20120227 - CMPacific - DBS Vickers

8/2/2019 20120227 - CMPacific - DBS Vickers

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www.dbsvickers.com

Refer to important disclosures at the end of this reported: MY / sa: JC

BUY S$0.69 STI : 2,978.08Price Target : 12-Month S$ 1.12 (Prev S$ 1.10)Reason for Report : FY11 ResultsPotential Catalyst: Earnings execution; further acquisitions.DBSV vs Consensus: We were the first and of a few brokers to cover thisstock.

AnalystPaul YONG CFA +65 6398 [email protected]

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C h in a M e r ch a n t H l d g s ( P ac if ic ) ( LH S ) R e la t iv e ST I IN D E X ( R H S )

Forecasts and ValuationFY Dec (HK$ m) 2010A 2011A 2012F 2013FTurnover 131 847 1,562 1,639EBITDA 245 736 1,346 1,404Pre-tax Profit 281 538 1,205 979Net Profit 261 314 756 512Net Pft (Pre Ex.) 220 314 487 512EPS (S cts) 5.9 7.1 17.0 11.5EPS Pre Ex. (S cts) 5.0 7.1 11.0 11.5EPS Gth (%) 15 20 141 (32)EPS Gth Pre Ex (%) (49) 43 55 5Diluted EPS (S cts) 4.3 6.1 9.3 9.8Net DPS (S cts) 4.0 5.5 5.5 6.0BV Per Share (S cts) 74.8 79.1 88.8 93.8PE (X) 11.7 9.8 4.0 6.0PE Pre Ex. (X) 13.9 9.8 6.3 6.0

Diluted PE.(X) 16.1 11.4 7.4 7.0P/Cash Flow (X) nm 7.9 7.3 3.7EV/EBITDA (X) 7.5 9.8 5.1 4.4Net Div Yield (%) 5.8 8.0 8.0 8.7P/Book Value (X) 0.9 0.9 0.8 0.7Net Debt/Equity (X) CASH 0.3 0.2 0.1ROAE (%) 6.7 7.7 17.1 10.6

Earnings Rev (%): 0.4 (1.7)Consensus EPS (S cts): 9.5 10.0Other Broker Recs: B: 1 S: 0 H: 0ICB Industry :IndustrialsICB Sector: Industrial TransportationPrincipal Business: Owns and operates toll roads in various provincesin China.

Source of all data: Company, DBS Vickers, Bloomberg

At A Glance Issued Capital (m shrs) 718Mkt. Cap (S$m/US$m) 495 / 394Major Shareholders

China Merchants (%) 82.6

Free Float (%) 17.4Avg. Daily Vol.(000) 151

DBS Group Research . Equity 27 Feb 2012

Singapore Company Focus

China Merchant Hldgs (Pacific)Bloomberg: CMH SP | Reuters: CAEP.SI

High growth and yield

FY11 profit of HK$320m (+20% y-o-y) was slightlybelow our expectations though final dividend of3Scts was higher than our 2.5Scts forecast

FY12 core earnings to grow by >50%, driven byYongtaiwen Eway acquisition; CMHP continuesto look out for new acquisitions

CMHP targets at least 5.5Scts DPS for the next 2years, translating to attractive 7.9% yield

Maintain BUY with slightly raised TP of S$1.12

Core toll road earnings were in line though NZproperty business was a drag. Contribution fromYongtaiwen Eway (from 3Q11 onwards) helped drivenet earnings from toll roads up by 41% y-o-y toHK$350m in FY11. This was partly offset by higher thanexpected losses from the NZ business of HK$30m. Afinal dividend of 3Scts was declared, bringing FY11 totalDPS to 5.5Scts, above our 5.0Scts expectation.

Acquisition(s) to drive growth amid steadydividend payout. We project CMHPs core earnings togrow by 55% in FY12, with full-year contribution fromYongtaiwen Eway, organic growth on all toll roads, andlower losses from NZ property development. FY13 coreearnings are projected to improve 5% even withoutYuhao Highways contribution, driven by organic trafficgrowth. At current net gearing of at 0.4x (consolidatednet debt over shareholders equity excluding MI), CMHPhas debt-headroom to make further acquisition(s) todrive earnings growth. Meanwhile, the Board targets topay at least 5.5Scts DPS for the next 2 years, as CMHPs

operating cash flow remains strong.

Attractive valuation at 7.5x FY12 PE and 7.9%yield. Trading cum dividends of 3Scts, CMHP isundervalued at just 7.5x fully diluted FY12 PE, offeringan attractive prospective yield of 7.9%. The stock alsooffers 60% upside to our DCF-based TP of S$1.12; BUY.


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Company Focus

China Merchant Hldgs (Pacific)

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Results Summary and CommentsFYE Dec (HK$m) FY10 FY11 % Chg CommentsProperty Revenue 121.6 160.8 32

Toll Revenue 9.0 686.6 7510Sale of Luomei in 2010 offset by maiden contribution

from Yongtaiwen E'way (YTW)

Total Revenue 130.6 847.4 549

Cost of Sales (113.6) (464.0) 308Includes provision for warranties and inventories written

down for NZ property business of HK$19.5m

Gross Profit 17.0 383.5 2154

Other Operating Income 68.2 22.8 -662010 includes HK$41.3 Luomei disposal gain. 2010

forex gain of HK$26.5m vs HK$18m for 2011

Distribution Expenses (7.2) (9.4) 31 Higher property sales

Administrative Expenses (44.3) (66.1) 49

Other Operating Expenses (0.1) (0.2) 327

Finance Costs (4.4) (61.9) 1293 Increased debt to finance YTW acquisition

Subsidy Income 16.2 17.3 7

Share of JV results 235.6 252.5 7

Profit before tax 281.0 538.5 92

Tax (13.6) (96.8) 611

Profit After Tax 267.4 441.7 65

Minority Interests 0.0 (121.8) nm

PATMI 267.4 319.9 20 10% below our forecast

PATMI Contribution FY10 FY11Guiliu E'way 88.3 98.1 11 6% higher toll revenue in RMB terms

Guihuang E'way 141.6 151.8 7 3% higher toll revenue in RMB terms

Yuyao Highway 21.8 19.9 -8 Higher tax and amortisation costs

Luomei Highway 1.8 0.0 nm

Yongtaiwen E'way 0.0 126.9 nm Contribution from July 2011 onwards

Disposal Gain on Luomei 41.3 0.0 nm

Other Revenue & Expenses (5.9) (46.4) 690 Higher financing costs at holding company

Property Segment (21.6) (30.4) 41 Wider than expected losses

Total 267.4 319.9 20

Source: Company, DBS Vickers


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Income Statement (HK$ m)FY Dec 2009A 2010A 2011A 2012F 2013FRevenue 211 131 847 1,562 1,639

Cost of Goods Sold (174) (114) (464) (675) (713)

Gross Profit 37 17 383 887 927Other Opng (Exp)/Inc (19) (25) (53) (82) (86)Operating Profit 18 (8) 331 805 840Other Non Opg (Exp)/Inc 68 16 17 17 17

Associates & JV Inc 290 236 252 248 259

Net Interest (Exp)/Inc (4) (4) (62) (135) (138)Exceptional Gain/(Loss) (168) 41 0 270 0Pre-tax Profit 203 281 538 1,205 979Tax (8) (14) (97) (175) (181)Minority Interest 0 0 (122) (268) (279)

Preference Dividend (11) (6) (6) (6) (6)Net Profit 184 261 314 756 512Net Profit before Except. 352 220 314 487 512

EBITDA 377 245 736 1,346 1,404

Growth

Revenue Gth (%) (0.5) (38.0) 548.9 84.3 4.9EBITDA Gth (%) 19.3 (34.9) 200.1 82.8 4.3

Opg Profit Gth (%) 13.9 (143.0) (4,454.8) 143.6 4.3

Net Profit Gth (%) (35.4) 41.9 20.0 141.2 (32.3)

Margins & RatioGross Margins (%) 17.4 13.0 45.3 56.8 56.5

Opg Profit Margin (%) 8.4 (5.8) 39.0 51.6 51.3

Net Profit Margin (%) 87.4 200.1 37.0 48.4 31.2

ROAE (%) 4.9 6.7 7.7 17.1 10.6

ROA (%) 4.7 6.5 4.0 6.6 4.6

ROCE (%) 0.4 (0.2) 3.8 6.6 6.4

Div Payout Ratio (%) 87.5 67.7 78.1 32.4 52.2

Net Interest Cover (x) 4.1 (1.7) 5.3 6.0 6.1Source: Company, DBS Vickers

Margins Trend

-7.0%

43.0%

93.0%

143.0%

193.0%

2009A 2010A 2011A 2012F 2013F

Operating Margin % Net Income Margin %

Yongtiawen Ewaycontribution from 2H11onwards

FY12: Gain from sale ofYuyao Highway

FY12: 50% payout basedon core earnings


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Quarterly / Interim Income Statement (HK$ m)

FY Dec 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011Revenue 31 14 18 390 425

Cost of Goods Sold (29) (13) (14) (169) (268)Gross Profit 2 1 4 221 157Other Oper. (Exp)/Inc (20) (6) (11) 7 (43)Operating Profit (18) (5) (7) 228 115Other Non Opg (Exp)/Inc 4 4 4 4 4

Associates & JV Inc 53 49 79 66 58

Net Interest (Exp)/Inc (1) (1) 0 (25) (35)

Exceptional Gain/(Loss) N/A N/A N/A N/A N/APre-tax Profit 38 48 76 274 142Tax (5) (3) (4) (53) (37)

Minority Interest 0 0 0 (71) (51)Net Profit 32 45 71 150 54Net profit bef Except. 32 45 71 150 54

EBITDA 38 48 76 274 142

Growth

Revenue Gth (%) (30.9) (54.0) 30.1 2,024.0 9.0EBITDA Gth (%) (42.1) 25.9 58.7 262.2 (48.3)

Opg Profit Gth (%) (1,273.5) (72.8) 47.2 (3,226.1) (49.8)

Net Profit Gth (%) (47.9) 38.7 59.1 109.8 (64.3)

MarginsGross Margins (%) 5.0 7.9 21.2 56.7 37.0

Opg Profit Margins (%) (59.3) (35.1) (39.8) 58.5 27.0

Net Profit Margins (%) 105.5 318.3 389.2 38.5 12.6

Source: Company, DBS Vickers

Revenue Trend

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Balance Sheet (HK$ m)FY Dec 2009A 2010A 2011A 2012F 2013FNet Fixed Assets 14 14 176 168 161

Invts in Associates & JVs 2,438 2,366 2,165 1,882 1,882

Other LT Assets 14 13 7,081 6,817 6,539

Cash & ST Invts 1,012 1,282 1,505 1,937 2,242Inventory 0 0 0 0 0Debtors 73 22 211 30 38Other Current Assets 454 396 389 389 389Total Assets 4,006 4,093 11,528 11,223 11,250ST Debt 28 66 664 664 414

Other Current Liab 139 69 1,320 504 514

LT Debt 0 0 2,519 2,519 2,519

Other LT Liabilities 22 12 365 365 365

Shareholders Equity 3,817 3,946 4,171 4,683 4,949Minority Interests 0 0 2,488 2,488 2,488Total Cap. & Liab. 4,006 4,093 11,528 11,223 11,250Non-Cash Wkg. Capital 388 350 (719) (85) (88)

Net Cash/(Debt) 984 1,216 (1,678) (1,247) (691)Debtors Turn (avg days) 147.1 133.4 50.2 28.1 7.5Creditors Turn (avg days) 210.4 275.5 506.2 409.8 40.6Inventory Turn (avg days) N/A N/A N/A N/A N/AAsset Turnover (x) 0.1 0.0 0.1 0.1 0.1Current Ratio (x) 9.2 12.6 1.1 2.0 2.9Quick Ratio (x) 6.5 9.7 0.9 1.7 2.5Net Debt/Equity (X) CASH CASH 0.3 0.2 0.1Net Debt/Equity ex MI (X) (0.3) (0.3) 0.0 0.3 0.1Capex to Debt (%) 0.0 1.3 0.3 0.1 0.1

Z-Score (X) NA 8.0 0.9 1.4 1.5

Cash Flow Statement (HK$ m)FY Dec 2009A 2010A 2011A 2012F 2013FPre-Tax Profit 203 281 538 1,205 979

Dep. & Amort. 1 1 136 274 288

Tax Paid (14) 0 (14) (175) (181)

Assoc. & JV Inc/(loss) (290) (236) (252) (248) (259)

Chg in Wkg.Cap. 39 (35) (22) (635) 3

Other Operating CF 146 (33) 0 0 0Net Operating CF 85 (21) 386 422 829Capital Exp.(net) 0 (1) (9) (2) (2)

Other Invts.(net) 106 133 (1,567) 0 0

Invts in Assoc. & JV 0 0 107 282 0

Div from Assoc & JV 221 285 275 248 259

Other Investing CF 0 0 0 0 0Net Investing CF 327 418 (1,193) 529 257Div Paid (152) (177) (318) (520) (530)

Chg in Gross Debt (26) 32 1,317 0 (250)

Capital Issues 0 0 0 0 0

Other Financing CF 0 0 0 0 0Net Financing CF (178) (145) 1,000 (520) (780)Currency Adjustments 3 19 30 0 0

Chg in Cash 238 270 223 431 305

Opg CFPS (HK cts) 7.9 1.9 56.8 147.1 115.0Free CFPS (HK cts) 14.6 (3.1) 52.5 58.5 115.1Source: Company, DBS Vickers

Asset Breakdown (2011)

Net FixedAssets -4.3%

Associates'/JVs 53.4%

Bank, Cashand Liquid

Assets -37.1%

Inventory -0.0%

Debtors -5.2%

Capital Expenditure

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2010A 2011A 2012F 2013F

Capital Expenditure (-)

Acquisition of YTWEway in 2011


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DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)BUY (>15% total return over the next 12 months for small caps, >10% for large caps)HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)FULLY VALUED (negative total return i.e. > -10% over the next 12 months)SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)Share price appreciation + dividends

DBS Vickers Research is available on the following electronic platforms: DBS Vickers (www.dbsvresearch.com); Thomson(www.thomson.com/financial); Factset (www.factset.com); Reuters (www.rbr.reuters.com); Capital IQ (www.capitaliq.com) and Bloomberg(DBSR GO). For access, please contact your DBSV salesperson.

GENERAL DISCLOSURE/DISCLAIMERThis report is prepared by DBS Vickers Research (Singapore) Pte Ltd ("DBSVR"), a direct wholly-owned subsidiary of DBS Vickers Securities

(Singapore) Pte Ltd ("DBSVS") and an indirect wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH"). This report isintended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any form or by anymeans or (ii) redistributed without the prior written consent of DBSVR. It is being distributed in the United States by DBSV US, which acceptsresponsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein shouldcontact DBS Vickers Securities (USA) Inc (DBSVUSA) directly and not its affiliate.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers toDBSVR, DBSVS, and/or DBSVH) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressedare subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this documentdoes not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This documentis for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtainseparate independent legal or financial advice. DBSVR accepts no liability whatsoever for any direct, indirect and/or consequential loss(including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given inrelation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is awholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time totime have interests in the securities mentioned in this document. DBSVR, DBSVS, DBS Bank Ltd and their associates, their directors, and/or

employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking,investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and therecan be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or r iskassessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete orcondensed and it may not contain all material information concerning the company (or companies) referred to in this report.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates andassumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates onwhich the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly fromactual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TOBE RELIED UPON as a representation and/or warranty by DBSVR, DBSVS and/or DBSVH (and/or any persons associated with the aforesaidentities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or riskassessments stated therein.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating tothe commodity referred to in this report.

DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or researchdepartment, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any USpersons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in anysecurity discussed in this document should contact DBSVUSA exclusively.

ANALYST CERTIFICATIONThe research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about thecompanies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her

compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 27 Feb2012, the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securitiesrecommended in this report (interest includes direct or indirect ownership of securities, directorships and trustee positions).


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COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the company mentioned asof 23 Feb 2012

2. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered broker-

dealer, may beneficially own a total of 1% or more of any class of common equity securities of the company mentioned as of27 Feb 2012.3. Compensation for investment banking services:

i. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA may have received compensation, within the past 12months, and within the next 3 months receive or intends to seek compensation for investment banking services from thecompany mentioned.

ii. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investmentbanking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain furtherinformation, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussedin this document should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTIONGeneral This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident

of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or usewould be contrary to law or regulation.

Australia This report is being distributed in Australia by DBSVR and DBSVS, which are exempted from the requirement to holdan Australian financial services licence under the Corporation Act 2001 [CA] in respect of financial services providedto the recipients. DBSVR and DBSVS are regulated by the Monetary Authority of Singapore [MAS] under the lawsof Singapore, which differ from Australian laws. Distribution of this report is intended only for wholesale investorswithin the meaning of the CA.

Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated bythe Hong Kong Securities and Futures Commission.

Singapore This report is being distributed in Singapore by DBSVR, which holds a Financial Advisers licence and is regulated bythe MAS. This report may additionally be distributed in Singapore by DBSVS (Company Regn. No. 198600294G),which is an Exempt Financial Adviser as defined under the Financial Advisers Act. Any research report produced by a

foreign DBS Vickers entity, analyst or affiliate is distributed in Singapore only to Institutional Investors, ExpertInvestors or Accredited Investors as defined in the Securities and Futures Act, Chap. 289 of Singapore. Anydistribution of research reports published by a foreign-related corporation of DBSVR/DBSVS to Accredited Investorsis provided pursuant to the approval by MAS of research distribution arrangements under Paragraph 11 of the FirstSchedule to the FAA.

United Kingdom This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in themeaning of the Financial Services and Markets Act and is regulated by The Financial Services Authority. Researchdistributed in the UK is intended only for institutional clients.

Dubai/

United ArabEmirates

This report is being distributed in Dubai/United Arab Emirates by DBS Bank Ltd, Dubai (PO Box 506538, 3rd

Floor,Building 3, Gate Precinct, DIFC, Dubai, United Arab Emirates) and is intended only for clients who meet the DFSAregulatory criteria to be a Professional Client. It should not be relied upon by or distributed to Retail Clients. DBSBank Ltd, Dubai is regulated by the Dubai Financial Services Authority.

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jurisdictions.

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20120227 - CMPacific - DBS Vickers