China Merchants Holdings Pacific

[Nick]

China Merchants Holdings (Pacific) posts 150% jump in net profit in 1Q2012

http://info.sgx.com/webcoranncatth.nsf/V...D001F9A8F/$file/1Q2012-PressRelease.pdf?openelement [Press Release]

http://info.sgx.com/webcoranncatth.nsf/V...D001F9A8F/$file/1Q2012-results.pdf?openelement [Results]

http://info.sgx.com/webcoranncatth.nsf/V...D001F9A8F/$file/1Q2012-Add_info_on_Toll_Road_Operations.pdf?openelement [Toll Road Operating Data]

Summary

CM Pacific results were within expectations after stripping away the non-recurring gains/losses over the past 3 quarters (mainly forex and impairments). In terms of profitability, YTW generated net profit of $70.06 million based on its 51% stake, the 2 JV toll roads generated net profit of $51 million while its NZ property development firm reported a massive loss of $11 million. I am quite impressed by the JV toll roads as they managed to report a higher pre-tax profit of $59.4 million in 1Q 2012 as compared to $53.6 million in 1Q 2011 despite excluding contributions from Yuyao Highway in 1Q 2012 as it is the process of being disposed to the Govt. The drive is mainly attributable to Guiliu Highway with 13.7% growth in traffic volume at 52% growth in PBT. Guihuang Highway, on the other hand, reported weaker revenue and traffic volume (though a stronger PBT) as it faced competition from a Gui Qing Expressway (built in 4Q 2011) which is parallel in one section of Guihuang Highway. YTW is a highly matured toll road and it did not report any growth in traffic volume or revenue. The property development business reported a massive loss of HK$11 million despite doubling its revenue to $27 million. This division reported a loss of $21 mil in 2010 and $30 mil in 2011.

Borrowings

I was very pleased that CM Pacific gave a breakdown of its loans in their latest Annual Report -

Loan A:
Principal: HK$21.7 mil
Interest: 5.28%
Maturity: Oct 2012
Secured by NZ properties

Loan B:
Principal: HK$1,398.8 mil ($523 mil in USD Facility and $875 HKD Facility)
Interest: 2.92 - 4.01% for USD and 2.76 - 3.94% for HKD Facilities
Maturity: Amortizing and to be paid fully by July 2015
This debt was raised at Group level to partially finance the YTW acquisition of RMB 2.3 billion in Aug 2011.

Loan C:
Principal: $1,603 mil
Interest: 6.52 - 6.71%
Maturity: Feb 2014 and Aug 2015
This debt is held by its 51% owned YTW at its asset level.

Loan D:
Principal: $177.1 mil
Interest: 2.87%
Maturity: June 2017
Held by its subsidiary in China.

The financial expense has been stable over the past 2 quarters at HK$35 million each. I would expect this figure to be reduced over time as debt are repaid on both group and asset level. The underlying JVs are debt-free. In Jan 2012, CM Pacific has agreed to sell Yuyao Highway for RMB 450 million and did not record any revenue from it in 1Q 2012. If the proceeds are used to repay the debt, the financial expenses and gearing will drop significantly.

It repaid $329 million worth of loans in 1Q 2012 reducing its current debt liabilities from $664 mil to $350 mil. It generated substantial free cash-flow with cash from YTW and dividends from its JV coming in. This caused its cash to increase substantially to $1.64 billion. However, it still holds on to $2.86 billion worth of debts and it has to pay $0.58 billion to its parent CMG for the M&A. Note that these figures consolidates YTW fully. CM Pacific will also book in $0.51 bil cash proceeds once the disposal of Yuyao is completed. At the moment, it has received RMB 0.15 billion as partial payment but they have included it in both the cash section and the liabilities section to net each other to 0. In the long run, if CM Pacific share price improves, I would expect the Management to tap the equity market to grow the Company faster. For the rest of the year, I would hope to see further profit growth from the 2 JV toll roads, stable profits from YTW, a reduction in the losses of the property division (I hope the doubling of revenue may mean the worst is over) and EPS accretive M&A (if any).

CM Pacific share price closed at 71.0 cents yesterday. It generated 1Q 2012 EPS of 2.48 SG cents and its book value stands at 80.7 SG cents. It has guided a minimum dividend of 5.5 SG cents for FY 2012 and FY 2013.

Please feel free to correct any error/false assumptions. This is not a buy/sell call. Please make your own decision (obviously).

(Vested)

[greengiraffe]

Hi Nick,

Thanks for your detail analysis. Very high quality - like reading a analyst report but more concise and straight to the point.

Must definitely award you a TIGER.

Cheers
GG

China Merchants Holdings (Pacific) posts 150% jump in net profit in 1Q2012

http://info.sgx.com/webcoranncatth.nsf/V...D001F9A8F/$file/1Q2012-PressRelease.pdf?openelement [Press Release]

http://info.sgx.com/webcoranncatth.nsf/V...D001F9A8F/$file/1Q2012-results.pdf?openelement [Results]

http://info.sgx.com/webcoranncatth.nsf/V...D001F9A8F/$file/1Q2012-Add_info_on_Toll_Road_Operations.pdf?openelement [Toll Road Operating Data]

Summary

CM Pacific results were within expectations after stripping away the non-recurring gains/losses over the past 3 quarters (mainly forex and impairments). In terms of profitability, YTW generated net profit of $70.06 million based on its 51% stake, the 2 JV toll roads generated net profit of $51 million while its NZ property development firm reported a massive loss of $11 million. I am quite impressed by the JV toll roads as they managed to report a higher pre-tax profit of $59.4 million in 1Q 2012 as compared to $53.6 million in 1Q 2011 despite excluding contributions from Yuyao Highway in 1Q 2012 as it is the process of being disposed to the Govt. The drive is mainly attributable to Guiliu Highway with 13.7% growth in traffic volume at 52% growth in PBT. Guihuang Highway, on the other hand, reported weaker revenue and traffic volume (though a stronger PBT) as it faced competition from a Gui Qing Expressway (built in 4Q 2011) which is parallel in one section of Guihuang Highway. YTW is a highly matured toll road and it did not report any growth in traffic volume or revenue. The property development business reported a massive loss of HK$11 million despite doubling its revenue to $27 million. This division reported a loss of $21 mil in 2010 and $30 mil in 2011.

Borrowings

I was very pleased that CM Pacific gave a breakdown of its loans in their latest Annual Report -

Loan A:
Principal: HK$21.7 mil
Interest: 5.28%
Maturity: Oct 2012
Secured by NZ properties

Loan B:
Principal: HK$1,398.8 mil ($523 mil in USD Facility and $875 HKD Facility)
Interest: 2.92 - 4.01% for USD and 2.76 - 3.94% for HKD Facilities
Maturity: Amortizing and to be paid fully by July 2015
This debt was raised at Group level to partially finance the YTW acquisition of RMB 2.3 billion in Aug 2011.

Loan C:
Principal: $1,603 mil
Interest: 6.52 - 6.71%
Maturity: Feb 2014 and Aug 2015
This debt is held by its 51% owned YTW at its asset level.

Loan D:
Principal: $177.1 mil
Interest: 2.87%
Maturity: June 2017
Held by its subsidiary in China.

The financial expense has been stable over the past 2 quarters at HK$35 million each. I would expect this figure to be reduced over time as debt are repaid on both group and asset level. The underlying JVs are debt-free. In Jan 2012, CM Pacific has agreed to sell Yuyao Highway for RMB 450 million and did not record any revenue from it in 1Q 2012. If the proceeds are used to repay the debt, the financial expenses and gearing will drop significantly.

It repaid $329 million worth of loans in 1Q 2012 reducing its current debt liabilities from $664 mil to $350 mil. It generated substantial free cash-flow with cash from YTW and dividends from its JV coming in. This caused its cash to increase substantially to $1.64 billion. However, it still holds on to $2.86 billion worth of debts and it has to pay $0.58 billion to its parent CMG for the M&A. Note that these figures consolidates YTW fully. CM Pacific will also book in $0.51 bil cash proceeds once the disposal of Yuyao is completed. At the moment, it has received RMB 0.15 billion as partial payment but they have included it in both the cash section and the liabilities section to net each other to 0. In the long run, if CM Pacific share price improves, I would expect the Management to tap the equity market to grow the Company faster. For the rest of the year, I would hope to see further profit growth from the 2 JV toll roads, stable profits from YTW, a reduction in the losses of the property division (I hope the doubling of revenue may mean the worst is over) and EPS accretive M&A (if any).

CM Pacific share price closed at 71.0 cents yesterday. It generated 1Q 2012 EPS of 2.48 SG cents and its book value stands at 80.7 SG cents. It has guided a minimum dividend of 5.5 SG cents for FY 2012 and FY 2013.

Please feel free to correct any error/false assumptions. This is not a buy/sell call. Please make your own decision (obviously).

(Vested)

[Nick]

Thanks GG !

DBSV issued a short report covering CMHP 1Q 2012 result while maintaining its BUY rating with a TP of $1.12. The interesting bit is the more positive outlook on the property development business which saw a doubling of revenue in 1Q 2012 despite posting a loss of HK$11 million.

http://www.remisiers.org/cms_images/rese...t_Buy_.pdf [Report]

CM Pacific is trading at 71.5 cents on a CD basis and will XD on 9 May 2012.

(Vested)

[greengiraffe]

Hi Nick,

There are plenty of intelligent buddies here. Crouching tigers and hidden dragons.

Frankly, our views are better since we are not in the business to generate comm even though we may be biased due to vested interests.

We all know that since we all want to be RIGHT on our babies.

Thanks again.

GG

Thanks GG !

DBSV issued a short report covering CMHP 1Q 2012 result while maintaining its BUY rating with a TP of $1.12. The interesting bit is the more positive outlook on the property development business which saw a doubling of revenue in 1Q 2012 despite posting a loss of HK$11 million.

http://www.remisiers.org/cms_images/rese...t_Buy_.pdf [Report]

CM Pacific is trading at 71.5 cents on a CD basis and will XD on 9 May 2012.

(Vested)

[Nick]

Kim Eng issued a short report in their daily Sunny Side Up research issue titled "Resilient Earnings & Dividends Expected" -

http://www.remisiers.org/cms_images/rese..._Hldgs.pdf [Report]

CM Pacific closed at 66.0 cents which implies dividend yield of 8.3%.

(Vested)

[Drizzt]

here is an update from CMPacific IR when i pose the toll rate review question

So far, it seems that the standardization of toll tates is implemented by the Guangdong province only. Other provinces do not appear to follow suit. Hua Nan Expressway is located in Guangdong province and its toll rates are higher compared to toll rates charged by toll roads located in other provinces.

Currently, the toll rates charged by our toll roads for small cars are between RMB0.50/km to RMB0.60/km. As at todate, we have not received any notification by the relevant authorities of any impending adjustments in toll rates.

[greengiraffe]

An Lah... SOE backed company won't do anything to jeopardise their reputation as a social enterprise in Communist rule China

here is an update from CMPacific IR when i pose the toll rate review question

So far, it seems that the standardization of toll tates is implemented by the Guangdong province only. Other provinces do not appear to follow suit. Hua Nan Expressway is located in Guangdong province and its toll rates are higher compared to toll rates charged by toll roads located in other provinces.

Currently, the toll rates charged by our toll roads for small cars are between RMB0.50/km to RMB0.60/km. As at todate, we have not received any notification by the relevant authorities of any impending adjustments in toll rates.

[Stockerman]

Why not? we have seen enough corruptions even in the highest echelon of administration in china..

Every S-chip is a time bomb. Well, if the bomb did not go off, you are just the lucky few.

My Chinese friends said "corruption is in their culture & vein"....haha... Hard to find anyone who doesn't do corruption!

An Lah... SOE backed company won't do anything to jeopardise their reputation as a social enterprise in Communist rule China

here is an update from CMPacific IR when i pose the toll rate review question

So far, it seems that the standardization of toll tates is implemented by the Guangdong province only. Other provinces do not appear to follow suit. Hua Nan Expressway is located in Guangdong province and its toll rates are higher compared to toll rates charged by toll roads located in other provinces.

Currently, the toll rates charged by our toll roads for small cars are between RMB0.50/km to RMB0.60/km. As at todate, we have not received any notification by the relevant authorities of any impending adjustments in toll rates.

[Drizzt]

Why not? we have seen enough corruptions even in the highest echelon of administration in china..

Every S-chip is a time bomb. Well, if the bomb did not go off, you are just the lucky few.

My Chinese friends said "corruption is in their culture & vein"....haha... Hard to find anyone who doesn't do corruption!

An Lah... SOE backed company won't do anything to jeopardise their reputation as a social enterprise in Communist rule China

here is an update from CMPacific IR when i pose the toll rate review question

So far, it seems that the standardization of toll tates is implemented by the Guangdong province only. Other provinces do not appear to follow suit. Hua Nan Expressway is located in Guangdong province and its toll rates are higher compared to toll rates charged by toll roads located in other provinces.

Currently, the toll rates charged by our toll roads for small cars are between RMB0.50/km to RMB0.60/km. As at todate, we have not received any notification by the relevant authorities of any impending adjustments in toll rates.

thanks for the warning stockerman

[Nick]

Corporate Digest| 02 March 2012

China Merchants: Enticing Dividend Yield Supported By Robust Earnings Outlook

http://www.sharesinv.com/articles/2012/0...s-outlook/ [Article]

I chanced upon this article recently and it contains some useful information of the Group's prospect.

(Vested)