Soundless, s inn ivestment report 2010
-
Upload
zheng-qiuming -
Category
Documents
-
view
522 -
download
1
Transcript of Soundless, s inn ivestment report 2010
S Inn Investment Report 2010
Presented April 17th, 2010, East SYSU
1
©2009 Soundless. All Rights Reserved.
10F, 705 Guangzhou South Road
Guangzhou
510290
China
Structure
Industry Overview
Company Competitive Advantage
Finance Highlight
Ratings
2
4
10
15
19
Structure
Industry Overview
Company Competitive Advantage
Finance Highlight
Ratings
3
4
10
15
19
Core Question 1 : Does the industry still have the potential to grow after a
surge of 5 years?
Past: fast-growing market
e.g. Home Inn, S Inn
4Source: Guosen Securities, www.hotelcn.com
1996 2002 2006 2009
e.g. Jin Jiang Inn 3 listed company in America
Period 1: Industry grow slowly
Period 2: Industry expanded rapidly
Period 3: Industry surged
Present: a more crowded market with low
industry entrance barrier
-Strong brands, e.g. Home Inns, Jin Jiang Hotel, S Inn
-Abundant financial recourses
-Outstanding superiority over the ones with smaller scale
-Competing for market leader.
5
High Market Concentration Low industry barrier 2-tier cities competition
-Investment: 4-5 thousand RMB per room and private hotels have the potential to expand.
-100 economic hotel brands in Shanghai
-On a national scale, 32 brands with more than 10 hotels and over 1000 rooms.
-First-tier cities competition becomes fierce
-Home inns dominate the Beijing market while Jin Jiang Hotel & Han Ting Inn, Shanghai market; S Inn,
South China.
-Second-tier cities become the target market.
Future: learn from the experience in America
6
The development of Economic
Hotel in America
Growth Stage: 0~50%
Increase in Economic Hotels
doesn’t cause the decrease in 1-3
starred hotels.
Competition Stage: 50%~100%
The hotels compete fiercely.
Maturity Stage: 100%~200%
Growth in the industry is limited.
50%
100%
200%
Growth Stage
Competition Stage
Maturity Stage
Economic Hotel/1-3 Starred Hotel
Future: still much potential for market growth
7
Average 16%
16%
16% is still at a low level and show much potential for growth.
77%
31%28%
21% 20% 19% 17% 17%14% 14%
9%
Shang Hai
Jiang Su Bei Jing Hu Bei He Nan Guang Dong
Shan Dong
Zhe Jiang Liao Ning Si Chuan Others
Rooms in Economic Hotels/Rooms in Starred Hotels
Future: the economic growth of China support
the development of the economic hotels
8
-China’s Domestic Need will rise at 8.3% from 2007 to 2020
-Urban residents’ tour rate is 166% and the average cost is 907 RMB while the rural resident’ tour rate is 105% and the average cost is 223 RMB
Urbanization Active commercial affairs Government infrastructure
-conferences and exhibition
-SMEs survive after the financial crisis the SMEs can recover from the strike
-The financial crisis also help the economic hotels obtain more market share
-Long-term contracts from the world top 500 corporations
-7 hundred billion allocated by government for 111 projects
-As to railway construction, 6 hundred billion was allocated -The passenger carrying transportation is 2500 km
-The total operating kilometer will be 1.1 hundred thousand km
The answer to the core question 1:
There is still much potential to grow in economic hotel industry according to the
experience of America and the confidence of the economic development in China.
Structure
Industry Overview
Company Competitive Advantage
Finance Highlight
Ratings
9
4
10
15
19
Core Question 2 : How can S Inn outperform the others?
Where is S Inn:
The Second Largest, but not the scale leader
10
123
162
182
238
337
467
Green Tree Inn
Motel
Han Ting
Jin Jiang
7 Days
Home Inn
Hotels
14015
31390
22244
33554
32836
54950
Rooms in Hotels
Source: Innite Consultant, www.inn.net.cn
S Inn
…or the profitability leader…where does S
Inn want to go? Leader!
11
Index Item Number RateCompetitors
Han Ting Home Inn
Scale Index total number of rooms 32,836 4 54950 (1) 22244 (5)
Profitability Index occupancy rate 90% 3 92% (2) 95% (1)
average price ¥187 --- ¥197 ¥228
54.9
252.8
721.4
1141.3
24106
223
337
2006 2007 2008 2009
Revenue (RMB mm) Hotels
S Inn’s scale is still far behind the leader Home
Inn, while Han Ting leads the profitability.
The developing speed of S Inn is the fastest in the
whole industry.
S Inn’s goal is to be the leader.
Strategic resources in growth stage:
Locations & Membership Base
12
City Hotels Rate City Hotels RateBeijing 39 2 Shanghai 26 6Guangzhou 37 1 Shenzhen 29 1Chongqing 14 1 Chengdu 12 1Wuhan 24 1 Changsha 17 1
Market leader in major cities in
southern, central and southwest China
38 2321608
6196
9752
2005 2006 2007 2008 2009
largest and solidest loyal
customer group and revenue
resource.
98% of room nights sold to
members in 2009
Source: Guosen Securities
As of Dec 2009, its number of hotels stands 1st
in 10 cities and 2nd in 8 cities.
Concentrate a superior force to destroy the
enemy forces one by one.
Strategic resources for future maturity stage:
Cost controlling system & Management Group
13
Cost controlling
Scale effects. Standardization came thoroughly and scale expanded. Bargain power increases.
Innovation & Operating System. S Inn’s IT management system and E-commerce system is the top one in the circle.
Management group
The manager group of S Inn is excellent, especially for their marketing talent and executive capability. The best example for their talent is the largest membership base.
The answer to the core question 2:
S Inn is not the leader in the industry, but it owns strategic resources (e.g.
location, membership base, cost controlling system & management group) to
compete in the future.
Structure
Industry Overview
Company Competitive Advantage
Finance Highlight
Ratings
14
4
10
15
19
Core Question 3 : What is behind the fast-growing revenue?
Rapid Growth in Revenue & Increase in
Profitability
15
58.4267.8
765
1210.1
54.9252.8
721.4
1141.3
2006 2007 2008 2009
Gross Revenue Net Revenue
-14.27
-5.67
-3.51-1.93
Return on Assets % Earning Per Share
-8.07%-1.22%
14.87%
-35.72%
-19.31%
6.47%
-48.54%
-29.18%
-9.11%
Gross Margin (%) Operating Margin (%)
Net Profit Margin (%)
Rapid Growth in Revenue06~09 Revenue CAGR of 113.53%
Increase in ProfitabilityNew hotels to contribute to Revenue and Profit
Effective Cost Controls
16
2008 2009 2008* 2009*
Hotel operating costs 730,204 971,550 101.2% 85.1%
Sales and marketing expenses 36,897 30,824 5.1% 2.7%
General and administrative
expenses93,631 65,074 13.0% 5.7%
Total Operating Costs &
Expenses860732 1067448 119.3% 93.5%
*Note: ** cost/ Total Net Revenue
Effective Cost Controls
The ability of cost control is enhancing, as Costs & Expenses of Total Net Revenue
decreases.
Strong Operational Capability, Excellent Debt
Paying Ability …
17
12 MoDec 07
12 MoDec 08
12 MoDec 09
GrowthRate
3 YearAverage
Quick Ratio 0.63 0.72 1.96 172.22% 1.10Current Ratio 1.50 1.14 2.34 105.26% 1.66LT Debt/Equity 4.36 1.28 0.09 -92.97% 1.91Total Debt/Equity 4.61 1.28 0.09 -92.97% 1.99
Strong Operational capability
Quick ratio increased by 172.22% year over year and became larger than 1 and Current ratio
became larger than 2 for the fiscal year 2009.
Excellent Debt Paying Ability
Debt/Equity decreased fast over past three years, especially declined by 92.97% for the
fiscal year 2009 for its IPO in NSC.
The answer to the core question 3:
Behind the fast-growing revenue is its disadvantage of profitability. Despite of this, S Inn
Holding’s profitability has been increasing significantly. We also find its Effective Cost
Controls, Strong Operational capability & Excellent Debt Paying Ability in the key
statistics.
Structure
Industry Overview
Company Competitive Advantage
Finance Highlight
Ratings
18
4
10
15
19
Valuation Analysis: Core Hypothesis &
DCF Valuation
19
Core Hypothesis & Logic
We hold the opinion it will have a fast growth in the recent five years and then
forecast a long term stable growth of 5% in the future.
Measurement: DCF Valuation(FCFE)
Discounted FCF To Equity
in the future
Revenues Estimated
Net Income Estimated
FCF To Equity Estimated1
Sensitivity Analysis
Discounted Cash Flow Valuation2
3
4
5
6
20
Revenues Estimated
History Forecast
2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E
Revenue
(RMB)54,900,000.0
0
252,800,000.
00
721,400,000.0
0
1,141,300,00
0.00
1,875,964,
436.83
2,686,478,
945.46
3,494,434,1
27.15
4,245,843,0
96.23
4,904,601,7
04.13
Growth Rate 360.47% 185.36% 58.21% 64.4% 43.2% 30.1% 21.5% 15.5%
Revenue/Reve
nue Calculated145.4722647181.0457809 260.0181546 326.3467288 367.97 389.09 398.02 401.22 402.19
Growth Rate 24.45% 43.62% 25.51% 12.75% 5.74% 2.30% 0.80% 0.24%
Revenue
Calculated377391.52621396331.904 2774421.66 3497200.674
5098131.7
13
6904501.7
41
8779460.61
610582277.2
12194760.5
8
RevPAR(RMB) 151.53 139.20 140.89 139.96 138.56 137.17 135.80 134.45 133.10
No. Of Rooms
In Operation2678 11399 22352 28266 438123 63089.712
85297.2906
2
109317.007
7
133943.943
2
Occupancy
Rate(%)93.00% 88.00% 88.10% 88.40% 83.98% 79.78% 75.79% 72.00% 68.40%
Net Income Estimated
Operating Income = Revenues - Hotel operating costs –
Selling, General & Admin Expenses, Total
Net Income= Operating Income + Net interest expense – Income
Tax Expense
21
2010E 2011E 2012E 2013E 2014EOperating Income
350,689,306 800,321,344 1,191,676,560 1,472,763,696 1,611,319,168
2010E 2011E 2012E 2013E 2014ENET INCOME 306,554,840 731,805,277 1,098,842,732 1,361,125,511 1,488,003,210
FCF To Equity Estimated
22
History Forecast
2007 2008 2009 2010E 2011E 2012E 2013E 2014ENet
Income -122700000-210500000-104000000 306,554,840 731,805,277 1,098,842,732 1,361,125,511 1,488,003,210
Depreciati
on 33800000 123500000
130,017,996
.16 1,341,933,962 1,412,356,774 1,486,475,277 1,564,483,414 1,646,585,310
FCInv 3.38E+13 1.235E+14
1.30018E+1
4 561,964,616 661,803,011 779,378,652 917,842,732 1,080,906,281
WCInv 553,019,197 785,254,601 1,037,737,186 1,263,386,694 1,417,701,511
FCFE 533,504,988.62 697,104,439.4 768,202,170.53 744,379,500.11635,980,727.81
Free Cash Flow To Equity = Net Income + Depreciation – Fixed Capital Investment— Working Capital Investment
Discounted Cash Flow Valuation
23
Assumption Data
Long-Term Growth Rate 5.00%
Risk Free Rate 4.00%
β(βlevered) 2.10
Rm 9.00%
Ke 14.50%
FCFE Valuation PV of Cash Flow(RMB)
First Stage 1,371,043,103.45
Second Stage (FV) 4,255,264,606.63
Value of Equity 5,626,307,710.08
Shares 50,280,000.00
Fair Value(RMB) 111.90
6.83
Fair Value(USD) 16.39
Stage 1 2010E 2011E 2012E 2013E 2014E
FCFE 495,362,388.62 670,404,619.40 749,512,296.53 731,296,588.31 626,822,689.55
Sensitivity Analysis
24
Results of
Sensitivity
Analysis
(USD)
Long-term Growth Rate(g)
Ke 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
9.50% 21.11 21.99 22.98 24.12 25.44 26.98 28.79 30.97 33.63
10.00% 20.07 20.84 21.71 22.69 23.81 25.11 26.62 28.40 30.54
10.50% 19.15 19.83 20.58 21.44 22.40 23.51 24.78 26.26 28.02
11.00% 18.32 18.92 19.59 20.33 21.17 22.12 23.20 24.46 25.92
11.50% 17.57 18.10 18.69 19.35 20.08 20.91 21.84 22.91 24.14
12.00% 16.89 17.36 17.89 18.47 19.12 19.84 20.65 21.57 22.62
12.50% 16.27 16.69 17.16 17.68 18.25 18.89 19.60 20.40 21.30
13.00% 15.70 16.08 16.51 16.97 17.48 18.04 18.67 19.36 20.15
13.50% 15.17 15.52 15.90 16.32 16.78 17.28 17.83 18.45 19.13
14.00% 14.69 15.01 15.35 15.73 16.14 16.59 17.08 17.63 18.23
14.50% 14.24 14.54 14.85 15.19 15.56 15.96 16.40 16.89 17.42
Ratings: BUY
25
Fair Value (RMB) 111.9
BUYFair Value (USD) 16.39
Closing Price (USD) 11.220
BUY >15% upside from the current priceHOLD Trade within +15% from the current priceSELL >15% downside from the current price
Exchange Rate: 6.8261 (PBOC), 14th/Apr/2010
>15% upside
Rating system
Summary
26
Industry OverviewCore Question 1: Does the industry still have the potential to grow after a
surge of 5 years?
-Past: Fast-growing market
-Present: A more crowded market with low industry threshold
-Future: Still much potential for market growth
1
2
Company Competitive AdvantageCore Question 2: How can S Inn outperform the others?
-The Second Largest, but not the scale leader or the profitability leader
-Strategic resources in growth stage: Locations & Membership Base
-Strategic resources for maturity stage: Cost controlling system& Management Group
Compete in the Future
3
Financial HighlightCore Question 3: What is behind the fast-growing revenue?
-Rapid Growth in Revenue & Increase in Profitability
-Strong Operational capability, Excellent Debt Paying Ability & Effective Cost Controls
4Ratings-Based on our valuation using the DCF Valuation (FCFE), we recommend to BUY.
Thank YouPresented April 17th, 2010, East SYSU
27©2009 Soundless. All Rights Reserved.