China Merchant Hldgs (Pacific): Toll Road Business in Steady Growth

CMH’s 1H09 results are largely in line with our expectations, with earnings down 9.5% y-o-y to HK$162.2m, mainly due to the losses in its New Zealand property business.

1H09 revenue decreased by 36.6% y-o-y due mainly to much lower sales of the NZ properties in 1Q09. The property development segment incurred a loss of HK$12.1m in 1H09 vs HK$23.9m PBT in 1H08. The prospects of NZ property market remain challenging in 2H09.

Toll road business, as the Group’s main profit contributor, realized strong growth in 1H09, with PBT from toll roads rising 9.9% y-o-y to HK$134.6m, accounting for 79.5% of the Group’s total. The outlook for the toll road business in China remains positive.

B/S remained strong. Net cash/share reached S33.0cts by end 1H09. C/F was still robust, with HK$59.3m operating cash flow from the property segment and HK$216.7m dividends from toll road business.

Re-iterate BUY, TP revised to S$0.60, based on 5% target yield for FY10. The counter is offering an attractive current yield of 8%. Potential catalyst would be earnings-accretive acquisitions of road assets.

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