China Merchants Holdings Pacific

[Nick]

PROPOSED DISPOSAL OF INTEREST IN YUYAO HIGHWAY

http://info.sgx.com/webcoranncatth.nsf/V...9003AA4CE/$file/Disposal_of_Yuyao_Highway.pdf?openelement [SGX Announcement]

CM Pacific (China Merchants Holdings Pacific) has agreed to divest its stake in the toll road (13 years of concession left) to the Government for RMB 450 million which is in excess of the asset book value of RMB 231.4 million. The toll road generated PBT of HK$21.78 million in FY 2010 and HK$17.95 million in 9M 2011. The proceeds will be used to repay a portion of the debt at Group level - namely the recent HK$1.4 billion amortizing loan facility from DBS and ING used to finance the RMB 2.3 billion acquisition of 51% stake in Yongtaiwen Expressway in 3Q 2011.

I have been vested in this Company for the past few months as I like infrastructure business due to their steady cash-flow and dividends. I previously alluded to this Company in the MIIF thread as a possible comparable. Based on the current trading price of $0.670, the Company trades at a market capitalization of S$481 million and dividend yield of 7.46% (assuming 2.5 cent semi annual dividend). The Company has a 50% payout policy and has adhered to it since listing in 2005. The gearing is a lot lower than most of the listed infrastructure players (with the exception of telcos). However, it is very small in terms of asset size so I suspect they might have to beef up their equity if they decide to acquire more toll roads or participate in development projects in the future.

Like most infrastructure related and China-based businesses, there are numerous risks involved so do your own research !

(Vested)

[Nick]

A recent bullish DBSV report detailing the above mentioned disposal of Yuyao Highway - http://www.remisiers.org/cms_images/rese...2-_Buy.pdf [Report]

CM Pacific closed at $0.665 which implies a dividend yield of 7.5% assuming semi annual distribution of 2.5 cents per share.

(Vested)

[Nick]

China Merchants Holdings (Pacific) Limited wishes to announce that it will release its financial results for the year ended 31 December 2011 on Thursday, 23 February 2012, after trading hours.

Kim Eng recently released a short report on CMHP - http://www.remisiers.org/cms_images/rese...012012.pdf [Report]

(Vested)

[Nick]

China Merchants Holdings (Pacific) posts 20% rise in net profit in FY2011

- Declares final dividend of 3.0 cents per share, making total of 5.5 cents per share for the year

- Directors target an annual dividend payout of at least 5.5 cents per share over the next two years

http://info.sgx.com/webcoranncatth.nsf/V...D002E4D6C/$file/FY2011-PressRelease.pdf?openelement [Press Release]

http://info.sgx.com/webcoranncatth.nsf/V...D002E4D6C/$file/FY2011-Results.pdf?openelement [SGX Announcement]

http://info.sgx.com/webcoranncatth.nsf/V...D002E4D6C/$file/FY2011-Presentation_Part1.pdf?openelement [PPT Slides 1]

http://info.sgx.com/webcoranncatth.nsf/V...D0034A3F8/$file/FY2011-Presentation_Part2.pdf?openelement [PPT Slides 2]

http://info.sgx.com/webcoranncatth.nsf/V...D002E4D6C/$file/FY2011-Add_Info_on_Toll_Road_Operations.pdf?openelement [Toll Road Operating Data]

CM Pacific share price closed at 70.0 cents which implies a dividend yield of 7.85%.

I am still reading up on the various announcements so I will post my thoughts on their result over the weekend. Quite pleased with the 5.5 cents dividend paid this year

(Vested)

[weijian]

Hi Nick,
Leveraging on the information from Hua Na Expressway (MIIF's portfolio) - There is currently a 'national review of toll rates' going on, a bid by China to bring down its inflation rates. According to MIIF, the HNE folks are under high pressure from the GuangDong Transport Bureau to do so - and judging from this disclosure and re-rating of HNE's valuation, i believe it will happen this year.

Just wondering whether CM Pacific will be hit by this 'national review of toll rates' as well? (maybe not since they have the blessing of SOE?)

[Drizzt]

Weijian, it may be the case that HNE tolls are way out of line thus the need to review. but perhaps the impact is there.

[Nick]

Hi Nick,
Leveraging on the information from Hua Na Expressway (MIIF's portfolio) - There is currently a 'national review of toll rates' going on, a bid by China to bring down its inflation rates. According to MIIF, the HNE folks are under high pressure from the GuangDong Transport Bureau to do so - and judging from this disclosure and re-rating of HNE's valuation, i believe it will happen this year.

Just wondering whether CM Pacific will be hit by this 'national review of toll rates' as well? (maybe not since they have the blessing of SOE?)

This is possible and a risk in infrastructure investing. Though, I would think that they wouldn't make the dividend target if they knew their revenue was going to plunge ? But with that being said, who knows haha ! They recently agreed to sell a toll road back to the Government as the latter wanted to detoll it. A toll rate decline will hit the bottom-line (depending on the proportion of the cut) and there will most likely be a dividend cut unless they don't mind raising their payout ratio. But I would expect debt servicing to take priority. In the long run, they need to expand into new provinces to reduce such risk.

Some relevant articles:

http://www.jsexpressway.com/information/...5_1528.pdf [Jiangsu Expressway Toll Rate Review]

http://www.thenanfang.com/blog/guangdong...toll-fees/ [About HNE rate review]

[Jacmar]

Just wondering whether CM Pacific will be hit by this 'national review of toll rates' as well? (maybe not since they have the blessing of SOE?)

I wrote to their IR dept regarding this issue of highway toll review when it first came up several mths back. sorry i cannot remember exactly what was said as i deleted the email. Reason I deleted it was that they say they won't be impacted. If you are interested to know , you might email them again.

[Nick]

http://info.sgx.com/webcoranncatth.nsf/V...40033501F/$file/Response_to_SGX_Query.pdf?openelement [SGX Query]

Management has given more information about the 4Q write-down of asset values in its loss-making property development division. The sharp increase in receivables compromises primarily of dividend income from its JV partners. Share price has held steady at 69 - 70 cents range over the past week which translates to a dividend yield of about 7.8% (based on the guided minimum dividend). I recently chanced upon a Jan 2012 report by CIMB on google - http://www.scribd.com/doc/82830683/20120...cific-CIMB [Report]. I am not too certain whether a follow up report was written to cover the FY result.

Recently, I was contemplating about the future of the toll road industry in China. Eventually, the bulk of the toll road would have been constructed to link the various provinces together. Once the toll roads are completed and the 20-30 years concession period is over, will it make sense to tender a new concession to another private entity or would it be better to nationalize the toll road and run it internally since it has already matured into a cash-cow or even detolling it to appease its citizens ? If the latter approach is chosen, toll road operators will lose a substantial source of income since they will find it difficult to replenish their asset base. Just my random thoughts (and definitely not a prediction or rumour etc) ! In any case, this will only impact companies > 10 years time so a lot of things may change in that period.

(Vested)

[Nick]

RESIGNATION / APPOINTMENT OF NON-EXECUTIVE CHAIRMAN

http://info.sgx.com/webcoranncatth.nsf/V...B00328C70/$file/Resignation_and_Appt_of_Chairman.pdf?openelement [Press Release]

http://info.sgx.com/webcorannc.nsf/Annou...endocument [New Chairman details]

I guess that CMG will continue to play a heavy role in CM Pacific.

(Vested)