HMIN

Home Inns & Hotels Management Inc. (HMIN)

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Industry: Consumer Services
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Home Inns & Hotels Management Inc. (HMIN)

Q3 2012 Earnings Call

November 13, 2012 8:00 p.m. EST

Executives

Ethan Ruan – IR Manager

David Sun – Chief Executive Officer

Huiping Yan – Chief Financial Officer

Analysts

Ella Ji – Oppenheimer

Billy Ng – Bank of America Merrill Lynch

Jamie Zhou – Macquarie Research

Fawne Jiang – Brean Murray

Justin Kwok – Goldman Sachs

Presentation

Operator

Ladies and gentlemen, thank you for standing by for Home Inns Group's third quarter 2012 earnings conference call.

At this time all participants are in 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 turn the call over to your host for today's conference, Ethan Ruan, Home Inns Group's Investor Relations Manager.

Ethan Ruan

Hello, everyone, and welcome to our earnings conference call. Our third 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 performances for the past quarter. After their 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 Group 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 Group's 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 third quarter 2012 results. We are pleased to have achieved another quarter of solid results. We experienced normal seasonality during the third quarter. The broad operating environment remained subdued and there has been no clear sign to recovery. Our core business delivered stable performance despite absence of systematic pricing increase.

Integration of Motel 168 generated another set of continued operating metrics improvement. Yitel brand of hotels are establishing healthy development framework and operating [lesson]. Our cost control and productivity initiatives at both hotel level as well as corporate level are effectively addressing rising costs and helping to protect margins. And we expect to exceed our new hotel opening targets for the full year driven by strong and mature programs of franchised-and-managed hotels. The company is well-positioned to leverage its solid business fundamentals to navigate through challenging time and to capitalize on the long-term growth prospects within the travel and lodging industry in China.

Turning to specific results, total revenues for third quarter increased 61.8% year over year to RMB1.6 billion. Our organic revenue reached RMB1.2 billion, a 21.4% growth year over year, exceeding our previous guidance. The uneven market condition throughout China, depending on the level of concentration of manufacturing industries and the maturities in economic development, presents challenges as well as opportunities for us to operate [homogeneous] hotel products. We see the price opportunities driven by seasonality and events in relatively strong markets and effectively managing the yield between price and occupancy rate in soft market -- in soft markets.

Occupancy rate of the core business was still relatively high at 92.7% compared with 94.1% in the same quarter last year. And the RevPAR of RMB164 this quarter compared with RMB169 a year ago was in line with market conditions. Excluding Motel 168, 833 mature hotels that have been in operation for at least 18 months achieved RevPAR of RMB177, flat from last year. By end of the third quarter, we had six hotels operating under the midscale Yitel brand, four of which have been operation for nine months or less. The overall occupancy rate for the Yitel was 89.2% in the third quarter. We are very encouraged by the development of the Yitel framework and excited about its future to further our multi-brand strategy.

Total revenue for Motel 168 was RMB398.9 million in the third quarter, coming at the high end of the revenue guidance. Occupancy rate and average daily rate continued to increase, taking advantage of seasonality as well as incremental benefit from integration efforts. The core branded operation armed to address the challenging of large-scale hotels is showing positive results, with double-digit increase in RevPAR by the entire base during the preliminary testing period. Based on this initiative success, we have identified another 15 to 20 locations to gradually adopt this conversion in the next six months.

The restructuring of Motel 168 to food and beverage operation had been consolidated with co-branded initiatives. To further update everyone to Motel 168 integration, I'm pleased to report that as of November 1, Motel 168 and the core Home Inn brands will consolidate to form the economy hotels, led by our Chief Operations Officer. After the first stage of stabilization and foundation building, this reorganization is another step forward in our integration plan to fully leverage the company's institutional strengths and maximize resource utilization at regional and city operation levels to drive execution effectiveness.

Read the rest of this transcript for free on seekingalpha.com