China Merchants Hldgs (Pacific) - DBS Research 2015-11-06: 3Q core earnings in line

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CHINA MERCHANTS HLDGS(PACIFIC) C22.SI 

China Merchants Hldgs (Pacific) - 3Q core earnings in line 

• 3Q earnings of HK$168m largely in line, but fell 20% y-o-y due to the absence of some non-operating gains 
• Long-term growth outlook intact, driven by recent toll road acquisitions 
• We continue to like the company for its strong cash flow generation, acquisition-driven growth and attractive dividend yield 
• Maintain BUY, TP S$1.45 

Highlights 

CMHP reported core 3Q earnings that were in line with our expectations. 

• Revenue rose 4% y-o-y in 3Q to HK$549m on higher revenue from Yongtaiwen E’way and contribution from Jiurui E’way. 
• Gross profit rose a quicker 8% y-o-y to HK$335m. However, due to significantly lower other income (-85% y-o-y to HK$7m) from 
  1. absence of negative goodwill of HK$22.8m in 3Q14, 
  2. lower deferred income and effective interest on other receivables recognised, and 
  3. forex losses in 3Q15 vs gains in 3Q14 
  as well as lower contributions from the Guiliu and Guihuang JVs, PBT fell by 7% y-o-y to HK$357m. 
• With higher non-controlling interest due to growth in profits from Yongtaiwen E’way, PATMI fell by 20% y-o-y to HK$168m. 
• At the individual toll road level, Yongtaiwen E’way posted a better-than-expected profit growth of nearly 8% y-o-y to HK$103m, while Beilun Port’s contribution fell slightly by 3% y-o-y to HK$30.6m. 
• Jiurui E’way earnings rose 57% y-o-y to HK$4.5 and there was lower contribution from both Guiliu (- 4% y-o-y to HK$38.4m) and Guihuang (-19% y-o-y to HK$30.5m). 
• Both JVs saw their revenues decline due to a change in road network, and adverse weather conditions, along with other road-specific factors. 

Outlook 

Acquisitions to drive bottom-line expansion. 

• The recently completed Jiurui Expressway acquisition and acquisitions of 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 to grow by nearly 50% from HK$675m in 2014 to HK$1,004m by 2017F, driven by contribution from these recent acquisitions. 

Valuation: 

• Our 12-month target price of S$1.45 is based on DCF valuation with WACC of 9.8%, and offers > 45% upside. 
• We see the stock re-rating as it delivers earnings growth.

Paul YONG CFA DBS Vickers | http://www.dbsvickers.com/ 2015-11-06

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.45 Same 1.45