China Merchants Holdings Pacific

I finally got in to buy some after much analysis of their financials and doodling for some time as the price still looks a bit on the high side to me. But, what the heck, nothing ventured, nothing gain! Glad that the price is still holding, but I am getting a bit worried as PRC Government is trying to get rid of their car population because of the haze situation in many of their major cities. This may translate into less toll collected because of fewer cars on the road. On the flip side, China is investing heavily into electric cars and even Elon Musk conceded that China may just beat the US to mass introduction of electric cars in the future. Have to wait and see; all these are developments a few years down the road. In the meantime, we still have to make a meagre living and put bread on the table; hope mine was a wise investment!

China's removal of old cars will drive demand for new cars. China is transforming into a domestic driven economy and its auto industry is one of the biggest in the world currently - it is very clever on their part to stimulate new consumption growth.

With income rising, the natural item for consumption especially in the Asian culture will be houses and cars.

Globally, road infrastructure is a private good in short supply and hence will alway command premium valuation especially with good and transparent toll policies. In this aspect, Chinese toll roads remain currently a largely Chinese SOE game - its a critical assets in the eyes of a selectively capitalist Communist regime. MIIF has stumbled in this aspect and hence the way to play the game is via some regional based listed toll road company listed in HKSE.

CMP, as I have always maintained is transforming into a Pan China toll road play over time and has been clearly communicated in messages to public by the controlling shareholders for some time already. Only when CMP seal more acquisitions over time will the investing public be convinced of their intentions for CMP and CMP's real potential.

Vested
GG

(29-05-2014, 09:05 AM)sykn Wrote: I finally got in to buy some after much analysis of their financials and doodling for some time as the price still looks a bit on the high side to me. But, what the heck, nothing ventured, nothing gain! Glad that the price is still holding, but I am getting a bit worried as PRC Government is trying to get rid of their car population because of the haze situation in many of their major cities. This may translate into less toll collected because of fewer cars on the road. On the flip side, China is investing heavily into electric cars and even Elon Musk conceded that China may just beat the US to mass introduction of electric cars in the future. Have to wait and see; all these are developments a few years down the road. In the meantime, we still have to make a meagre living and put bread on the table; hope mine was a wise investment!

I agree with you the the proof of the pudding is if they can buy more roads to collect tolls with. If the business is so lucrative, I wonder why the Chinese Government will not keep this golden goose as the "Emperor's" preserve for the SOEs to earn money rather than outsource to a private company like CMHP. We'll just have to see how the game plays out in the months ahead.

(29-05-2014, 09:25 AM)sykn Wrote: I agree with you the the proof of the pudding is if they can buy more roads to collect tolls with. If the business is so lucrative, I wonder why the Chinese Government will not keep this golden goose as the "Emperor's" preserve for the SOEs to earn money rather than outsource to a private company like CMHP. We'll just have to see how the game plays out in the months ahead.

1) For all intents and purposes, CMHP is a SOE-linked company since CMG has over 81% stake in the Company and possibly over 85% stake upon conversion of the RCPS. It controls the Management team with its own appointees.

2) Nonetheless, toll roads are a capital intensive industry requiring tremendous capital outlay in the initial years to build the infrastructure. Estimated costs are around 40 - 80 mil RMB / km. As such, governments can't depend solely on themselves to finance these infrastructure developments so they turn to private investors. That's why most infrastructure players, while controlled by the SOE, are listed in HKEX thus enabling fund raising. Naturally, at the end of the concession, everything returns back to the State.

3) Never worried about a decline in car population. If tiny Singapore with a brilliant transport system is car crazy what more of a huge China ?

(Vested)

CM Pac, cimb initiated coverage with ADD:

A road to value
We expect China Merchants Holdings Pacific's (CMH) strategic
expansion to be firmly supported by its very cheap financing and the
strong nationwide footprint of its parent, China Merchants Group
(CMG). The company pays the highest dividend among its peers while
having significant scope to further ramp up its investment returns.
The toll road operator’s recent
success in exiting a nonperforming
property development business has
refreshed its outlook. While we expect
strong expansion ahead through
acquisitions, our current target price
is conservatively based on the organic
growth of its toll income. We initiate
coverage with an Add rating and a
target price of S$1.06 based on CY14
residual income value.
A refreshed outlook
After successfully exiting a
nonperforming property business in
New Zealand, CMH has become a
pure toll road-focused business. The
toll road business rides on China’s
new initiative to develop the Yangze
River economic belt. CMH is expected
to benefit from the expanding income
from its toll assets in the region.
Strong parentage firmly
supports future expansion
CMG is one of the largest SOEs
directly under China’s State Council.
Being CMG’s largest listed vehicle in
terms of stake holding (82%), CMH is
a primary beneficiary of the former's
wide footprint across China. Through
its toll roads arm, Huajian Highway
Investment, CMG holds an
investment portfolio comprising toll
roads, bridges and tunnels with an
aggregate length of approximately
6,700 km in 14 provinces and two
municipalities. This provides CMH
with plenty of options to expand its
toll asset base through acquisitions.
Optimally geared, CMH is
worth S$1.52
CMH has the lowest borrowing cost at
c.3% (peers' at 4.5-6.0%). This gives it
unparalleled advantage to potentially
ramp up its toll asset investment
returns. Its net gearing level of c.21%
is very docile compared to the
maximum 60% that management is
comfortable with. In our opinion,
CMH could further ramp up its ROE
from the current decent level of 12%
to 16% through leveraged acquisitions
of toll assets, as what it has been
doing over the past few years. With
such an improved ROE, CMH would
be worth S$1.52. A 7 Scts DPS (7.5%
yield) is sustainable in the long term.

Full report can be accessed here - https://brokingrfs.cimb.com/4eIqk3xlcD1s...RlDC01.pdf

(Vested)

I just managed to get hold of the CIMB report to read today - very comprehensive and certainly an education for me as I only just started investing in this business. The FCF numbers look good even though I got in a bit late and bought at a relative high price. I'm tempted to add more, but the S-chip stigma and my own disastrous experience with Eratat still haunts me. I suppose SOE means that there isn't going to be another of that Lin character (from Eratat) who'll just run away with our money, you agree? Do any of you have reservations about putting more into this counter at the right price?

(03-06-2014, 01:46 PM)sykn Wrote: I just managed to get hold of the CIMB report to read today - very comprehensive and certainly an education for me as I only just started investing in this business. The FCF numbers look good even though I got in a bit late and bought at a relative high price. I'm tempted to add more, but the S-chip stigma and my own disastrous experience with Eratat still haunts me. I suppose SOE means that there isn't going to be another of that Lin character (from Eratat) who'll just run away with our money, you agree? Do any of you have reservations about putting more into this counter at the right price?

There is risk to every counter, what make me trust cmhp is the incredible consistency of dividend that they dish out. If you were to look back all the way (before they even become cmph), it's freaking 20 years of consistent dividends almost every year without a single rights issue!!! I read somewhere since becoming a toll operator they have dish out abt 40-60c (can't rem exactly, but you can see for yourself). Not asking you to add more, just my opinion.

Very very vested.

Thank you for citing real evidence from their track record; not smoke and mirrors, just great historical track record - something which is sadly in short supply nowadays, even for some of the counters I have invested in and doing well because they are so recent!

Main concern from the report.

4.5 Potential dilution
As at 31 Dec 2013, CMH had outstanding convertible preference shares,
convertible bonds and share options. These, if fully converted, will translate to a
total of 355.3m new ordinary shares. In view of the existing ordinary share base
of 718.8m, the potential dilution impact from the conversion could be very
substantial.
All the dilutive instruments are in the money. The convertible bonds'
conversion price is S$0.826; the holders of preference shares are entitled to
convert the preference shares into fully-paid ordinary shares at the conversion
rate of one ordinary share for every preference share (preference dividend rate
of 1.5%, with a par value of S$0.50); while the share option exercise price is
S$0.789.