China Merchants Hldgs (Pacific) - DBS Research 2015-10-13: Growing Greatness

China Merchants Hldgs (Pacific) - DBS Research 2015-10-13: Growing Greatness CHINA MERCHANTS HLDGS(PACIFIC) C22.SI 

China Merchants Hldgs (Pacific) - GROWING GREATNESS 

Acquisitions to drive bottom line expansion. 

  • The recently completed acquisitions of Jiurui Expressway and three toll roads in Guangxi Zhuang Autonomous Region should propel the group’s top and bottom lines in the medium to long term. 
  • We project CMHP’s core earnings will grow by nearly 50% from HK$675m in 2014 to HK$1,004m by 2017F, driven by contribution from these recent acquisitions. 

Value-accretive acquisitions a potential catalyst. 

  • Over the last four years, the group has acquired six expressways, disposed off a Class 1 highway (Yuyao Highway), and its property development business in New Zealand, which have streamlined and expanded its core expressway business. We believe the group will continue to look for expressway acquisitions to expand its business, which could be a catalyst for a re-rating of its share price. 

Consistent and attractive dividend yields. 

  • CMHP has b Consistent and attractive dividend yields een consistently paying attractive dividends to its shareholders (7Scts per share per annum in the last two years). We project CMHP will maintain 7Scts payout for FY15 and FY16 (< 85% payout), translating into an attractive 7.7% yield currently. 


  • Our 12-month target price of S$1.45 is based on DCF valuation with WACC of 9.8%, and offers > 60% upside. We see the stock re-rating as it delivers earnings growth. 

Key Risks to Our View: 

  • Exposure to Chinese economy and regulatory risks. 
  • Key risks for the group are 
    1. its 100% exposure to the Chinese economy and Rmb, 
    2. its earnings would be negatively impacted if toll rate tariffs are revised downwards.

Paul YONG CFA DBS Vickers | http://www.dbsvickers.com/ 2015-10-13
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