China Merchants Holdings Pacific

[Belg]

CMP - Firmly On Track For Growth

CMP held its EGM to acquire Jiurui Expressway this morning.

The main message that emerged from the meeting is as follows:

i) CMP can always retain earnings for acquisition of toll road - will take 3 years to accumulate earnings to buy a new toll road.

ii) CMP prefers to grow and share dividends with shareholders so that it can issue new shares at higher prices (on assumption that mkt rewards CMP for its generous and growing dividend policies) alongside with debt to acquire toll roads.

I think based on ii) CMP felt that they can achieve their objectives quicker especially since it is no longer restricted by the constraints of share price trading below NAV.

Hence, CMP's rich dividend yield is expected to be sustained and grow forward.

Buy for the 7.5% current yield with 5% capital gains in hope for 5% dividend yield with 7.5% capital gains.

HU8TPPY

GG,

Thank you for the information provided and it has open up my eyes on this S chip.

I particularly like your last commentary on the 5% dividend yield with 7.5% capital gains. CMP's model of high debt, high dividend model reminds me of our telco's Starhub, Singtel.

It seems to me that they are in the early stage and by all means, very capable to achieve a higher last done price with more acquisitions. Market saturation might occur when there are no more expressways to be purchased, or if expressways need to be refurblished - All of which are not in the near future.

Keep up the good work in this forum and we will look forward to your next informative entry.

[greengiraffe]

CMP - Pains of Growing The Dragon

CMP management re-iterated that parent company China Merchant Huajian has chosen CMP as the platform for future growth.

It has to be noted that China Merchant Huajian is no new to the listed and unlisted toll road sector in China and HKSE.

For Huajian to have arrived at this mandate within a largely central planning economy is of significance. Huajian would have easily chosen other listed and established toll operators as their vehicle for future consolidation and expansion and there is really no need to waste their time and energy with CMP. However, given their mandate, CMP has got little choice but to grow. So far the growth is within a controlled path - share price tracking dividend growth with little yield compression detected as yet.

I remember in a 2011 Edge article interview with Jiang Yan Fei, Huajian needs to grow CMP to a S$6bn mkt cap (HK$36bn) before a listing is considered feasible in the light of the listed comparables on HKSE. Since the YTW and Beilun acquisitions and the latest being the revived Jiurui Expressway (being cheaper,less indebtedness and longer toll collection duration) speak so much of the management focus and commitment to ensure that CMP is on track for the target. The growth in market cap in my opinion will come from both organic growth of its fast expanding portfolio and via inorganic avenue such as acquisitions. The current credit crunch environment has presented financially sound companies like CMP to assume leadership in the consolidation.

CMP's rich dividend yield is a strong enough selling point for investors looking for cashflows and steady capital appreciation (hopefully via yield compression over time when investors are convinced of their ability to deliver). To add to that, parent Huajian has been generous with minorities even though they have been leaving their dividends with CMP as payables over the last few years.

When everyone is hunting high and low for S-Chips, I simply cannot believe that no many are convinced by a track record that is 1 decade old and are still hunting high and low for S-Chips. To me, the rest are expired and poisonous chips. CMP is well and truely the only S-Chip left for dividend hunters but its sitting there available for a song with plenty of skepticism.

Huajian is part of a well regarded SOE China Merchant Group in China. CMG is the leading China SOE flag bearer that is acquiring infrastructure assets globally. If funny things can happen here at CMG, I am more than willing to take risks with my money.

Noone likes 7.5% yield with 5% capital growth. Everyone (including SWFs) will love a winner with 5% yield alongside with iffy 7.5% capital growth. When to buy will be your choice since I have already cast my votes.

Core Holdings
GG

[thor666]

Hi gg, I had been looking at cmhp and straco previously and opted for the former. Would like to flip the perspective and ask: what would be the possible risks for cmhp in your opinion?

I am risk adverse in nature so I like to analyze risks before considering returns.

Thanks in advance.

[greengiraffe]

I have no answers for you really.

Chinese markets are tough for foreigners. Chinese markets are big and lucrative hence we must go with the right pedigree to make $ from China.

However, other SOEs have also had their fair share of scandals - CAO and Cosco.

The thing I like about CMP presently is that it remains under the radar but i don't think it will be for long since they appear to be in a hurry.

I am also risk adverse as well took me a long time to be convinced and won over by CMP only recently but I think the only way is UP.

GG

Hi gg, I had been looking at cmhp and straco previously and opted for the former. Would like to flip the perspective and ask: what would be the possible risks for cmhp in your opinion?

I am risk adverse in nature so I like to analyze risks before considering returns.

Thanks in advance.

[thor666]

Thanks gg.

To me, the concerns of s-chips - accounting fraud or similar cases - is hard to catch or prove. As long as exposure is limited to a manageable level, i think it is reasonable to take on.

I will analyze further and may add this counter at end of year.

[greengiraffe]

CMP - Dragon and The Beanstalk?

Parent company is in a hurry post today's EGM:

i) all the shares converted and issued are entitled to the 3.5cents interim dividends proposed but yet to be paid - Strong signalling of confidence on the part of management and controlling holders

ii) http://infopub.sgx.com/FileOpen/FORM3_Ea...eID=314222

Parent co now owns 71.93% stake post conversion and Jiurui.

iii) Juirui vendors Hongda owns 11.79%

iv) Based on the remaining significant outstanding convertibles of CBs, a total of 186,516,087 shares will be converted at the present conversion price of $0.826. CMG stake will then be diluted to 60.75% while that of Hongda will be diluted to 9.96%.

v) Given the dilution of parent stake to 71.93% post today's events, there is a real chance that CMP may be included in the upcoming MSCI review in November.

http://infopub.sgx.com/FileOpen/RCPS_Con...eID=314221

The Directors of China Merchants Holdings (Pacific) Limited (the “Company”) wish to announce that Easton Overseas Limited (“Easton”) has today converted 135,781,000 redeemable convertible preference shares (“RCPS”), being the remaining one-third of the total number of RCPS issued by the Company and held by Easton, at the conversion rate of one ordinary share of the Company for every RCPS. Following such conversion, Easton has converted in full, any and all RCPS held by them.
The conversion will result in an issue of 135,781,000 new ordinary shares in the capital of the Company (the “New Shares”) to Easton. The New Shares when issued will rank pari passu in all respects with the existing ordinary shares in the capital of the Company.
Following the issue of the New Shares, the total number of issued and paid up ordinary shares of the Company (the “Shares”) will increase from 876,803,0711 to 1,012,584,071.

http://infopub.sgx.com/FileOpen/Completi...eID=314218

COMPLETION
The Board also wishes to announce that, as at 9 September 2014, all the conditions precedent (“Conditions”) for the completion of the Acquisition have been satisfied pursuant to the terms of the Share Purchase Agreement. Notwithstanding that pursuant to the terms of the Share Purchase Agreement, Completion will take place on the date falling 10 business days following satisfaction of the Conditions the Company and the Sellers have, pursuant to the Supplemental Agreement, agreed to complete the Acquisition today. Accordingly, the Company has issued the Consideration Shares to the Sellers’ nominee Hongda International pursuant to the terms of the Share Purchase Agreement and the Supplemental Agreement. Following Completion, the Target and Jiurui Expressway Co are now wholly-owned subsidiaries of CMHP and members of the CMHP Group.
Immediately following the issue of the Consideration Shares, the total number of issued and paid-up Shares of the Company has increased from 757,428,084 prior to such issue, to 876,803,071 and Hongda International owns approximately 13.61 per cent. of the enlarged issued share capital of the Company.

[CityFarmer]

Hi gg, I had been looking at cmhp and straco previously and opted for the former. Would like to flip the perspective and ask: what would be the possible risks for cmhp in your opinion?

I am risk adverse in nature so I like to analyze risks before considering returns.

Thanks in advance.

I am convinced, and thus vested, but no investment has zero risk. Let's me share my view on two of the risks

The core asset of the company is tolled expressways. The assets have limited tenures, and the toll (revenue) isn't guaranteed. The revenue depends on un-controllable factors (from company perspective) e.g. weather, policy, natural disastrous etc, which will impact on toll rate and usage.

The asset is valued by professional, base on various assumptions. The company will charge depreciation/amortization of the value as part of expenses. The risk is on the valuation accuracy, which might affect the expenses, thus profitability. One good example is the difference on Jiurui valuation, both valued by same professional, but at slightly different time.

Feel free to comment

(vested)

[Drizzt]

if you think that this is a distressed asset and at big discount to original valuation, then all these depreciation and valuation doesn't matter, cause it serves to justify the price of purchase as saying it is close to the purchase price.

its more like them telling the valuer "hey i want to purchase it at 600 mil, make your valuation report close to that". its the same as they say about housing purchase here in the past. i need to borrow this amount for the property, shift the value close to it.

is it dark? perhaps yes. but end of the day it is still the assets cash generation nature. this is going to last the same duration and produce cash flow that many would underestimate.

this is my guess.

[greengiraffe]

Some highlights from yesterday's meeting:

i) Jiurui incurred interest expenses of HK$110m (6.4% pa) that sunk it into a pretax losses of HK$27.8m

ii) assuming that interest expenses can be half via CMP's refinancing capability to HK$55m, Jiurui should be making HK$27.2m pretax profits instead. Since its likely to be a high growth toll road, Jiurui could well be a signficant contributor to CMP in the next few years

iii) understand from some holders that managed to speak to key personnels out of the meeting proper that Jiurui was purchased at a haircut of 30% to actual construction costs. If this is indeed true, then CMP's deal making ability backed by CMG must not be under-estimated since they have been re-iterating that they are the chosen ONE for the cause with the group.

iv) to add to the above the lighting speed at which new Jiurui shares are being issued, the sudden conversion of RCCPS (10th anniversary) when parent hardly drawn down dividends that have been paid or payable appears to be pointing to the direction that more deals could be in the works.

v) As of yesterday, share capital base has expanded by 40.86% since 2 April. All these new shares are entitled to a revised and deemed sustainable 3.5 cents (7 cents in total which was a surprise lift from FY12 to FY13 and looks set to be maintained for FY14). More importantly, we are dealing with Chinese company where many have been badly burnt and lost confidence. Too good to be true?

[CityFarmer]

if you think that this is a distressed asset and at big discount to original valuation, then all these depreciation and valuation doesn't matter, cause it serves to justify the price of purchase as saying it is close to the purchase price.

its more like them telling the valuer "hey i want to purchase it at 600 mil, make your valuation report close to that". its the same as they say about housing purchase here in the past. i need to borrow this amount for the property, shift the value close to it.

is it dark? perhaps yes. but end of the day it is still the assets cash generation nature. this is going to last the same duration and produce cash flow that many would underestimate.

this is my guess.

I would say, the previous professional valuation and acquisition proposal were wrong. It is not wrong due to professional incompetency, IMO, but wrong in reality check months later.

What make us so sure that the current valuation is "right" months later, after the reality check then. I am convinced the outlook is good, but the risk is always there.

I would say, the company is lucky that the previous acquisition failed. Will the company remains lucky in future M&A, assuming more to come?

Having said so, I am optimistic on the company, but remains caution on the risks

(vested)