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Stock-pick Opportunity: China Becoming the Travel Destination of Choice
What you need to know about the Chinese travel industry and some examples of stocks you would want to include in your investment portfolio.
“China is the most attractive place in the world right now for hotels. That’s why investment capital is racing there and why the major international brands are racing there too,” said Patrick Ford, president of U.S.-based Lodging Econometrics, in an article on time.com. China is the fourth top destination for tourism, but is expected to become the number-one destination by 2020, according to the World Tourism Association.
China is predicted to see major growth in its domestic travel from 2011 to 2013, according to a research report, China Tourism Industry Forecast to 2012, by traveldailynews.com.
Online travel bookings in China are estimated at $15.4 billion by 2011, up from $1.5 billion in 2006, according to emarketer.com.
China’s travel industry is driven by the sheer numbers of its 1.3 billion people and rising interest amongst international travelers.
Domestically, as wages increase, so will the spending on non-essential items such as travel and recreation.
To handle the expected increase in travel, there is a concerted effort to build more hotels and motels across this vast country, along with the associated infrastructure.
I continue to favor Chinese travel stocks. My investment advice is to look at the numerous investment opportunities available to you in the Chinese travel and hotel area. Stocks to take a look at include China Lodging Group, Limited (NASDAQ/HTHT;
All three example companies have above-average long-term share appreciation potential and are attractive, but I most like the prospects for 7 Days Group.
Established in 2004, 7 Days Group began trading on the NYSE Global Select Market on November 20, 2009. The initial public offering was for 10,100,000 American Depositary Shares (ADS’s) at $11.00 each.
The company is the third largest national economy hotel chain. It offers limited services under the “7 Days Inn” brand, akin to budget hotels and motels in the U.S. and Canada.
As of March 31, 2011, 7 Days Group operated 619 hotels, up from 568 hotels in the fourth quarter. The coverage area is comprised of 96 cities and 61,795 rooms.
In the first quarter ended March 31, 2011, 7 Days Group reported net revenues at 39.2% higher compared to the same period the prior year, totaling $64.2 million.
Net income for the first quarter of 2011 totaled $0.7 million, or $0.09 per diluted share, a $0.13 per share shortfall from the Street consensus estimates.
There has been a rise in coverage from the Wall Street. The 11 analysts who follow 7 Days Group estimate the company will make around $0.52 per ADS in 2011 followed by profits of $0.81 per ADS in 2012. This is based on a conversion of RMB6.4855 to one USD.
Annual revenues are estimated to grow 34% in 2011 followed by 28% in 2012.
7 Days Group may or may not have the greatest potential of the three stocks. Only time will tell; but what is for sure is that the travel sector in China is a key growth area.
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