Home Inns Keeps Growth Goal in Slowing Economy: China Overnight

Home Inns & Hotels Management Inc. (HMIN), China’s biggest budget hotel operator, is maintaining its sales growth forecast as leisure travel resists the slowdown in Asia’s largest economy, said Chief Executive Officer David Sun.

The Shanghai-based company, which runs almost 1,500 hotels in more than 220 Chinese cities, is sticking with a forecast of 20 percent revenue increase in 2012 as it plans to add 330 to 360 hotels annually in the coming three years, Sun said yesterday. While room occupancy rate at Home Inns has fallen since November by as much as 3 percentage points, the level is still at 90 percent, the CEO said.

“China’s leisure travels have been rising noticeably since October 2010, taking an increasingly larger part of our customer base,” Sun said in an interview at Bloomberg’s headquarters in New York, “I’m confident about the market growth potential. Especially the next three to five years.”

American depositary receipts of Home Inns posted the longest winning streak in three weeks yesterday, jumping 2.7 percent to $21.42 in New York. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies in New York tumbled 1.5 percent to 88.61, led by a 6.5 percent slump in Elong Inc. (LONG), China’s second-biggest online travel agency. The gauge has retreated 1.5 percent this year.

At least four economists cut their growth estimates for the world’s second-largest economy in the last two weeks, with Daiwa Securities Group Inc. reducing its second-quarter forecast to 7.8 percent from 8.2 percent on June 27. Gross domestic product grew 8.1 percent in the three months to March 30, the least since the second quarter of 2009, as the slowing global economy dragged on the nation’s exports.

‘Sluggish Demand’

“We’ve felt sluggish demand from small and medium business travelers starting in November, especially in export-oriented regions,” Sun said. “We still need to build up our capacity and can’t just stop expanding amid a relative slowdown.”

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., dropped 0.4 percent to $32.49, snapping a two-day rally. The Shanghai Composite Index (SHCOMP) of mainland stocks fell 1 percent to 2,195.84, erasing this year’s gain after losing 7.4 percent this month. The Standard & Poor’s 500 Index of U.S. shares retreated 0.2 percent to 1,329.04.

Home Inns has lost 17 percent this year. That compares with an 8.4 percent slump in 7 Days Group Holdings Ltd. (SVN), the second- largest economy hotel chain operator in China, and a 20 percent rout in China lodging Group Ltd., a budget hotel operator based in Shanghai.

Higher-End Hotels

Leisure travelers will rise from the current 20 percent share of Home Inns’ customers while small business travelers account for about 65 percent, Sun said, adding that the company also plans to open four more higher-end hotels this year and at least six more in 2013. The existing four such outlets, called Yitel, are targeting at middle-class travelers and have an occupancy rate of about 85 percent, he said.

“It takes normally two years to complete a project, and we foresee China’s economy will show more positive growth by the second half of 2013 at the latest. The new government will surely take actions to boost growth” after taking office early next year, Sun said.

The company incurred a net loss of 103.2 million yuan ($16.4 million) for the first quarter, which included a loss of 53.2 million yuan from its acquisition of Motel 168 International Holdings Ltd. in September 2011, it said in a May 10 statement. The company will likely be back into profit in the second quarter, Sun said, adding net income and profit margin this year will be lower than 2011 mainly due to the acquisition.

HiSoft Technology

HiSoft Technology International Ltd. (HSFT), a Chinese software developer which counts General Electric Co. and Microsoft Corp. as customers, dipped 2 percent to $13.50 in New York trading. The Dalian-based company received about half of its sales from the U.S. last year, and about 20 percent from China, Chief Financial Officer Christine Lu-Wong said in a phone interview from Dalian in northeastern China on June 27. Its dependence on the U.S. economy is helping it outperform Chinese peers that rely more on the domestic market, Lu-Wong said.

VanceInfo Technologies Inc. (VIT), a Beijing-based software developer, sank 5 percent to $9.21 after jumping 9.2 percent the previous day. ISoftStone Holdings Ltd. (ISS) slumped for a fifth day, losing 2.6 percent to a $5.55, the lowest level since June 4.

Baidu Inc. (BIDU), China’s biggest online search engine, slid 2.5 percent to $108.62, the lowest level since Oct. 3. Beijing-based Qihoo 360 Technology Co Ltd. (QIHU), which develops computer security software as well as desktop applications, may start a full search service as early as this year, which is a “clear negative” for Baidu, Citigroup analyst Bin Liu said in a research note yesterday. Qihoo fell 1.9 percent to a three-day low of $17.20.

To contact the reporter on this story: Belinda Cao in New York at lcao4@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

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