China Merchants Holdings Pacific

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CMP - 西游记 - Journey To The West

GG will attempt to translate:

CMP making its biggest ever acquisition in its corporate history - acquiring 3 toll roads in the western part of China for RMB3.04bn.

The 3 roads are 53.4km Guixing that is opened to traffic on 2 Apr 2013, 67km Guiyang that is opened to traffic on 19 Dec 2008 and 39.52km Pingyang which opened to traffic on 10 Nov 2008.

Following the acquisitions, CMP's toll road network in China will lift from 415km to an enlarged 575km with average duration of concession under management lifted from the current 13.6 yrs to 16.9 yrs.


CMP intends to fund the acquisitions via a combination of bank financing and potential capital raising via the capital markets depending on mkt conditions.


Including to 138km Guiliu, CMP will have an enlarged toll road network spanning 298km that will provide synergistic benefits and entrenched CMP's position in the Guangxi region.


The acquisition of Jiurui alongside the latest acquisitions will laid important foundations and pave the way for CMP's plans for dual listings on HKSE.
China Merchants Holdings (Pacific) to acquire three expressways in China

The acquisitions will significantly expand the scale of its toll road operations and extend its presence in Guangxi Zhuang Autonomous Region and the People’s Republic of China [Press Release] [SGX Announcement]

This RMB3.04 billion deal is their largest M&A deal thus far in its relatively long corporate history. I will review it and post my thoughts on it after analyzing it. Seems to be expanding to the West, increasing its concession coverage to the 2040s, ideally reducing the financing expense at assets level and so on. Will look at it deeply.

Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk. I am not a qualified financial adviser so I do not give any advice. The postings reflects my own personal thoughts which may or may not be accurate.
There is a lot to digest from the 3 acquisitions. The mkt seems to have like it even though it wasn't mentioned whether equity issue is going to be placement or rights issue. KE says rights issue but wasn't stated in announcement. Typically if it's a rights issue it would dampen the share price. Since a price of $1.01 was mentioned I suspect more of placement instead but we will need to wait and see.

On the face of it from the quick glance, pls correct me freely.

1. Guixing: seems like a good acq as it is a relatively new expressway and some part is still under construction. current yield is 3.5%(after factoring the rmb154m future construction) which although is not accretive but since it is new, not bad as it has past initial start up losses and also some parts under construction will add to future income
This one seems like the Jiuriu acq.

2. Guiyang: accretive acq with yield of 11.8% and paying only nav. is this correct?? too good to be true?

3. Yanping: this is the losing money acq. and paying a premium to nav of50%?? something must be that good here that's not reflected. what have I missed.

4. as a whole all 3 seems to be distressed assets as it has -ve nta.

5. net gearing 52%(plan I and 43%(plan II) which is still not stretched.

note to Mod: we need to improve our forum as I can't copy/paste a simple spreadsheet.
CMP, cimb maintain ADD:

Three acquisitions at one shot
We are in favour of China Merchants Holdings’ (CMH) intended acquisitions
of three toll roads in Guangxi as the acquisitions would 1) provide earnings
diversification to CMH’s existing toll roads; 2) increase the average remaining
concession period of CMH’s toll portfolio and 3) allow earnings enhancement
by CMH via refinancing the debt associated with the acquired toll assets. Due
to insufficient information, our estimates have yet to incorporate the impact of
the acquisitions. Our target price (based on CY15 residual income valuation) is
raised to S$1.18 as we rerate CMH and lower our discount rate applied from
9.5% to 9% to reflect the reduced concentration risk and the potential enlarged
market cap of CMH. We upgrade our call from hold to Add.
What Happened
CMH announced that it has entered into agreements to acquire the issued
shares of three toll road companies that own the operating concessions of
Guixing Expressway, Guiyang Expressway and Yangping Expressway in
Guangxi, China. The acquisitions would elevate CMH’s scale of operations from
five toll roads to eight (with total toll road length increased by 38% from 415km
to 575km) and increase the average remaining concession period from 13.6
years to 16.9 years. The total purchase consideration of Rmb3.04bn represents
a 5% discount to independent valuer’s DCF valuation of Rmb3.21bn (WACC:
10.9%) and would be financed by a combination of debt and equity issuance
(see overleaf for the two possible financing plans as guided by management).
The completion of the acquisitions is subject to CMH obtaining the relevant
regulatory approvals and shareholders’ approval at the EGM.
What We Think
We have said previously that CMH could and should add to shareholder value
by acquiring quality toll assets that have decent investment IRRs and boosting
IRR via its unparalleled cheap borrowing cost of c.3% vs. peers’ 4.5-6%.
Although unconfirmed, either of the two financing plans would increase CMH’s
gearing ratio (debt to the sum of debt and equity), hence further enhancing the
group’s investment returns. Despite the dilution impact in the near term due to
the potential equity issuance and the gestation period for the three target roads,
the acquisitions are expected to be earnings and value-accretive in the long
term given their substantial traffic growth potential.
What You Should Do
CMH’s current 11.3x CY16 P/E ratio is below its Hong Kong peer average of 12x,
as is its 1.05x CY15 P/BV vs. HK peers’ 1.35x.

Attached Files
.pdf   cmp-cimb.pdf (Size: 690.69 KB / Downloads: 21)
CMP, DBS maintain BUY, upgraded target price from $1.44 to $1.54:

Scoring an acquisition hat trick
 Buying three roads in Guangxi Zhuang
Autonomous Region totalling 160km for
 This will lengthen the Group’s road portfolio by
39% to 575km and the average remaining
concession period by c.24% to 16.9 years
 These acquisitions should be EPS accretive from
2017F onwards, and could pave the way for
CMHP to seek a dual-listing in HK in the future
 Maintain BUY with raised TP of S$1.54
Acquisitions provide more scale and longer-term
growth for CMHP. The proposed acquisitions of three
toll roads in Guangxi Zhuang Autonomous Region will
substantially enlarge the Group’s toll road business, and
underpin its longer-term earnings growth – given that
these roads have over 22-26 years of concessions
remaining and are located in a fast-growing region.
Positive for longer-term EPS growth. The estimated
enterprise value of this transaction is RMB8.06bn and
will fully utilise the Group’s balance sheet and more.
Assuming CMHP raises new equity by issuing 231.8m
new shares at S$1.01 (c.20% dilution) to fund this
transaction along with debt, we estimate that the
Group’s net gearing would stand at 0.9x at end-2015F,
declining to 0.8x by 2016F. We also estimate that this
deal would dilute EPS by c.6.8% in 2016 but should
start to be EPS accretive from 2017F (+5.6%) onwards.
Excluding negative goodwill gains on the acquisition,
our core absolute earnings estimates are raised by 1%
and 12% for FY15F and FY16F respectively.
TP raised to S$1.54 (9.8% WACC). Assuming an
equity fund raising as outlined above and factoring in
these acquisitions, our DCF-based TP is raised to
S$1.54. Meanwhile, we also maintain our 7-Sct DPS
forecasts for 2015F and 2016F, translating into 87%
and 72% payouts on core earnings respectively.

Attached Files
.pdf   cmp-guangxi-dbs.pdf (Size: 250.99 KB / Downloads: 16)

(Incorporated in the Republic of Singapore)
Company Registration No. 198101278D
The board of directors (the “Board”) of China Merchants Holdings (Pacific) Limited (the “Company”) wishes to announce that HK$23,000,000 in aggregate principal amount of HK$1,163,000,000 1.25 per cent. convertible bonds due 2017 (credit enhanced until 2015) (the “Convertible Bonds”) have been converted and cancelled pursuant to the exercise of conversion rights by the holder thereof (the “Conversion”). Accordingly, following such conversion and cancellation, the aggregate principal amount of the Convertible Bonds remaining outstanding as of 26 June 2015 is HK$499,000,000.
Arising from such conversion, 4,678,563 new ordinary shares in the capital of the Company (“Shares”) have been issued at the conversion price of S$0.776 and the total number of issued and paid-up Shares of the Company has increased to 1,163,802,868.
Lim Lay Hoon
Company Secretary
Singapore, 26 June 2015

Based on outstanding HK$499m worth of CBs, the potential shares to be converted at $0.776 is 101.505m.
I used to jog along guiyang expressway.... along the trees and rivers by the side..quite fantastic amid the cool temperature 15-20degree Celsius... the traffic wasn't heavy then..
CMP has announced that it will have to raise cash for the latest acquisitions.

Given that CMP cannot issue shares below NAV which currently stands @ S$1.01 (due to legacy SOE guidelines), the tight discount to current market price may expose CMP to the risks of inability to raise the needed capital that is needed for financial prudence.

IMHO, CMP may be looking beyond the straight rights / placement of new shares on SGX to achieve its financial objectives. I think there may be rabbits up the parent co's sleeves.

Parent co gave a very interesting annoucement in Chinese with regards to the acquisitions on their website.

They have outlined the importance of the concluded Jiurui and the latest acquisition for CMP. It further added that these 4 acquisitions will lay an important foundation for CMP to dual list on HKSE.

Perhaps the latest milestone deal could actually result in CMP heading straight onto HKSE like what CapitaMall Retail Asia did in 2011.

Will do more investigations on dual listing prospects.

Very exciting Journey to The West indeed.

Vested and hence Biased
Core Holdings
CMP - HKSE Dual Listing Potential

In the midst of the latest proposals to acquire 3 toll roads in Guilin, I have overlooked the potential of CMP fast tracking its dual listing on HKSE.

CMP's intention to dual list on HKSE was first highlighted in Nov 2013 via a rare interview by The Edge Singapore Weekly.

The latest hint was provided by parent co, China Merchant Huajian's comments with reference to CMP's latest proposal on the above 3 acquisitions:



With reference to CMP, which is Huajian's main flagship in terms of substantial control, Huajian has been actively posting investor relations (IR) comments that CMP have not updated to its holders on SGX. Personally, I think its Huajian's way to increase awareness of CMP while not getting in the way of listing requirements of SGX. Since Huajian is a China based unlisted entity, it has every rights to make comments on its subsidiaries without getting into the way of listed regulators.

The following are recent examples of Huajian's IR efforts on CMP that one can only find on Huajian's CHINESE Website:

15 May 15: CMP's inclusion in MSCI small cap indices -
15 May 15: Transparency awards for CMP by Singapore Institute of Directors (SID) -
25 May 15: Mgt's visit to Guizhou - a hint of the deals in the offing around Guilin -
23 June 15: Huajian's comprehensive comments and vision on CMP's latest acquisitions -

I have factored in CMP's plan 1 in terms of capital raising to fund the latest acquisitions - 20% increase in share capital that will help CMP achieve financial prudence while maintaining its appeal to investors seeking stable returns via dividend yield.

Note that there remains an implicit rule that no Chinese related state owned enterprises (SOE) are able to raise new capital below NAV. Hence I deemed any CMP attempt to do a SGX fund raising as too risky given the tight discount ($1.04 vs NAV of $1.01).

Instead, Huajian is likely to take advantage of CMP's rich dividend yield against its HKSE H share peers to introduce CMP on HKSE. Based on a introduction div yield of 6.25%, CMP's mkt cap will close in on that of the smallest listed peer in Yuexiu.


I have draw on Capitamall Asia's previous experience to dual list on HKSE which took about 7 - 8 months:

28 Mar 11 - First announced intentions -
30 Sept 11 - Prospectus filed on 30 Sept -
18 Nov 11 - Official listing on HKSE -


CMP has been talking about dual listing in HKSE for a while. They have kept their reporting currency in HK$ for the longest time despite being a Singapore incorporated and SGX listed company. They have said that when the time is ripe, they will seek a dual listing on HKSE as investors on HKSE have a better appreciate for the value of China toll sector as a result of peer comparison.

While it remains speculation on my part of such a scenario, the reality of CMP making an entry to HKSE is definitely getting closer.

Attached Files Thumbnail(s)

.xlsx   chinatollsector.xlsx (Size: 11.46 KB / Downloads: 10)
(29-06-2015, 10:05 PM)pianist Wrote: I used to jog along guiyang expressway.... along the trees and rivers by the side..quite fantastic amid the cool temperature 15-20degree Celsius... the traffic wasn't heavy then..

hi pianist, dont tell me its next to lijiang river?
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