Home Inns & Hotels Management Inc. (HMIN)

Stock of the Day
Home Inns & Hotels Management Inc.
Tuesday’s Opening Price: HMIN – $33.50

Sector: Leisure
Industry: Hotels and Motels
52-week Price: $21.50 – $49.50

My Take:
The stock blasted 7.51% higher yesterday on above average volume as it confirmed the move above the down-trend line and recovered the 50-day moving average for the first time since late February. As you will read below, the earnings released yesterday were positive and revenues increases by 65% (year-over-year).

The young stock has not formed a 200-d m.a. to date so we can only use the data available to make a trading decision. The recovery of the 50-d m.a. is positive and gives us the green light to set-up a trade and take a potential position. Ideally, the position should have been initiated near $34 but I had to wait until earnings were released, especially for a China based stock (the risk levels are increased with companies from this country).

Institutional support is increasing (see figures below) and most fundamental categories look solid. The P/E ratio is extremely high but that doesn’t scare me too much. High growth will cost more but it is an indicator to keep an eye on. I wouldn’t expect a value investor to give this stock a second look based on P/E alone.

Potential Trade Set-up:

• I would risk between 0.005% and 0.01% of your total portfolio
• My ideal entry would be near $34.
• Set a stop loss of 10% (near $30.60).
• Target price will be about $42 or the 61.8% Fibonacci level on the weekly chart. An aggressive target will be a full retracement to close the cup shaped pattern above $46.
• At $42, the risk-to-reward will be just above 2-to-1 (not great)
• At $45+, the risk-to-reward rises above 3-to-1 which is what we want as a minimum.

So, a $100,000 account will give you
Entry: near $34
1% Risk: $1,000
Stop Loss: 10%
Position Size: $10,000
Shares: 290
Stop Loss: $30.60
Target: $42-$45

5/21/07: First Quarter 2007 Financial Results
For the first quarter of 2007, Home Inns reported total revenues of RMB183.1 million (US$23.7 million), representing a 65.5% increase year-over- year.

Total revenues from leased-and-operated hotels for the first quarter of 2007 were RMB174.6 million (US$22.6 million), representing a 60.7% increase year-over-year. The Company opened 3 new lease-and-operated hotels during the quarter.

Total revenues from franchised-and-managed hotels for the first quarter of 2007 were RMB8.5 million (US$1.1 million), representing a 327.0% increase year-over-year. The Company opened 8 new franchised-and-managed hotels during the quarter.

Net income for the quarter was RMB3.0 million (US$0.4 million). Net income was reduced by the non-recurring charge of RMB6.1 million (US$0.8 million) for re-measurement of net deferred tax assets, foreign exchange losses of RMB6.1 million (US$0.8 million) and share-based compensation expenses of RMB1.7 million (US$0.2 million).

Institutional Analysis:
Held by Institutions: 14.95%
Money Market: 49
Mutual Fund: 28
Other: 1

Shares Held: 4.86M
Shares Held Previous Period: 0.53M

Shares Bought: 4.68M
Shares Sold: 0.35M
Value of Shares Bought: $166.0M
Value of Shares Sold: $12.5M

Top Institutional holders, Shares Held:
Driehaus Capital Management, Inc., 869,833
First State Investment Management Uk Ltd., 451,000
Gilder, Gagnon, Howe & Co., 449,667
Schroder Investment Management Group, 431,800
Fidelity International Ltd (Bermuda), 319,200

Key Fundamental Numbers:
Market Cap.: $1.2B
Outstanding Shares: 34.7M
P/E (TTM): 162.84 (wow)
P/E (Forward): 140.42 (another wow)
Price to Sales Ratio: 17.38
Price to Book Ratio: 10.26
Gross Profit Margin: 27.2%
Operating Profit Margin: 13.45%
Net Profit Margin: 9.36%
EPS Growth: 26.45%
Revenue Growth: 80.29%

3-Year Earnings per Share Rate: 91%
3-Year Sales Rate: 240%

Earnings:
Yearly (2008): 0.53E
Yearly (2007): 0.27E
Yearly (2006): 0.05