China Merchants Holdings Pacific

[Jack31]

Why would bond holder exercise the put to redeem? Am I missing something? Convert and sell on the market should earn more?

[Jack31]

Sorry, have problem pasteing link. Using an old hp to type.
Bond holder exercise the option to redeem hk$189million of cb.

[greengiraffe]

Why would bond holder exercise the put to redeem? Am I missing something? Convert and sell on the market should earn more?

http://infopub.sgx.com/Apps?A=COW_CorpAn...cement.pdf

Extracted from CB issuing announcement:

Redemption at the Option of
the Bondholders
: Bondholders may require the Company to redeem all or some only of their Convertible Bonds on 6 November 2015 at 100 per cent. of the principal amount of the Convertible Bonds being redeemed, together with any accrued but unpaid interest (calculated up to but excluding the date of redemption).

Based on my estimates HK$189m of CB will result in a potential conversion of 38,445,597 shares @ latest conversion price of $0.776. Ie the redemption from the bondholder forgo S$7.27m in profits should they exercise the right to convert into CMP shares.

For the remaining HK$150m CBs, the maximum shares to be issued stand at 30.512m shares

Good news from CMP - gift from Uncle Xi on his trip to Lion City?

Vested Core 
GG

[Jack31]

Maybe bond holder is their strategic partners and do not want to depress the share price. 38million shares dump into the market would have push down the share price substantially..

[greengiraffe]

Maybe bond holder is their strategic partners and do not want to depress the share price. 38million shares dump into the market would have push down the share price substantially..

If strategic holder would have no issue holding on to their shares... now they redeemed, CMP short of HK$189m...

[greengiraffe]

CMP, cimb cut to HOLD:

10:15:16 AM

China Merchants Holdings
Pacific
Slowing Chinese economy takes its toll
9M15 below expectations, core net profit at 72% of FY15F (■ 4Q seasonally weaker).
■ Four of the five existing toll roads saw declines in traffic volume in 3Q15.
■ Net gearing lifted to 68% post acquisitions of Yangping, Guixing, and Guiyang.
■ Cut FY15-17F EPS by 14-36% to reflect 1) lower profitability due to higher interest
burden, and 2) the dilution from the acquisitions (adjusted for 1-for-2 rights issue).
■ We lower FY16-17F DPS to 6.0 and 6.5 Scts; Downgrade to Hold from Add.
Flat 3Q core net profit
CMH’s 3Q15 core net profit of Rmb162m was largely flat yoy (3Q14: Rmb163m). Profit
contribution of Yongtaiwen rose 7.7% yoy to Rmb103m in 3Q15 (3Q14: Rmb95m). The
gain, however, was offset by the lower profit contributions of Beilun (-2.7% yoy), Guiliu (-
3.8%), and Guihuang (-18.7%). 3Q15 also saw the full-quarter contribution from Jiurui,
compared to 3Q14’s 22 days contribution.
Slight decline in total traffic volume; Jiurui still slow
Total traffic volume fell 0.4% yoy in 3Q15 (2Q15: 1.3% yoy drop). For the 5 existing toll
roads, only Yongtaiwen continued to perform, with a 3.5% yoy traffic growth; Beilun was
largely flat yoy; Guiliu and Guihuang fell 3.0% and 3.4%, respectively, affected by
adverse economic conditions and traffic diversions from the change of road network;
traffic growth at Jiurui (acquired in Sep-14) trailed expectations, with 9M15 volume up
just 1% yoy, compared to the 9% yoy growth projected in the M&A circular.
Expanded share base and lifted net gearing post acquisitions
CMH completed the acquisitions of Yangping in Sep, Guixing and Guiyang in Oct for a
total consideration of HK$4.03bn, financed by the 1-for-2 rights issue and external debt.
Together with the potential conversion of convertible bonds (HK$339m outstanding in
3Q15), we expect CMH’s share base to expand 78% yoy to 1,863m shares by end-15
(end-14: 1,046m); net gearing would rise to 68% by end-15 (end-14: 36%).
The once favourable factors have turned against CMH
In our view, CMH is a key loser from the potential Fed rate hike and strengthened US$
(HK$), as it used to borrow cheap US$ and HK$ loans in the offshore market to finance
its business expansion in China. CMH may have to switch to the dearer onshore loans
to contain FX risk. Despite a few rounds of rate cuts, PBOC’s current 1-year benchmark
lending rate of 4.35% is still higher than the <3% interest CMH used to enjoy offshore.
Downgrade to Hold; cut FY16-17 DPS forecast
While the 3 newly-acquired toll roads are expected to inject growth to the group in the
long term, we see near term headwinds from China’s economic slowdown, increasing
interest burden and unfavourable FX. We cut our FY16F and FY17F DPS forecasts to 6
Scts and 6.5 Scts respectively (FY14/15F: 7Scts), due to the significantly enlarged share
base and the limited contributions by newly-acquired toll roads in the gestation period.
We lower our target price to S$1.02, based on CY16 residual income valuation.

[Jack31]

I realise Many people have misperceptions of beilun, iirc beilun had a drop in traffic volume due to traffic diversion by a nearby expressway few Q back (4Q14-1Q15 if my memory serve me well) Back then, we were still talking about how long it will take for the traffic to recover. If you look deeper, you would have realise the beilun took only about 2-3Q to recover from the diversion which is way faster then what I expected. (Which means the region is still growing well, if the other competitor expressway is still around) With full respect to the CIMB analysis , I don't think it was due to lag of growth in the areas where beilun operate. My thoughts are Beilun will surprise many to the upside in the next few Q.

[greengiraffe]

I realise Many people have misperceptions of beilun, iirc beilun had a drop in traffic volume due to traffic diversion by a nearby expressway few Q back (4Q14-1Q15 if my memory serve me well) Back then, we were still talking about how long it will take for the traffic to recover. If you look deeper, you would have realise the beilun took only about 2-3Q to recover from the diversion which is way faster then what I expected. (Which means the region is still growing well, if the other competitor expressway is still around) With full respect to the CIMB analysis , I don't think it was due to lag of growth in the areas where beilun operate. My thoughts are Beilun will surprise many to the upside in the next few Q.

I certainly agree with you on this... Beilun is still in the coastal areas and hence essential upgrade when completed is likely to cater to more traffic flows.

Eeven on Jiurui, it appears that traffic has been stabilised at current low levels and CMP is making reasonable $ from it. Should and I must emphasis should Jiurui takes off from these low bases, it may well turn out to be another turbo engine... when of course is anyone's guess

[greengiraffe]

http://www.hj.net.cn/second/list.aspx?nodeid=31

The above link refers to the news related to CMP's parent China Merchant Huajian. It is in Chinese and provides insight on the visits that Huajian mgt had paid to the various investee cos and provincial officials.

I have been trying to see if some of these provincial visits provided possible clues to potential toll roads that they could be evaluating... My conclusion remains inconclusive and perhaps that is the way China business have been conducted especially those that have strong linkage to the State.

Hopefully the above observations provided some leads to some unrelated vested interests attempting to speculate on visits being conducted in normal courses of business.

[greengiraffe]

CIMB upgraded to ADD:

China Merchants Holdings
Pacific
Still a preferred platform for toll investment
Being the only toll company with exposure to multiple provinces ■ in China, CMHP
remains our preferred platform of toll investment.
■ We believe CMHP would continue to see strong support from China Merchant
Group (CMG), one of the top 10 SOEs directly under China’s central government.
■ Our FY15-17F EPS have incorporated stepped-up interest cost, from 2.8% in FY15
to 3.5% in FY16, to 4.0% in FY17, to reflect the impact of potential Fed rate hikes.
■ We upgrade CMHP from Hold to Add, with an unchanged TP of S$1.02.
The only toll company with multi-province exposure
Being the only toll company with exposure to multiple provinces, CMHP can be more
selective in choosing its investment targets. This, in our view, is a key advantage against
its provincial SOE peers whose investments are confined within their home provinces.
CMHP also has the flexibility to adopt a longer investment horizon and capitalize on the
opportunities when private investors who are under financial stress decide to sell off
their toll investments at bargain prices.
Strong heritage and support from parent CMG
With a 76% stake in CMHP, CMG is one of China’s 10 largest central government
SOEs. We see CMHP as a key beneficiary from CMG’s wide footprint across China
(CMG has a toll investment portfolio with total length of c.6,700 km in 16 provinces in
China). CMHP has also been receiving strong financial support from CMG, as evidenced
by CMG’s irrevocable undertaking of full subscription of CMHP’s 1-for-2 preferential
offering (at S$1.00 per share) related to the recent acquisition of three toll roads.
More diversified toll portfolio with traffic growth potential
CMH completed the acquisitions of Yangping in Sep 2015, Guixing and Guiyang in Oct
2015. After the acquisitions, the number of toll roads of CMHP’s portfolio has increased
from five to eight and the average remaining concession period of the portfolio increased
from previously 13.6 years to 16.0 years. According to a traffic consultant’s report, the
traffic volume of the three new toll roads is expected to grow by a five-year CAGR of
15% in FY15-20.
Higher interest cost ahead, but can be comfortably managed
We estimate that CMHP’s net gearing would ascend to 68% by end-15 (end-14: 36%),
due to the debt financing related to the above acquisitions. CMHP should be able to
comfortably service its debt, with its FY16-18F interest coverage at above 6x. Our FY15-
17F EPS have duly incorporated a step-up effective interest cost, from 2.8% in FY15, to
3.5% in FY16, and to 4.0% in FY17, to reflect the impact from the US rate hike.
Upgrade from Hold to Add, with unchanged target price of S$1.02
CMH’s share price has dropped 8% since early Nov. Our target price of S$1.02 (based
on CY16 residual income value) represents a 12.5% capital gain, on top of an attractive
6.6% dividend yield. We believe the negatives from rising interest cost have been priced
in. We upgrade CMHP from Hold to Add. Key risks include devaluation of Rmb and
lower-than-expected traffic growth at the newly acquired toll roads.