Oppenheimer & Co. lowered its price target on shares of China-based Home Inns & Hotels Management Inc. (NASDAQ:HMIN) to $32 from $38, while maintaining its "Outperform" rating on the stock.
The company's ability to maintain market leadership and growth/margin balance will dictate a further outlook on its valuation heading into 2012. While visibility on the 2012 environment remains low, the brokerage thinks HMIN's current valuation has factored in such uncertainty. "While near-term upside is blurred by low visibility, valuation provides attractive risk/reward profile," Oppenheimer wrote.
Home Inns & Hotels Management leases, manages and franchises economy hotels in China under the Home Inns brand. As of December 31, 2011, HMIN operates a total of 1,426 hotels in 212 cities across China, under the brand names HMIN, Motel 168 and Yitel.
"HMIN is one of our top picks in the China Consumer and Lodging sector given its 1) proven track record of solid execution in chain expansion and operation; 2) fast-growing economy hotel business in China while the market is currently rather fragmented; and 3) the brand's strong national presence, large/loyal customer base and leading market position. The acquisition of Motel 168 should further strengthen the company's leadership to nearly 25 percent of the market versus major competitors' 9 percent -10 percent," Oppenheimer wrote.
The brokerage expects additional upside to be limited as the recovery still appears to be modest, and SMEs now are likely on hold awaiting further directions
from China's new leadership, resulting in low visibility on the business climate outlook. "Outlook is also clouded by China's leadership transition in late 2012, and companies at this point are in "hold" mode awaiting further directions rather than making aggressive moves, we think," the brokerage said.
HMIN reports first-quarter results after market close on May 10, 2012.
American depositary receipts (ADR) of HMIN fell 1.57 percent to trade at $23.79 on Thursday.