China Merchants Hldgs (Pacific) - DBS Research 2016-04-29: Encouraging start to 2016

China Merchants Hldgs (Pacific) - DBS Research 2016-04-29: Encouraging start to 2016 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.


  • 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 
    1. its 100% exposure to the Chinese economy and Rmb, 
    2. its earnings would be negatively impacted if toll rate tariffs are revised downward. 

Paul YONG CFA DBS Vickers | http://www.dbsvickers.com/ 2016-04-29
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.25 Same 1.25