Why China’s Travel Market Is Attractive

China has rapidly become one of the top travel markets in the world for both domestic and international travelers. To deal with the increased travel, China has been steadily building its road, rail and air infrastructure to make traveling in this country much easier.

“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 www.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 to be at $15.4 billion by this year, up from $1.5 billion in 2006, according to emarketer.com.

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China’s 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 increase, 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 in favor. 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, but I will just take closer a look at 7 Days Group today.

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) at $11.00 per ADS.

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 September 30, 2010, 7 Days Group operated 461 hotels, up from 283 hotels a year earlier. The company also has another 201 hotels under development. Currently, there are 46,293 hotel rooms in 75 cities. 7 Days Group also has another 51 hotels under conversion.

In the third quarter ended September 30, 2010, 7 Days Group reported net revenues 30.9% higher compared to the same period the prior year, totaling 60.6 million dollars. Income from operations totaled $9.8 million.

Finally, net income for the third quarter of 2010 totaled $8.9 million, or $0.18 per diluted share, $0.04 above estimates.

We have seen a rise in coverage on this stock from Wall Street. The nine analysts who follow 7 Days Group estimate that the company will make $0.42 per ADS in 2010, followed by profits of $0.65 per ADS in 2011, which are both higher than previous estimates. Revenues are predicted to grow 36.1% in 2010 and 35.5% in 2011.

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.