Why China Is Hot for Travel Stocks

Chinese economyChina is 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 that will make travelling 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 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.

The country 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.

China’s growth and travel industry are 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.

There is also a rising wave of foreign travelers that have made Asia and China premier travel destinations.

To handle the expected increase in travel, there is a push to build more hotels and motels across the vast country.

In the Chinese travel and hotel area, there are numerous operators that have excellent potential for the aggressive investor looking for growth areas.

Some of my favorite Chinese travel stocks 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 take a closer look at 7 Days Group today.

7 Days 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 December 31, 2011, 7 Days Group operated 944 hotels, up from 568 hotels a year earlier. The company has another 234 hotels under development. Currently there are 94,684 hotel rooms in 141 cities.

In 2011, the occupancy rates were between 81.5% and 87.9%, depending on the hotel.

The nine analysts who follow 7 Days Group estimate that the company will make $0.59 per American Depositary Share (ADS) in 2010, followed by profits of $0.82 per ADS in 2011, which are both higher than previous estimates. Revenues are predicted to grow 31.2% in 2012 and 24.4% in 2013.

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.

Want to know some of the top U.S. restaurant stocks that are in China? Read about my ideas in The Top Three Restaurant Stocks in China.