CHINA MERCHANTS HLDGS(PACIFIC)
C22.SI
China Merchants Hldgs (Pacific) - Encouraging start to 2016
- 1Q profit grew 15% to HK$164m, despite weaker RMB
- Led by strong growth at Yongtaiwen E’way
- Newly acquired roads in Guangxi also boost profit
- Maintain BUY, TP S$1.25
A growing Pan-China toll road play.
- We like China Merchants Holdings (Pacific) as a growing toll road operator in China, and also for paying an dividend yield of c.8.0%.
- Bolstered by the acquisition of six toll roads in the last five years, and with continued firm support from its parent China Merchants Group, a top ten SOE in China, we believe the group’s earnings is on a steady long-term growth path.
- We recommend BUY, with a DCF-based TP of S$1.25.
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 to grow by 38% to HK$822m from 2015 to 2017F, driven by contribution from these recent acquisitions as well as modest traffic growth on its mature toll road assets.
- Meanwhile, there remains room for debt-funded acquisitions should the right opportunity comes along, as net gearing is not yet optimised at 0.6x.
Consistent and attractive dividend yields.
- CMHP has been consistently paying attractive dividends to its shareholders (7 Scts per share per annum in the last two years).
- We project CMHP to maintain its 7-Sct payouts for FY16 and FY17, translating into an attractive dividend yield of 8% at the current share price.
Valuation:
- Our 12-month target price of S$1.25 is based on DCF valuation with WACC of 9.8%, and offers > 40% upside with an attractive dividend yield of c. 8%.
- 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
- its 100% exposure to the Chinese economy and Rmb,
- its earnings would be negatively impacted if toll rate tariffs are revised downward.
Paul YONG CFA
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2016-04-29
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