China Merchant Hldgs (Pacific): Good Value with Attractive Yield

The company’s results were in line with expectations, with earnings decreasing 22% yoy to HK$63.0m, due to weak property market in New Zealand. The property development business continued to make an operating loss of HK$6.5m in 1Q09. However, toll roads, as the company’s key business, saw steady growth, with PBT from toll roads up 12% yoy to HK$58.2m in 1Q09, accounting for 87.5% of total Group PBT, backed by 7.6% increase in toll revenue. CMH’s balance sheet remained healthy as well, with net cash of HK$721m or S$0.24/share by end of 1Q09.

Looking ahead, the property market in New Zealand is expected to remain weak for the rest of the year, whereas the business outlook for toll roads in China remains relatively positive. In the meantime, CMH continues to be in the process of looking for acquisition opportunities, to improve its road portfolio.

Maintain BUY. Target Price S$0.64, unchanged based on 7% target yield, which we believe is achievable considering toll roads defensive earnings profile and the management’s commitment to >50% dividend payout. The counter is currently trading at c. 6x FY09 P/E, well below the peer average of around 12x FY09 P/E, and offers an attractive prospective yield of 9.3%. The stock has good value at the current price, but the management needs to deliver on acquisitions in order for the stock to re-rate.

Sponsored Links