China's Home Inns shares surge in IPO debut

(Adds analyst, background, valuation comparison)

NEW YORK, Oct 26 (Reuters) - Shares of China's Home Inns & Hotel Management Inc. (HMIN.O: Quote, Profile, Research) on Thursday rose as much as 72 percent in their market debut, the latest float from China to be embraced in the United States.

Shares of Home Inns, which operates 82 budget hotels in China, opened up 59 percent at $22 on Nasdaq Thursday from their $13.80 pricing Wednesday, and went as high as $23.75 before closing at $22.50 a share.

The first day surge in share price for Home Inns was the second best of the year, behind only the 100 percent increase from Chipotle Mexican Grill Inc. (CMG.N: Quote, Profile, Research) which debuted in January, according to data tracker Dealogic.

Home Inns' big opening day follows strong market debuts for Mindray Medical International Ltd. (MR.N: Quote, Profile, Research), a Chinese medical device company, and New Oriental Education & Technology Group Inc. (EDU.N: Quote, Profile, Research), which kicked off the post-Labor Day IPO market after a down summer for listings.

Home Inns traded at over 100 times annualized earnings. The much larger, U.S.-based, Choice Hotels International Inc. (CHH.N: Quote, Profile, Research) trades at about 28 times earnings.

The growth prospects of the Chinese hotel chain and Chinese economy at large justifies the high ratio, said Francis Gaskins, president of IPO Desktop, an independent research firm based in Los Angeles.

Home Inns raised more than $109 million Wednesday with an offering of 7.9 million American Depositary Shares that sold for $13.80 each, compared with a forecast range of $10 to $12.

Each ADS represents two ordinary shares.

Home Inns' net income jumped to 20.9 million yuan ($2.6 million) last year from just 1.5 million yuan in 2003 as it targets Chinese travelers spending 150-300 yuan ($18-$35) per night.

Chief Financial Officer May Wu said Home Inns has already targeted 100 cities with populations of 4 million or more in the country and will work on expanding on its market position.

Chief Executive David Sun said the company would strike a balance between covering the entire country and increasing its presence in cities that already have at least one franchise.

"We are only in 40 of the 100 cities (with populations of 4 million or more)," Sun told Reuters. "We have a lot of room to grow. Even in the 40 we entered, 85 percent have only a few hotels."

Rival Jinjiang International plans to raise up to $300 million in a Hong Kong listing later this year.

Credit Suisse (CSGN.VX: Quote, Profile, Research) and Merrill Lynch (MER.N: Quote, Profile, Research) were lead underwriters in the Home Inns IPO