared with 6.2% in the same period of 2006 and 8.0% in the previous quarter. The year-over-year increase was primarily due to the increased share-based compensation cost and legal and accounting expenses we incurred as a public company.
Income from operations for the quarter was RMB15.9 million (US$2.1 million). Income from operations excluding share-based compensation expenses (non-GAAP) was RMB17.6 million (US$2.3 million) or 9.6% of total revenues, compared to 11.8% in the same period of 2006 and 12.1% in the previous quarter. The decrease in operating margin was primarily due to 1) the higher leased- and-operated hotel costs as a percentage of leased-and-operated hotel revenues as discussed above, partially offset by the increased mix of franchise revenues which have no direct cost, and 2) increased sales and marking expenses and general and administrative expenses as a public company.
EBITDA (non-GAAP) for the quarter was RMB25.8 million (US$3.3 million). EBITDA was reduced by foreign exchange losses of RMB6.1 million (US$0.8 million) and share-based compensation expenses of RMB1.7 million (US$0.2 million). EBITDA excluding foreign exchange losses and share-based compensation expenses (non-GAAP) increased 56.6% year-over-year, though it decreased by 3.7% from the previous quarter due to the negative impact of the Chinese New Year.
Net income for the quarter was RMB3.0 million (US$0.4 million). Net income was reduced by the non-recurring charge of RMB6.1 million (US$0.8 million) for re-measurement of net deferred tax assets, foreign exchange losses of RMB6.1 million (US$0.8 million) and share-based compensation expenses of RMB1.7 million (US$0.2 million).
On March 16, 2007, the PRC National People's Congress passed the China Corporate Income Tax Law which will reduce the income tax rate for most enterprises from 33% to 25%, effective on January 1, 2008. This is expected to lower our effective tax rate. As a result, net deferred tax assets are expected to be reduced because of the re-measurement at lower enacted income tax rate for most temporary differences that are expected to be recovered or settled in the future. We assessed this impact and recorded in the current quarter a non-recurring charge of RMB6.1 million (US$0.8 million) which represents the total re-measurement impact for net deferred tax assets recognized before January 1, 2007.
Basic and diluted earnings per share amounted to RMB0.05 (US$0.01) and RMB0.04 (US$0.01), respectively, and basic and diluted earnings per ADS were RMB0.09 (US$0.01) and RMB0.09 (US$0.01), respectively. Excluding the non- recurring charge for re-measurement of net deferred tax assets, diluted earnings per ADS (non-GAAP) would be RMB0.26 (US$0.03).
Net operating cash flow for the first quarter of 2007 was RMB23.4 million (US$3.0 million). Capital expenditures for the quarter were RMB55.3 million (US$7.2 million).
As of March 31, 2007, Home Inns had cash and cash equivalents of RMB674.2 million (US$87.3 million). Home Inns completed follow-on offering in May 2007, raising net proceeds of approximately US$48.1 million.
Outlook for Second Quarter 2007
Home Inns expects its total revenues in the second quarter of 2007 to be in the range of RMB228 million (US$29.5 million) to RMB238 million (US$30.8 million). This forecast reflects Home Inns' current and preliminary view, which is subject to change.
Logos, product and company names mentioned are the property of their respective owners.
