China Merchants Holdings Pacific

[Nick]

CM Pacific is featured in The Edge titled - China Merchants seeks heft, Hong Kong listing to boost market value, raise funds and grow.

My Summary:

1) They are targeting a listing in HKEX but only after achieving a net asset value exceeding RMB 30 billion. They wish to be top 3 toll road player in HK if they choose to list there.

2) Currently negotiating to acquire 10 toll roads from third parties.

3) May venture into toll road construction and overseas investments.

4) Acquire larger roads ie RMB 10 billion price tag.

(Vested)

[greengiraffe]

Hi Nick,

As I have always been saying - as long as the substantial holder hasn't directly dilute (meaning sell down) its stake, their interests and those in the minorities are still well aligned.

Looks like this is just the beginning.

Vested
GG

CM Pacific is featured in The Edge titled - China Merchants seeks heft, Hong Kong listing to boost market value, raise funds and grow.

My Summary:

1) They are targeting a listing in HKEX but only after achieving a net asset value exceeding RMB 30 billion. They wish to be top 3 toll road player in HK if they choose to list there.

2) Currently negotiating to acquire 10 toll roads from third parties.

3) May venture into toll road construction and overseas investments.

4) Acquire larger roads ie RMB 10 billion price tag.

(Vested)

[Nick]

Hi Nick,

As I have always been saying - as long as the substantial holder hasn't directly dilute (meaning sell down) its stake, their interests and those in the minorities are still well aligned.

Looks like this is just the beginning.

Vested
GG

CM Pacific is featured in The Edge titled - China Merchants seeks heft, Hong Kong listing to boost market value, raise funds and grow.

My Summary:

1) They are targeting a listing in HKEX but only after achieving a net asset value exceeding RMB 30 billion. They wish to be top 3 toll road player in HK if they choose to list there.

2) Currently negotiating to acquire 10 toll roads from third parties.

3) May venture into toll road construction and overseas investments.

4) Acquire larger roads ie RMB 10 billion price tag.

(Vested)

http://i.imgur.com/w4WjTh4.jpg [Full Article]

Apparently, the end game has been revealed. If they do manage to grow substantially over the next few years with secondary placements and debt to hit the RMB 30 billion mark, I am fairly certain they will be an attractive toll road player in HK since their investments will not be bounded by provincial geography (unlike the rest) and they have a strong commercial backing from CMG. Could be interesting days ahead. I don't ever remember them being this bold before.

[Drizzt]

"In fact CMHP's parent isn't even willing to divest a portion of its stake to stimulate trading in the stock and obtained a better market value"

"He has promised the parent company that the gearing company will not exceed 70%"

sounds conservative and that interest are aligned. the question is that compared to MIIF, APTT, why can't they get fund houses interested. sooner or later DBS Vickers will drop this coverage.

it has to be said that the Dividends Payable situation is befuddling and not getting much mentioned.

[Jack31]

Not much surprise here.
Q3 net : 145m
9m : 450m
Wonder how they are gonna acquire 10 toll road as mention in the article.
I will be more than happy if they can juz acquire 1 every 1-2years!

[Nick]

China Merchants Holdings (Pacific) posts 46% increase in net profit in 3Q2013

http://infopub.sgx.com/FileOpen/3Q2013-R...eID=263099 [SGX Announcement]

http://infopub.sgx.com/FileOpen/3Q2013-P...eID=263100 [Press Release]

http://infopub.sgx.com/FileOpen/3Q2013-A...eID=263101 [Toll Operating Figures]

1) Fairly stable results with little surprises. Perhaps my only surprise was to see CM Pacific repaying HK$100 million worth of deferred dividend to its parent in 3Q - there are still HK$387 million worth of deferred dividend payable. All the 4 expressways have reported organic growth - Guiliu and YTW surprising on the upside in 9M 13. Notable to see the JV income in 9M 13 is almost equivalent to FY 12 income.

2) Including dividend payable, the net debt has been reduced to HK$2.5 billion (31 Dec 2012: HK$3.5 billion). With the impending disposal of the NZ property division, I think there is room for further decline in net debt figures. In the long run, I expect the net debt figure for the Group to trend upwards if keeps purchasing new roads but the debt used to purchase individual roads or the debts held by individual roads should decline rapidly. I think this business model should work if the underlying cash-flow is strong.

3) FCF continues to be significant at nearly HK$1.15 billion after taking into account of dividend paid to minority interest. The guided 5.5 cents dividend should be easily maintained.

4) As previously speculated, the refinancing of Beilun Expressway loans with injected shareholder loans financed from USD offshore loans has reduced its financial expense and boosted its profit contribution to HK$30 million in 2Q and 3Q 2013. Annualizing both quarters, gives a net profit of HK$120 million which fares well with the purchase price of RMB 890 million. The AR 2013 should confirm if this had truly taken place.

5) Valuation wise, I hope to see core earnings exceeding HK$600 million. Assuming the convertible bond and preference shares are converted, the EPS (if I am computing it correctly) will be 9 SG cents. I don't think the valuation is excessive at this point.

6) I hope it acquires more quality roads in the future to further diversify its revenue sources and increase its size and attractiveness as a pan-China toll road player.

7) The usual risk - regulation, natural disasters, road diversions etc - do apply.

In short, a very stable and within expectations result. At 88.0 cents, it trades at 6.25% yield

(Vested)

[zz...]

from a simple calculation, on paper their numbers look very close to Peter Cundill's Magic Six (from the book There's always something to do) : PE 6(before dilution), PB 0.6 and dividend yield 6%. My main concern is their ability to continue generate substantial FCF to fulfill their debt obligations.

(vested)

[Nick]

China Merchants Hldgs (Pacific)

BUY S$0.88 STI : 3,202.10
Price Target : 12-Month S$ 1.07

Results ahead of expectations

• 3Q net profit rose 46% y-o-y to HK$146m, ahead of
expectations
• 9M13 earnings of HK$450m made up 91% of our
full year forecast, which is likely to be revised
• We continue to like the company for its firm
earnings growth and strong cash flows
• Maintain BUY and TP of S$1.07 for now

Highlights

CMHP reported results that were ahead of expectations. 3Q13 net
earnings rose 46% y-o-y to HK$145.8m as revenue rose 37% to
HK$486m, due to contribution of newly acquired Ningbo-Beilun Port
E'way. Contribution from JV roads also rose 12% y-o-y to HK$68.7m
in the quarter.

For 9M13, net earnings rose 40% y-o-y to HK$450m on 34% top
line growth to HK$1.4bn, as JVs also contributed 23% more at
HK$207.8m.

9M earnings forms over 91% of our FY forecast. This is a strong set
of results against our FY earnings forecast of 489m and we will be
looking to revise our earnings estimates in a full note to be issued at
a later date. Top line is roughly in line with our FY estimate of
HK$1.83bn.

The outperformance is due to stronger than expected traffic growth
on all roads while costs (finance and operating) were also lower than
projected. Year-to-date, the company has generated free cash flows
of nearly HK$1.1bn, and over HK$1.3bn if we include dividends
from associates.

Steady organic outlook complemented by potential for more M&A
transactions. Whilst the Group’s current portfolio of roads should
provide steady earnings growth, we believe CMHP continues to look
for more acquisitions to further boost its prospects. This will be aided
by the impending completion of the sale of its non-core New
Zealand property businesses, which will further strengthen its
balance sheet.

Recomendation

Maintain BUY and TP of S$1.07 for now.

[Drizzt]

from a simple calculation, on paper their numbers look very close to Peter Cundill's Magic Six (from the book There's always something to do) : PE 6(before dilution), PB 0.6 and dividend yield 6%. My main concern is their ability to continue generate substantial FCF to fulfill their debt obligations.

(vested)

why would cash flow be affected?

[zz...]

from a simple calculation, on paper their numbers look very close to Peter Cundill's Magic Six (from the book There's always something to do) : PE 6(before dilution), PB 0.6 and dividend yield 6%. My main concern is their ability to continue generate substantial FCF to fulfill their debt obligations.

(vested)

why would cash flow be affected?

just some of my thoughts on their business risks on cash flows: increased manpower costs, high maintenance costs of the roads, increased interest costs, they got to have some pricing power or ability to attract more people using their roads to increase revenues to match those costs, best way is for them to buy a few strategical roads to control certain pathways so that people have no choice but to use one of their roads to get from location A to location B. Since they have limited period of running the roads, they need to convert those values on the roads into cash as much as possible since the roads do not appreciate in values.