We expect demand to be weaker in 2012
but far more resilient than in 2008-09
 Our proprietary model suggests supply
risk in China is rising. We identify
oversupplied regions in this report
 Prefer Mandarin Oriental for its well
placed hotels (virtually no exposure to
China) and better expansion strategy
Minimal signs of a slowdown based on our recent
discussions with hotel-related groups, public hotel data and
premium airline travel data. We expect 2012 demand, while
weaker, to be far more supportive than 2008-9 levels.
Room supply in China to expand in 2012. We develop our
proprietary China supply model by aggregating international
hotel groups’ existing China supply and expansion plans.
We believe most of the supply will arrive this year, creating
oversupply in Bohai Rim and some lower-tier cities. We
have a better three-year view, with lower annual supply
growth leading to healthy demand-supply dynamics.
Earnings growth of coverage to diverge. We estimate onethird
of Shangri-La’s (SHLA) China rooms are in
oversupplied cities. We forecast SHLA’s FY12e earnings to
grow 22%, but to lag Mandarin Oriental’s (MOH) 37%
FY12e earnings growth. We are 29% and 5% below
consensus for SHLA and MOH in FY12e, respectively.
However, only a limited number of analysts cover these
stocks, making consensus comparison less useful.
Prefer MOH, as most of its hotels under ownership are in
undersupplied cities and it has no owned hotels in China. It
is also expanding through the managed hotels route, which is
an asset-light approach that allows network and brand
expansion with minimal balance sheet pressure. A more
detailed discussion is in our initiation report (Asian Hotels:
Room for a strong rebound, 17 September 2010). We
downgrade SHLA to Neutral from Overweight. The main
share price catalyst for hotel stocks is RevPAR growth.