A competitive environment for the mainland's hotel industry and an over-supply of rooms are affecting the profitability of Shanghai-based hotel group Shanghai Jin Jiang International.

Although the hotel group announced a healthy net-profits increase for 2007, most of the gains were generated from a one-off disposal of financial assets.

The hotel group booked net profits of 383 million yuan last year - a 14 percent increase over 2006. However, the sale of the group's shares in Shanghai Pudong Development Bank and other financial assets contributed 433 million yuan by themselves.

Shanghai Jin Jiang Executive Director Chen Hao told reporters yesterday that the group will continue to dispose of its non-core assets this year.

"At the end of last year, we held 4.8 billion yuan worth of financial assets available for sale," Chen said.

The Jin Jiang hotel group plans to open more chains this year to tap into the Olympics boom, as well as the 2010 World Expo in Shanghai. Bloomberg

However, given the volatility in the mainland market, Chen added that the value of these assets has depreciated.

Gross profits of the group decreased 5 percent to 1 billion yuan in 2007, even though revenue grew by 5 percent to 3.2 billion yuan.

This is in part due to an increase in costs, which jumped 12 percent last year to 2.1 billion yuan.

Touting 380 hotels with 70,000 rooms as of the end of 2007, Shanghai Jin Jiang saw its room occupancy rate decline.

The occupancy rate of its star-rated hotels dropped 2.4 percentage points to 61.5 percent.

The chief executive of the hotel group, Yang Weimin, admitted that Shanghai is still in a phase where supply outstrips demand.

"Many of our competitors are building more rooms in response to the upcoming 2010 World Expo in Shanghai," Yang said.

However, Yang is confident that with the Beijing Olympics and this year's opening of the group's new Central China flagship - Wuhan Jin Jiang Hotel - the group's business outside of Shanghai will stay positive.

Yang added that Jinjiang Inn - the budget brand of the hotel group - will continue to be the company's major profit driver. Shanghai Jin Jiang still plans to boost the number of its budget inns to 600 by 2010.

Yang said the group will open an additional 70 to 80 new Jinjiang Inn hotels this year.

Among them, 25 to 30 will be self owned and the rest will be franchised.

The capital expenditure of Shanghai Jin Jiang this year is estimated at 1.3 billion yuan, with approximately half going into expanding the Jinjiang Inn hotel brand.

Shares of Shanghai Jin Jiang inched up HK$0.03, or 1.35 percent, yesterday to close at HK$2.25 each.

(HK Edition 04/22/2008 page2)