China Tracker - Details for China Lodging Group (HTHT)


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 China Lodging Group
 Analyst Coverage
2011-08-22Goldman SachsUpgradeConviction Buy$27.00
2011-08-17Morgan StanleyReiterationOverweight$24.00
2011-08-16Goldman SachsReiterationBuy$26.50
2011-08-15J.P. MorganReiterationOverweight$26.50
2011-08-11Roth CapitalReiterationBuy$25.00
2011-08-01OppenheimerReiterationOutperform$27.00
2011-07-05BNP ParibasReiterationBuy$25.20
2011-06-10Roth CapitalReiterationBuy$25.00
2011-05-11Brean MurrayReiterationBuy$26.00
 

We believe HTHT is a robust 2012 growth story offering appealing investment opportunities for long-term investors. As a result, we maintain our Buy rating and raise our 12-month target price to $26. Our target price represents 15x of our 2012 EBITDA estimate of RMB686 million. We expect significant value to be unlocked from the stock within 12-month time frame, as the company will deliver robust margin expansion on the back of strong revenue growth in 2012, which offers significant valuation expansion down the road. We are currently modeling 30% revenue growth in 2012 with adjusted EBITDA growth of 52% as a result of margin expansion.

2011-05-11Roth CapitalReiterationBuy$25.00
 

We are lowering our 2Q'11 net rev to $83.0M (previously $90.0M), adj EBITDA of $17.4M (previously $20.7M), and adj EPADS to $0.13 from $0.17. For CY11, we expect net rev of $350.6M (+32.1% y/y) vs. our previous est. of $360.4M, adj EBITDA of $64.0M/18.3% margin (previously $74.1M/20.5% margin), and adj EPADS of $0.40 (previously $0.56). For CY12, we assume net rev of $472.6M (previously $488.2M), adj EBITDA of $108.2M/22.9% margin (previously $120.5M/24.7% margin), and adj EPADS of $0.86 (previously $1.04). Upside drivers include: favorable macro-environment, quicker-than-expected ramp-up of new hotels, and higher contribution from FM hotels.

2011-05-03OppenheimerReiterationOutperform$27.00
2011-03-14Morgan StanleyReiterationOverweight$25.00
2011-03-10Brean MurrayUpgradeBuy$22.00
 

HTHT shares have come down 35%+ from its recent high upon investors’ concerns on a dampened growth outlook post World Expo. Yet management provided upbeat 2011 guidance with revenue expected to grow 34%-38% YoY. Factoring in a World Expo premium of 6.4% in 2010, the normalized growth for 2011 would have been 40%+. The robust guidance showcased management’s strong execution capability. While we expect a much more moderate paced EBITDA growth due to margin erosion in 2011, we believe there is significant value to be unlocked within a 12-month time frame. Looking beyond 2011, we will likely see robust margin expansion on the back of strong revenue growth in 2012, which offers an estimated 40%+ valuation expansion down the road. As a result, we upgrade the stock to a Buy rating from Hold and set our target price at $22, implying 23% upside potential from the current level. In our view, HTHT has the most solid fundamentals among its peers and offers an appealing investment opportunity.

4Q results: revenue light with EBITDA beat. Net revenue came in at RMB453 million, above the low end of guidance, yet short of consensus. Adjusted EBITDA was RMB85 million, beating the Street estimate by 8 million. In the quarter, HTHT opened 43 leased-and-operated (L/O) hotels and 27 franchised-and-managed hotels (F/M) with an additional 69 L/O hotels and 93 F/M hotels in the pipeline.

Upbeat 2011 FY guidance; soft 1Q11 guidance suggests backend loaded growth. On the back of a strong 2010 (partially driven by World Expo), management provided upbeat FY 2011 guidance with revenue growth of 34%-38%. 1Q11 revenue guidance was in the range of RMB410-430 million, implying 20%-26% YoY growth. The light 1Q11 growth suggests backend loaded growth in 2011, which is reflected by its 2H10 concentrated store openings. Recall that HTHT opened 70 L/O hotels in 2010, with 80% of stores opened in 2H10. It normally takes three-six months for new hotels to mature and contribute to top-line growth.

Expect moderate EBITDA growth in 2011 upon margin erosion. Despite the prospect for robust top-line growth, we expect HTHT will experience margin pressure upon: 1) tough World Expo comps (~RMB81 million additional EBITDA in 2010), 2) higher pre-opening costs as a result of higher L/O target (100 in 2011 vs. 70 in 2010), and 3) a hotel portfolio with a relatively larger proportion of young hotels (43 new L/O hotels in 4Q10 and ~100 new hotels in 2011), which could further dilute the margins as new hotels take time to ramp up.

2011-03-10Roth CapitalUpgradeBuy$22.00
 

We are upgrading shares of HTHT to BUY from NEUTRAL following Q4 results that came in ahead of our estimates and CY11 guidance that was in-line with our assumptions. Our upgrade is driven by 1) positive sector view (we also have BUY ratings on HMIN and SVN) and 2) the fact that our CY11 EBITDA est's are relatively unchanged. Heading into earnings our biggest concern was that our margin assumptions were too aggressive and while management did not provide specific guidance we feel comfortable with our 20.5% adj EBITDA margin (-500 bps y/y).

2011-02-22Roth CapitalReiterationNeutral$22.00
 

We are slightly increasing our revenue estimate to $355.9M (previously $352M), or up +36.1% y/y. However, we are reducing our EBITDA and EPADS estimates to reflect higher pre-opening expenses and greater dilution from new openings. Additionally, we previously underestimated just how much Shanghai Expo helped inflate margins in CY10. The net result is adj EBITDA margin of 21% (down -340 bps y/y) or $74.6M, versus consensus at $81.2M. Note we assume HMIN adj EBITDA margins decline -550bps y/y and SVN down -40 bps y/y.

2010-12-10Bank of AmericaInitiationBuy$24.90
2010-11-23J.P. MorganInitiationOverweight$26.50
2010-11-11OppenheimerReiterationOutperform$27.00
2010-11-09Brean MurrayDowngradeHoldn/a
 

China Lodging reported a solid quarter with net revenue beating the high end of its guidance by RMB26 million and adjusted EBITDA ahead of our estimate by RMB5 million. With strong results from the first three quarters, the company raised its full year guidance from 35%-37% to 38%-39%. In addition, management provided an accelerating leased-and-operated hotels opening schedule in 2011, which, in our view, bodes well for its growth. That said, the stock has gone up 60%+ since our initiation on May 26, 2010, benefiting from the growth premium largely driven by Shanghai World Expo. Based on our current estimates, China Lodging is trading at 15x of our 2011 adjusted EBITDA estimates of $80 million (with $188 million net cash by 3Q), on par with the average US lodging valuations and the peak of the China lodging valuation cycle. While we are a strong believ er in the long-term growth of China's economic hotel sector and management's strong execution, we believe the current price reflects a fair valuation given China Lodging's current growth profile. It is time to take a breather and wait for a better entry point. As a result, we are downgrading China Lodging to Hold from Buy.

China Lodging reported a solid quarter. Net revenue came in at RMB506 million, beating the high end of its guidance by RMB26 million, implying 48% YoY growth. Adjusted EBITDA margin was 30.3%, higher than our preview estimate of 29%. EBITDA margin excluding pre-opening expenses was 37.3%, largely on par with that of 2Q10. As a results, adjusted EBITDA came in at RMB153 million, topping our estimate of RMB148 million.

China Lodging opened 13 leased-and-operated (L/O) hotels and 31 franchised-and-managed (F/M) hotels in 3Q10. As of 3Q10, the total number of hotels was 368 with 200 L/O and 168 F/M hotels. The company expects to open ~30 L/O and ~25 F/M hotels in 4Q10, making total hotels added in 2010 in the range of 185-195. At the end of 3Q10, there were 76 L/O and 91 F/M hotels in the pipeline. Given the pipeline as of 3Q10, we believe China Lodging is on track for its store opening schedule in 2010.

Raising guidance for 2010; providing accelerating L/O hotels opening in 2011. With strong results from the first three quarters, management raised its full year guidance from 35%-37% to 38%-39%. For 4Q10, net revenue was guided in the range of RMB450-RMB470 million vs. our prior estimate of RMB462 million. In addition, management provided a store opening schedule for 2011: 180-200 hotels in total with 50% L/O hotels. In our view, the accelerating L/O hotels opening schedule in 2011 bodes well for its growth, as it could help to partially offset the high bar for growth World Expo premium has set in 2010. We leave our 4Q10 net revenue largely unchanged at RMB 462 million, but raised our adjusted EBITDA from RMB98 million to RMB104 million. Our new 2011 revenue and adjusted EBITDA estimates are RMB2,301 million and RMB538 million, respectively. 

2010-11-09Roth CapitalReiterationNeutral$22.00
2010-11-09Goldman SachsReiterationBuy$31.00
2010-11-08OppenheimerReiterationOutperform$23.50
2010-11-02Brean MurrayReiterationBuy$21.00
2010-10-28Roth CapitalInitiationNeutral$25.00
 

Despite our optimistic outlook towards the economy hotel sector, we believe shares of HTHT are fairly valued. In our opinion, shares of HTHT are already factoring another beat-and-raise quarter, trading at a 15% premium to HMIN and SVN, despite our Street-high estimates. As such we advise investors to look for more attractive entry points.

2010-09-21BNP ParibasInitiationHold$22.60
2010-07-30Brean MurrayReiterationBuy$21.00
 

With renewed guidance we raised our 3Q10 net revenue and adjusted EBITDA estimates to RMB478 million and RMB140 million and 2010 net revenue and adjusted EBITDA estimates to RMB1,720 million and RMB442 million, respectively. Our new 2011 revenue and adjusted EBITDA estimates are RMB2,402 million and RMB568 million, respectively. We use EV/EBITDA multiples for our valuation of lodging sector companies. We are raising our target price to $21 from $18, implying 19% upside from the current level. Our target price represents 13x our adjusted EBITDA estimate of $84 million (with $181 net cash as of 2Q), on par with the average U.S. lodging valuations.

2010-07-30OppenheimerReiterationOutperform$20.00
2010-07-30Goldman SachsReiterationNeutraln/a
2010-06-01Morgan StanleyUpgradeOverweightn/a
2010-05-26Brean MurrayInitiationBuy$18.00
 

With a clear niche positioning to capture the growing demand of the mid-level business travelers, China Lodging has a focused growth strategy through selecting prime store locations and building its premium brand, which has enabled the company to command higher RevPAR. With a relatively young fleet of hotels and an aggressive expansion plan, we believe the company is on a fast growth track over the next few years.

2010-05-13OppenheimerInitiationOutperform$17.00
HTHT
Travel
SCORE
6
READ: Score Cards Explained
SAFETY/RISK SCORE
HIGH SAFETY
DETAILS: Safety/Risk Model for HTHT
Current Price:  n/a
F10k Day (2010-03-26): -100.00%$13.92
2010 Close: -100.00%$21.78
2011 Close: -100.00%$14.20
High (2012-10-18): -100.00%$17.55
Low (2012-07-12): -100.00%$10.51
Exchange:
Market Capitalization: n/a
Total Shares: 61.88 mill
Float: n/a
Avg Volume: 158.20 k
Short Interest: 2.24 mill
Short Ratio: 1.13%14.2 d
Last Quarter: 2010-09-30
Revenue (MRQ): 75.64 mill
Net Income (MRQ): 13.26 mill
Op. Cash Flow (MRQ): 24.50 mill
all financial data provided without warranty