China Lodging Rally to Wane After Jump, Oppenheimer Says

China Lodging Group Ltd., the hotel operator that posted the second-biggest advance among Chinese stocks traded in the U.S. today, won’t sustain its rally as the nation’s economic rebound is yet to flow through to the hospitality sector, according to Oppenheimer & Co.

The budget hotel chain company has climbed 11 percent over the past four trading days as data last week showing exports rose more than economists anticipated in December bolstered Chinese assets. China Lodging jumped 4.9 percent to $18.80 in New York, the highest price since July 2011 amid volumes more than eight times the daily average over the past three months. It was the second-best performer on the Bloomberg China-US Equity Index of the most-traded Chinese companies in the U.S.

Investors should “take profits” on China Lodging stock at these levels, said Ella Ji, an Oppenheimer equity research analyst in New York who has rated China Lodging the equivalent of buy since 2011. While signs Chinese trade is picking up after the nation’s seven-quarter slowdown are positive for growth in business-related hotel guests, near-term results for China Lodging may not reflect that, Ji said.

“We haven’t noticed a surge in these customers’ activities yet in our channel checks, and in reality if you look at the numbers probably you wouldn’t see those happening in the first quarter,” Ji said by phone today. “Given that the stock has really jumped quite significantly, we would suggest taking profits at this level.”

Cold Weather

China Lodging, which runs the nation’s fourth-largest economy hotel chain, said in a Jan. 11 statement that preliminary fourth quarter results showed a 2 percent increase in revenue per available room in hotels in operation for at least 18 months. Total revenue per available room declined 3 percent over the period a year earlier.

The Shanghai-based company’s earnings may also be affected by China’s coldest winter in 28 years, should power costs rise, Ji said. Sales rose to 3.2 billion yuan ($514 million) in 2012, according to the median of nine analysts’ estimates compiled by Bloomberg, from 2.25 billion yuan in 2011.

“We will maintain our outperform rating because we are optimistic for 2013 overall,” she said. “In the near-term, there could be some downside surprises to the margins. Wait for a pullback to build your positions again.”

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