China has rapidly become one of the top tourism markets in the world for both domestic and international travelers. The country has been steadily building its road, rail, and air infrastructure, which will make travelling in this country much easier.
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.
The China travel industry is driven by a population of over 1.3 billion people and a steadily increasing middle class with money to spend on travel. As wages rise, so will the spending on non-essential items such as travel and recreation.
To handle the expected increase in travel, there is a push to build more hotels and motels across the vast country.
Chinese travel stocks are hot. In the Chinese travel and hotel area, there are numerous operators. These include China Lodging Group, Limited (NASDAQ/HTHT), Home Inns & Hotels Management Inc. (NASDAQ/HMIN), and 7 Days Group Holdings Limited (NYSE/SVN).
All three companies have above-average long-term share appreciation potential. 7 Days Group is interesting due to its better valuation versus the other two rivals. The stock has held up well, recently trading at a new 52-week and record high of $20.97 on October 15.
Founded in 2004, 7 Days Group runs limited service economy hotels that operate under the “7 Days Inn” brand in China. As of March 31, 2010, 7 Days Group operated 346 hotels comprised of 239 leased-and-operated hotels and 107 managed hotels spread across 55 cities. In total, there are about 34,055 rooms, covering 55 cities.
In the second quarter ended June 30, 2010, revenues were RMB373.3 million (55.1 million dollars U.S.), up 24.9% year-over-year.
Adjusted earnings grew to RMB32.1 million (4.7 million dollars U.S.), or $0.09 per diluted American Depository Share (ADS), up from a loss of RMB1.8 million in the year-earlier first quarter, and $0.03 above Street estimates.
The five analysts who follow 7 Days Group estimate that the company will make $0.35 per ADS in 2010, followed by profits of $0.54 per ADS in 2011; both estimates are higher than previous ones.
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.