China Merchants Holdings Pacific

[greengiraffe]

I seldom look beyond the attributable level as comprehensive income is largely influenced by fluctuations of foreign exchange rates on presumably the net asset values.

In this case, RMB must have depreciated against HK$ (pegged to US$) during the period and have a net negative impact on the net asset value.

Not accountant trained, just guess with some basic accounting logic.

Please feel free to correct me.

Vested
GG

1Q14 results just came out. After reading, I can't figure out whether it's good news or bad news. The translation differences arising on consolidation of -$68M doesn't look good, but I'm not sure what this means. Anyone care to share your analysis? Thanks much.

[sykn]

Thanks for the comment; I agree that if the impact on bottom line is not direct, then we can leave it alone. But I have come across cases where net profit and EPS are all famously great, but comprehensive income turns out to be a loss! Currency translation loss may sound academic, but for companies that have to frequently move funds across different currencies (e.g. SIA hedging against adverse changes to the price of oil), this may turn out to be a real killer. Personally, I can't help but feel that if we don't trace down to comprehensive income, the net profits can leak out into all sorts of dark corners, although I am also not an accountant and don't have a foolproof way to deal with it.

[Jack31]

I think result wise, only beilun dissappointed. It was hitting close to 30m past few quarters if I didn't rem wrongly. Quite surprise ytw still growing, always thought it was already close to full capacity..
Let's wait for the 2 cmhp expert buddies to comment.

[Nick]

China Merchants Holdings (Pacific) posts 15% rise in net profit in 1Q2014

http://infopub.sgx.com/FileOpen/1Q2014-R...eID=292947 [SGX Announcement]

http://infopub.sgx.com/FileOpen/1Q2014-A...eID=292949 [Toll Data]

1) The 2 JV roads continued to post organic growth. Guihuang profits was fairly stable despite the toll booth relocation.

2) Beilun results were below expectations. While it did improve from 1Q 2013, it didn't enjoy the benefits of lower finance cost then. Have to see if it picks up next quarter.

3) YTW posted surprisingly solid growth. The good performance from the 3 roads enabled the division to post profit growth in 1Q 2014.

4) The Management didn't repay significant amount of loans this quarter. It did pay $100 million to CMG as dividends hence reducing dividend payable to $339 million.

5) Net debt to equity remains low at 0.30 with net debt (including dividend payable) being reduced to $2.366 billion. The convertible bonds amounting to $1.1 billion and are currently in the money so its conversion would substantially reduce the net gearing.

6) Management mentioned the parent intend to swap their minority stakes in toll road investments to build a majority stake in an asset before injecting it into CMP.

7) My overall thesis remains intact - CMP's business model of using its resilient cash-flow to aggressively repay debt, finance acquisitions and maintain a 7% yield is sustainable.

(Vested)

[CityFarmer]

Thanks for the comment; I agree that if the impact on bottom line is not direct, then we can leave it alone. But I have come across cases where net profit and EPS are all famously great, but comprehensive income turns out to be a loss! Currency translation loss may sound academic, but for companies that have to frequently move funds across different currencies (e.g. SIA hedging against adverse changes to the price of oil), this may turn out to be a real killer. Personally, I can't help but feel that if we don't trace down to comprehensive income, the net profits can leak out into all sorts of dark corners, although I am also not an accountant and don't have a foolproof way to deal with it.

We need to differentiate the "accounting losses" vs "real losses" due to currencies translation.

Hedging is used for "potential real losses", but meaningless for accounting losses, IMO.

Not an accountant, but sharing few points on the topic

[Drizzt]

Thanks for the comment; I agree that if the impact on bottom line is not direct, then we can leave it alone. But I have come across cases where net profit and EPS are all famously great, but comprehensive income turns out to be a loss! Currency translation loss may sound academic, but for companies that have to frequently move funds across different currencies (e.g. SIA hedging against adverse changes to the price of oil), this may turn out to be a real killer. Personally, I can't help but feel that if we don't trace down to comprehensive income, the net profits can leak out into all sorts of dark corners, although I am also not an accountant and don't have a foolproof way to deal with it.

We need to differentiate the "accounting losses" vs "real losses" due to currencies translation.

Hedging is used for "potential real losses", but meaningless for accounting losses, IMO.

Not an accountant, but sharing few points on the topic

thanks for the education.

[Nick]

Singapore Result Snapshot
China Merchants Hldgs (Pacific)
25 April 2014
DBS Group Research

BUY S$0.96 STI : 3,283.93
Price Target : 12-Month S$ 1.32

Rolling start to 2014

- CMHP’s 1Q14 net profit of HK$148m (+15% y-o-y) was
largely in line with expectations
- Decent organic growth with 7% rise in toll revenue
(including JCEs)
- Strengthening balance sheet and completion of sale of
its NZ property business provides room for potential
acquisitions
- Maintain BUY and S$1.32; stock is trading cum
dividend of 4.25Scts

Highlights
Good toll revenue growth of 7%. This was led by firm revenue
growth on 3 of its 4 toll road assets (Yongtaiwen E’way +5.7% yo-
y; Guiliu E’way +12.6%; Guihuang Highway +12.5%) whilst
Beilun Port E’way fell slightly by 3.3%. Note that Guiliu E’way
and Guihuang Highway are jointly controlled entities and are
equity accounted only.

Earnings increased across all four toll road assets. Toll road
earnings rose 14.3% y-o-y to HK$159.6m (before corporate
expenses) led by Yongtaiwen E’way (+11% to HK77.8m), Guiliu
E’way (+20% to HK$43.1m), Guihuang Highway (+3% to
HK$39.6m) and Beilun Port E’way (+20% to HK$21.3m).

Our View
Organic growth to remain steady. We expect the Group’s toll
road assets to continue to show steady top line growth as China
continues to add more passenger cars on its roads whilst
operating leverage and lower finance costs (as loans get repaid)
should lead to a better bottom line performance as well.
Stronger balance sheet to fund potential acquisitions.
CMHP’s balance sheet continues to strengthen on firm cash
flows, and with the disposal of its NZ property business
completed on 16 April with proceeds of over HK$350m, the
Group is in a good position to make further toll road acquisitions
to grow its business.

Recommendation
Valuations attractive at 0.9x FY14 P/BV and 7.3% yield. We
continue to like the company for its long term steady growth
prospects with potential for acquisition-driven expansion and the
stock for its attractive valuation of less than 1x P/BV, and offering
over 7% dividend yield – maintain BUY.

[Jack31]

Hope that beilun will be able to recover after this hiccup from the traffic diversion.
I rem Guihuang traffic got diverted due to new expressway a year back or so too, but recover quite quickly due to growth in traffic. China car too cheap maybe!

[sykn]

Thanks for sharing the DBS Research's analysis. For some reason, I haven't been able to get it from my broker and usual sources.

I got in rather late, so I paid around the current price, but I was attracted by the promise of more cars on the roads in China. Currently all the big US motor companies, VW and Jap motor companies are depending on China for growing their business. Their home base is more or less saturated. So as long as the strategic operating conditions don't get any shocks from any fundamentally value-destroying changes in PRC road toll policies, I think CMHP will become like Osim - just let the cash roll in!

[D.L]

But there would be some risk remains. For example, the Chinese government is now focused on tackling polluting (which in turn causes water issues) issues due to rapid urbanization. This might cause the government to reduce
the car on roads however, take an example of Singapore, even though cars are one of the most expensive in the world but car populations growing despite there are COE. As usual, regulatory risk also still remains, however IMO, CMHP might still get compensation given to the SOE status. This compensation might be extending of concession period or monetary compensation. What i do like about CMHP business model are due to its cash flow generation ability.

Vested.