Brean Murray, Carret & Co. (BMC) launched research coverage of the China Economy Hotel Industry. In the report, Senior Analyst Fawne Jiang notes that the company has a favorable view on the industry and believes that it is at the onset of a multi-year expansion, bolstered by strong fundamentals.
These include sustainable economic growth, low penetration of branded economy hotels and increasing demand from both leisure and business travel. BMC picks in the space include China Lodging Group (HTHT) and 7 Days Group Holdings (SVN) and assume coverage of Home Inns and Hotels Management (HMIN), all with Buy ratings.
"Compared with their U.S. lodging peers, we believe the top China economy hotel suppliers offer significantly higher growth potential with attractive valuations. We recommend allocating resources to the industry's top performers to those who want to participate in China's solid economic growth and increasing consumer spending," stated Fawne Jiang.
According to the latest industry guidance, the sector is targeted to deliver average annual growth of ~30% over the next three years. Given the cyclical nature of the industry, the expectation is that the sector will grow in tandem with the upward economic cycle and expand at a rapid pace in 2010 and beyond.
"The China economy hotel industry is booming. The recent IPOs of China Lodging Group (March 2010) and 7 Days Group (November 2009) have sparked significant investor interest in the sector. We wanted to be at the forefront of research in this space and introduce these high quality, yet relatively new China ADRs to more investors," stated David A. Dunn, Head of Capital Markets.
While competing in the same industry, the three companies are at different stages of growth, with distinct management focuses and growth strategies. Key highlights include:
