BUY S$0.56 STI : 2,743.58
Price Target : 12-Month S$ 1.02 (Prev S$ 1.08)
Reason for Report : Update following completion of acquisition
Potential Catalyst: Earnings growth and delivery
DBSV vs Consensus: We are the only broker covering this stock
• Acquisition of Yongtaiwen Expressway completed with possibly more on the way
• FY12F revenue and earnings boosted to c. HK$1.6bn and HK$500m respectively
• Current valuations compelling at 6x FD FY12 PE and prospective 8.9% yield
• Recommend BUY with S$1.02 TP; stock is also trading cum dividend of 2.5Scts
Transformational deal completed. On 6 July, CMHP completed the acquisition of a 51% stake in Yongtaiwen Expressway (YTW), Wenzhou, for RMB2.23bn and will be able to consolidate the P&L numbers of YTW from 6 July onwards. The acquisition will be funded via both internal resources and debt, and will nearly double CMHP’s EPS from 4.9Scts in FY10 to 9.3Scts in FY12F on a fully diluted basis.
More acquisitions could be on the way. As the only listed toll road subsidiary of China Merchants Group, we believe CMHP can leverage on the support and network of its parent, a leading toll road operator in China with investments in more than 5,000km throughout the country, to make further acquisitions to grow its toll road asset portfolio. Currently amongst the smallest listed PRC toll road companies, CMHP has the potential to grow to become one of the largest, with the right execution.
High yield play with growth potential; BUY. Our target price of S$1.02 is based on explicit cash flow forecasts until the end of concessions for CMHP’s various toll road assets (WACC of 9.7%). CMHP is trading at 8.6x FD FY11 PE, declining to 6x FD FY12 PE whilst offering FY11 dividend yield of 8.9%, rising to 9.8% and will sustain a high dividend payout level of 50%-70% while pursuing its acquisition strategy.
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