HMIN

Homeinns Hotel Group (HMIN)

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

Q2 2013 Earnings Conference Call

August 12, 2013 9:00 p.m. ET

Executives

Johnny Wang – IR Director

David Sun – Chief Executive Officer

Huiping Yan – Chief Financial Officer

Analysts

Justin Kwok – Goldman Sachs

Ella Ji – Oppenheimer

Billy Ng – Bank of America-Merrill Lynch

Lin He – Morgan Stanley

[Eagle Chen] – Brean Capital

Jamie Zhou – Macquarie Research

Ethan Quinn – T.H. Capital

Presentation

Operator

Ladies and gentlemen, thank you for standing by for the Home Inns Group's Second Quarter 2013 Earnings Conference Call.

(Operator Instructions).

I'd now like to turn the call over to your host for today's conference, Johnny Wang, Home Inns Group's Investor Relations Director.

Johnny Wang

Hello, everybody, and welcome to our earnings conference call. Our second quarter 2013 earnings results were released earlier and are available on the company’s website. In addition, we have posted a slideshow presentation on our website which you can download and use to follow along with today's call.

With us today is David Sun, our Chief Executive Officer, and Huiping Yan, our Chief Financial Officer, who will be discussing our performances for the second quarter and outlook for the rest of the year. 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, Mr. David Sun.

David Sun

Thanks, Johnny. Hello everyone and thank you for joining us today to discuss our second quarter 2013 results.

For the second quarter of 2013, overall macro economy environment -- economic environment continued to be soft. While we noted modest increase in leisure travel activities compared to the last year, business travel volume remained weak. Smaller markets facing more challenges compared to the better-established economics in large markets. And a few regions also experienced temporary setbacks due to the avian flu and natural disaster during the quarter. Relative to the high-end hotels, economy hotels were more resilient and the company achieved operating performance comparable to market.

In summary, we met our revenue targets for the quarter. We had a flat ADR year over year and managed occupancy rate decreased to be a minimum and we maintained positive improvement trend at Motel 168 hotels despite market challenges. In addition, it's worth to highlight that the company achieved another quarter of margin expansion year over year driven by effective cost control and productivity gains at leased-and-operated hotels, as well as increase in margin-rich revenues from franchise operations.

Overall occupancy rate for the company was 87% in the quarter compared to 89.2% a year ago, while ADR was held flat year over year at RMB167. As a result, RevPAR decreased modestly by 2% year over year.

For the core business of Home Inns and Yitel, occupancy rate decreased year over year to 88.3% from 92.1% and ADR decreased year over year to RMB168 from RMB170 in the same period of 2012. As a result, RevPAR was down 5% year over year RMB149 compared to RMB157 a year ago. This level of RevPAR decrease was comparable with the peer performance even though the company had a greater exposure to the low-tier markets where the less than mature hotels operations had been more challenging amidst the economy weakness.

Motel 168 hotels on the other hand outperformed the market with increase in both ADR and occupancy rates year over year, rising its RevPAR from RMB129 to RMB132 in the second quarter. The integration of region and city-level hotels operating performance of our two economy hotel brands since November last year enabled better resource leverage and improved execution at Motel 168 hotels.

Furthermore, a total of 33 selected large-scale Motel 168 hotels concluded its new brand conversions and started operation by the end of the second quarter. Overall RevPAR improved due to the better utilization of available rooms for these hotels given different [possession] in the two economy brands with regards to product design and guest preference.

For the total group, 1,420 hotels were in operations for at least 18 months in the quarter. These mature hotels gained RMB1 in ADR year over year to reach RMB171, but lost 1.2 percentage points of occupancy rates to 89.6% from 90.8% a year ago. This resulted, RevPAR fell RMB1 or 0.6% compared to second quarter 2012. Out of the 1,200 China mature hotels, 1,095 were Home Inns and Yitel which experienced a decrease in RevPAR to RMB160 from RBM163 in the second quarter last year. While the ADR increased slightly to RMB174 from RMB173, occupancy rate decreased to 92.1% from 94.6%. In our view, an occupancy rate over 90% was reflective for a relatively resilient and stable operation environment for mature hotels.

Three-hundred-twenty-five mature hotels under Motel 168 brand achieved RevPAR of RMB135 as a result of high occupancy at 82.9% from 81% a year ago. We are confident that Motel 168 will continue to generate a satisfactory turnaround results in the back half of 2013 and contribute positive to Home Inns Group.

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