China Merchants Holdings In Focus

(1 july 2015)
China Merchants Holdings /C22
July 1 close: S$1.04
Target price: S$1.30
     1.)   Sector: Infrastructure operations
     2.)   Core business structure: Toll road in China. The Group currently operates five toll roads. They are the Yongtaiwen Expressway, Beilun Port Expressway, Jiurui Expressway, Guiliu Expressway and Guihuang Highway.
     3.)   Segment that generates the highest revenue: Following the disposal of this non core business in new Zealand, the Group is now wholly involved in toll road business and the Group’s revenue and profits are mainly derived from toll road operations and investments. Notably, Traffic volume recorded by the Yongtaiwen Expresswayincreased by 6.6% to 10.8 million vehicles compared to 10.2 million vehicles a year ago.
     4.)   Countries that the business operates: China
     5.)   Challenges:  Exposed to China’s growth. CMHP’s core earnings are derived entirely from its toll road operations in China, which leaves it vulnerable to China’s country risks. As the group’s functional currency is the Rmb, EPS in S$ terms is subject to SGD/Rmb volatility.
     6.)   Strengths: The toll road operations would surely benefit from the china’s economic shift towards investment driven to internal consumption driven economy. 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.
     7.)   Significant events: The divestment of non-core property development.Business in New Zealand was completed in April 2014.  The acquisition of the Jiurui Expressway was completed on 9 September 2014.
     9.)   GTI Ranking: 396
     10.) TABLE:
      11.)Recommendation: Buy. Through numerous acquisition of toll road operators, the group’s revenue has increased steadily for the past five years. Moreover, high operating cash flow allows the group to meet its debt repayment which are incur due to latest strings of acquisitions.
DISCLAMER: Readers should not rely solely on information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

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