Shanghai Jin Jiang International Hotels, China's biggest hotel operator, will spend nearly a quarter of its US$310 million Hong Kong IPO on a face-lift for several of its hotels, the firm's top executive said.
Jin Jiang plans to transform historic landmarks such as the Peace Hotel into a five-star hotel, and expects this to double its average room rate from 900 yuan to 1,800 yuan ($230), the rate at the city's upscale Shangri-La Pudong or Portman Ritz Carlton.
"Peace Hotel accounted for just 5 percent of our revenue. Our revenue will not be affected during the renovation," said Yang Weimin, chief executive officer at Jin Jiang.
Jin Jiang is selling 1.1 billion shares at a price range of HK$1.81 to HK$2.20 per share, representing 24.3 to 29.53 times prospective 2006 earnings.
The institutional portion of Jin Jiang's IPO was more than 10 times covered and will close on Dec. 8. The retail portion of the flotation opens on Thursday with a trading debut set for Dec. 15.
On average, global peers such as Mariott International trade at 26.8 times 2006 forecast earnings. Shangri-La Asia and Mandarin Oriental trade at 35.7 times and 20.4 times prospective earnings, respectively.
Underwriter UBS reckons Jin Jiang is at a 20 percent discount to the average market multiples, as the performance of the firm's hotel assets in Shanghai lags that of international rivals. The bank was also concerned about execution risks related to the upcoming renovation and expansion.
Jin Jiang runs 263 hotels with 51,588 rooms in operation or under development as at the end of October, consisting of 165 budget hotels with plans to expand to about 600 budget hotels by 2010.
Yang expected the Beijing Olympics in 2008, the Shanghai World Expo in 2010, recurring events such as the Formula One Grand Prix, and rising domestic wealth and tourism to drive hotel demand in Shanghai, one of China's richest cities.
Jin Jiang has forecasted its 2006 net profit would come to at least 331.1 million yuan, an increase of 5.8 percent compared with last year. The company recorded 1.45 billion yuan in revenue in the first half of 2006, with 81 percent of that from star-rated hotels and 14 percent from budget hotels. The offering is sponsored by UBS and BNP Paribas .
Source:佚名