China Merchants Holdings Pacific

(07-11-2014, 09:19 AM)Jacmar Wrote:

(06-11-2014, 10:05 PM)Bibi Wrote: Total current liabilities > total current assets not a concern?

Not a concern at all. if you look at the current liabilities you will see a line item(vi) of hk345m div payable to majority sh. Many sh ask how come the majority sh didn't ask for this n give CMHP interest free loan. Too good to be true right? I asked the CEO many agms ago and he said that majority sh has a lot of cash and don't need the money. Meantime CMHP got to enjoy this interest free loan, essentially this is what it is. I was sceptical nonetheless. If you think(my guess) about it majority sh has about nearly 80% ownership(now has dropped to maybe 71% with the dilution) and with the low interest rate environment, majority sh loss is minimal and being generous to minority. Will this "loan" be recall. Yes and the day will come when the majority sh drops to say 51% and interest rates starts to climb. until then continue to enjoy this interest free loan.

So if you treat this hk345m as a long term loan(non current liabilities instead), and rework the sums, your current liabilities/current assets will be about 1. The net gearing(loan/equity) would be about 41%, still very comfortable to gear up for infrastructure assets that is generating lots of FCF. Also interest cover is very high.

so overall, no concern.

Thanks for the explanation Jacmar. Congrats to those who have invested in this company especially those who still held on since 2012. It never catch my attention as its a S-chip company.

China Merchants Hldgs (Pacific): BUY S$0.90; CMH SP
Heavy traffic drives 3Q profits;
Price Target : 12-Month S$ 1.42

By: Paul YONG CFA +65 6682 3712; paulyong@dbs.com

• Net profit in 3Q14 rose 45% y-o-y to HK$210.9m due to both firm core earnings growth and one-off items
• Good organic earnings growth for all roads; three out of four roads enjoying toll revenue growth
• Maiden positive contribution of HK$2.8m from newly acquired Jiurui Expressway
• Maintain BUY with S$1.42 target price (DCF)

Highlights

Overall toll revenue grew 6.3% y-o-y in the quarter to HK$637m (including associate toll roads)
· This was led by 13.8% y-o-y growth at Guihuang Highway, 7.9% y-o-y growth at Guiliu Expressway, 7.2% y-o-y growth at Yongtaiwen Expressway, offset by a 4.6% y-o-y decline at Beilun Port Expressway. Meanwhile, earnings growth was positive for all four roads at 17.3% y-o-y for Yongtaiwen Expressway, 9.6% for Guiliu Expressway, 8.1% for Beilun Port Expressway and 2.5% for Guihuang Highway.

One-off items also provided a boost
· These include negative goodwill of HK$22.7m arising from the acquisition of Jiurui Expressway, higher forex gains and recognition of deferred income and effective interest income on compensation receivable from the relocation of certain toll stations along Guihuang Highway.

Positive contribution from newly acquired Jiurui Expressway portends well for the future.
· By restructuring Jiurui Expressway’s loans, this newly acquired expressway has started contributing immediately to the Group’s bottom line and is well-poised to see fast-paced growth as it is only in its fourth year of operations.

Outlook
· Earnings to continue growing. The acquisition of Jiurui E’way will help expand the Group’s business, lengthen the average remaining concession of the road portfolio and improve its future earnings prospects. This acquisition, along with organic growth, should help to continue driving the Group’s earnings.

· Potential for debt-funded acquisitions. With the outstanding convertible bonds well in the money, we expect the remaining convertible bonds to be fully converted by end-2015, which will lower the Group’s net gearing to just 0.18x. This gives the Group debt-headroom for acquisition deals of between RMB2.5bn and RMB4bn (which would take FY15 net gearing from c.0.5x to 0.7x), compared to an enterprise value of c.RMB2.8bn for the Jiurui Expressway deal.

Valuation
TP of S$1.42 is based on DCF. CMHP’s core earnings has climbed over 60% in the last two years, versus a less than 50% increase in share price and hence, its valuation remains attractive at less than 10x FY15 PE (diluted for convertible bonds), less than 1x P/B and currently offering a 7.9% dividend yield.

Risks

Exposed to the growth of the Chinese economy
· CMHP's core earnings are entirely derived from its toll road operations in China, which leaves it vulnerable to China's country risks. As the Group's functional currency is the RMB, its EPS in S$ terms is subject to any SGD-RMB volatility.

Regulatory changes could affect earnings
· Any downward revision in the tariff rate would negatively impact the Group's bottom line.

(07-11-2014, 12:50 PM)Bibi Wrote: Thanks for the explanation Jacmar. Congrats to those who have invested in this company especially those who still held on since 2012. It never catch my attention as its a S-chip company.

Well, it is still not too late to participant now, with its current valuation and dividend yield.

Reviewed the recent 9 months report, and the company continue to perform.

The operating efficiency of the toll collection seems improving over the last few years. The indicator used for the operating efficiency is cost of service ex amortization of intangible asset. It is a cost ex asset utilization, and has been reducing from ~23% of revenue in FY2012, to below 20% of revenue in 9 months of FY2014.

The company is fully utilizing its access to cheap financing, likely via offshore bank loans to replace the expensive onshore ones. On top of re-financing of Jiurui's loan, the company seems refinancing existing loans as well and keeping deposit onshore. That significantly reduced interest expense and increase interest income.

(happily vested together with fellow shareholders)

China Merchants Holdings Pacific (AD, TP:S$1.10) - Jiurui starts to contribute
Date: 10/11/2014

Source : CIMB
Stock : CMPacific Price Target : 1.10 | Price Call : BUY
Last Price : 0.93 | Upside/Downside : +0.17 (18.28%)


Target S$1.10 (Stock Rating: ADD)

At 81% of our pre-dilution full year forecast, we deem CMH's 9M14 core earnings in line with our expectations (CMH traditionally recognises higher bonus and maintenance expenses in 4Q). We cut our FY14-16 core EPS by 8.7-24.6% to factor in the dilution relating to the share payment for the Jiurui acquisition, as well as the major shareholder's conversion of its convertible preferential shares. The EPS cut has no impact on our valuation as our previous target price of S$1.06 was already on a fully-diluted basis. We raise our target price to S$1.10 as we roll over to base our target price on CY15 Residual Income. Maintain Add. Future catalysts include acquisitions of new toll roads, and organic traffic growth of Jiurui Expressway.

3Q14 financial highlights
CMH's toll portfolio continued to perform. In 3QFY14, the group's revenue grew 8.7% to HK$529m (3QFY13: HK$487m), largely due to the revenue growth of Yongtaiwen Expressway, the consolidation of Jiurui Expressway, and the increase in bank interest income. JV profit grew 4.4% to HK$72m (3QFY13: HK$69m) due to the higher profit from Guiliu Expressway and Guihuang Expressway. Despite a 3% decline in toll revenue, net profit from Beilun Port Expressway grew 8%, mainly due to the receipt of a tax subsidy in the current period. We expect CMH's toll business to stay steady going forward.

Jiurui acquisition exemplifies CMH's growth strategy ahead
CMH completed the acquisition of Jiurui Expressway on 9 Sep and managed to restructure Jiurui's debt shortly thereafter. With much lower financing cost due to its strong credit profile, CMH managed to turn around Jiurui from an operational loss to a small profit. Jiurui contributed a profit of HK$2.8m for its first 22 days of operations under CMH's book. We believe the acquisition exemplifies CMH's growth strategy, i.e. acquire toll assets with a low-teens returns and further gear up the returns through its unparalleled low financing costs (CMH borrows at c.3% vs peers' 4.5%-6%).

Add, with higher target price of S$1.10
We continue to like CMH for its sustainable high dividend yield (>7.5%), low finance costs and good management quality. We expect CMH's future expansion to be well backed by its parent, China Merchant Group, one of China's biggest SOEs.

The Growth Of A Dragon

CMP ($0.935), announced a good set of 3Q results underpinned by solid growth at its 51% owned YTW toll road, a supposedly matured road due to increased traffic flow from a new bridge located near it. In addition, the latest acquisition, Jiurui Expressway, contributed its maiden HK$2.8m profits for the first 22 days under CMP ownership due largely to instant refinancing of expensive loans structured under previous ownership.

Given that Jiurui is last year 2013's project, I personally expect CMP to surprise the market with another accretive acquistion soon.

CMP Milestones:

11 Aug 2010 ($0.72) - YTW http://infopub.sgx.com/Apps?A=COW_CorpAn...elease.pdf

19 Aug 2011 ($0.53) - YTW Completion http://infopub.sgx.com/Apps?A=COW_CorpAn...cement.pdf

23 Feb 2012 ($0.68) 2011 Final Results and Dividend Policy of at least 5.5 cents DPS for FY12 and FY13 http://infopub.sgx.com/FileOpen/FY2011-P...leID=75416

The Group has paid no less than 50% of its net profit to shareholders since its
transformation into a leading toll road player in 2004. Instead of targeting a dividend
payout ratio of at least 50% of net profit attributable to shareholders, the Directors now
target for an annual dividend payout of at least 5.5 cents a share over the next two
years in view of the increased gearing and the Group’s future development needs.

6 Aug 2012 ($0.70) - Ningbo Beilun http://infopub.sgx.com/Apps?A=COW_CorpAn...cement.PDF

18 Sept 2012 ($0.715) - Proposed issue of CB due 2017 http://infopub.sgx.com/Apps?A=COW_CorpAn...cement.pdf

14 Nov 2012 ($0.725) - Completion of Ningbo Beilun http://infopub.sgx.com/Apps?A=COW_CorpAn...cement.pdf

12 Dec 2012 ($0.71) - First Attempt at Jiurui http://infopub.sgx.com/Apps?A=COW_CorpAn...cement.pdf

15 May 2013 ($0.895) - Non completion of Jiurui http://infopub.sgx.com/Apps?A=COW_CorpAn...cement.pdf

27 Sept 2013 ($0.86) - Disposal of NZ Prop to Sister Co http://infopub.sgx.com/Apps?A=COW_CorpAn...cement.pdf

27 Feb 2014 ($0.905) - FY13 results and surprised increase of final dividends to 4.25cents totalling 7 cents above 5.5 cents guidance http://infopub.sgx.com/Apps?A=COW_CorpAn...elease.pdf

5 Mar 2014 ($0.96) - Extension of long-stop for NZ prop disposal http://infopub.sgx.com/Apps?A=COW_CorpAn...of_LSD.pdf

16 Apr 2014 ($0.955) - Completion of disposal of NZ Prop http://infopub.sgx.com/Apps?A=COW_CorpAn..._CMPNZ.pdf

21 Jul 2014 ($0.925) - 2nd attempt at Jiurui http://infopub.sgx.com/Apps?A=COW_CorpAn...elease.pdf

9 Sept 2014 ($0.945) - Completion Jiurui http://infopub.sgx.com/Apps?A=COW_CorpAn...essway.pdf

9 Sept 2014 - Conversion of RCCPS by Huajian http://infopub.sgx.com/Apps?A=COW_CorpAn...ersion.pdf

Well connected For The Future

CMP's immediate parent, CM Huajian Highway Investment Co, is no stranger to China's listed toll road sector. While CM Huajian Highway owns a portfolio of listed toll road in China and HK exchanges, CMP appears to be the preferred vehicle in recent years to spearhead its toll road investments in China.

In a rare interview with The Edge Magazine, CMP stated its intention to expand its toll road portfolio with an aim to eventually dual list on HKSE. However, to achieve that, CMP will need to have a market cap of HK$36bn based on the then quoted figures.

Based on the above milestone, CMP has systematically enlarged its toll road portfolio since the first major acquisition of 51% stake in YTW in 2011. Trading liquidity in CMP shares also started to pick up early 2014 due the commencement of conversion of Convertible Bonds issued in 2012.

Since the declaration of dividend policy that first coincided with the release of 2011 full year results, CMP continued to trade at dividend yields that have been largely uncompressed since then - 8.1% on 23 Feb 2011 vs 7.5% at today's prices.

Given that CMP has been issuing shares in lieu of purchase consideration to the vendors of toll roads, it appears that CMP management is mindful of keeping its new shares attractive to strategic vendors / partners.

As China remains a centrally planned economy, the ownership of important infrastructure like roads are likely to be awarded to well connected individuals / companies. However, based on Jiurui's vendor profile, it is likely that these vendors are also likely to be caught with involvement of property projects that are currently under financial stress due to the decelerating growth of Chinese economy as a result of maturing profile.

As CMP is part of a bigger Chinese SOE conglomerate CM Group, it is likely that CMP has access to evaluate opportunities and cherry pick the ones that suit its toll road portfolio and risk profile. However, given the maturity of toll roads in well developed coastal cities,it is likely that CMP will be focusing on inland roads - Jiurui acquisition is likely to be the beginning of such a trend in my personal opinion.

ATTRACTIVE VALUATIONS with LOW RISKS profile

Despite expanding rapidly since 2010, CMP share price appeared to have under-performed its track record thus far and the prospects going forward. CMP appeared to have been wrongly lump with the heap of rubblish of S Chips that have gone belly up and evaporated.

At 7.5% sustainable dividend yield and good prospects of growing payout due to strong cashflow at its portfolio of toll roads, CMP is a clean company structure that is cleared of financial engineering associated with other listed infrastructure plays primarily those listed in established markets like ASX and SGX.

Buy 7.5% dividend yield with 5% capital growth in hope for 5% dividend yield with 7.5% capital growth.

Vested
Core Position
GG

China Merchants slow dancing at Party... all time high adjusted for recent 3.5 interim dividend...

Accretive acquisitions imminent?

Vested
Core GG

(14-11-2014, 01:35 PM)greengiraffe Wrote: China Merchants slow dancing at Party... all time high adjusted for recent 3.5 interim dividend...

Accretive acquisitions imminent?

Vested
Core GG

I adjust my portfolio today and reduce some holdings at 0.96. And cmp suddently went bonkers! -_-" 0.98 now..

Still very very vested.

(14-11-2014, 04:47 PM)Jack31 Wrote:

(14-11-2014, 01:35 PM)greengiraffe Wrote: China Merchants slow dancing at Party... all time high adjusted for recent 3.5 interim dividend...

Accretive acquisitions imminent?

Vested
Core GG

I adjust my portfolio today and reduce some holdings at 0.96. And cmp suddently went bonkers! -_-" 0.98 now..

Still very very vested.

Sellers disappeared. Who bought from you?

(Vested)

I have no intention of liquidating my stake in CMP at current prices. I have actually been adding to it over the past few weeks.

(14-11-2014, 04:52 PM)Nick Wrote: I have no intention of liquidating my stake in CMP at current prices. I have actually been adding to it over the past few weeks.

Yup, I did thought long, thinking I was overly vested (almost hitting 50% of my portfolio).
Should have think longer, 15min more and I would have more Kopi $..
Almost hitting the golden $1 mark now.. Haaaa