INITIATIONREPORTChina:Consumer:LodgingMay26,2010FawneJiang,212-702-6621Fawne.Jiang@bmur.comIt’sTimetoCheckin:InitiatingCoverageoftheChinaEconomyHotelIndustryBreanMurray,Carret&Co.UniverseCompaniesMentionedinThisReportCompanyTickerRatingPriceTarget10EAdj.EBITDA(mm)11EAdj.EBITDA(mm)HomeInnsandHotelsManagementInc.HMINBuy$34.58$42.00RMB728.9RMB889.6ChinaLodgingGroup,Ltd.HTHTBuy$14.20$18.00RMB341.7RMB508.07DaysGroupHoldingsLtd.SVNBuy$10.99$16.00RMB312.9RMB444.9InvestmentSummaryWeinitiatecoverageoftheChinaeconomyhotelindustrywithafavorableview,asweseelong-termseculartrendsaswellasshort-termcatalysts.TheChinaeconomyhotelindustryis,inourview,attheonsetofamulti-yearexpansion,bolsteredbystrongfundamentals.Theseincludesustainableeconomicgrowth,lowpenetrationofbrandedeconomyhotelsandincreasingdemandfrombothleisureandbusinesstravel.ComparedwiththeirU.S.lodgingpeers,webelievethetopChinaeconomyhotelsuppliersoffersignificantlyhighergrowthpotentialwithattractivevaluations.TheeconomyhotelindustryisoneofthemostdynamicsectorsintheChinaconsumerspace.TothosewhoarelookingforopportunitiestoparticipateinChina’ssolideconomicgrowthandincreasingconsumerspending,werecommendallocatingresourcestotheindustry’stopperformers.WeinitiatecoverageofChinaLodgingGroup(HTHT)and7DaysGroupHoldings(SVN)andassumecoverageofHomeInnsandHotelsManagement(HMIN),allwithBuyratings.Long-termoutlook:Solidfundamentalsforamulti-yearexpansion,withsubstantialroomformultiplebrandstogrow.Accordingtothelatestindustryguidance,thesectoristargetedtodeliveraverageannualgrowthof~30%overthenextthreeyears.Giventhecyclicalnatureoftheindustry,weexpectthesectortogrowintandemwiththeupwardeconomiccycleandexpandatarapidpace.Whileweexpectcompetitionwillintensifyoverthenextfewyears,webelievethereissubstantialroomformultipletopbrandstogrowandthrive.2010:StronggrowthfueledbyunitadditionsandRevPARrebound.WithChina’seconomicgrowthbackontrackandimprovingaccesstofinancialresources,weexpectanindustry-widee