China Merchants Holdings (Pacific) Ltd (SGX: C22) had released its fiscal 3rd-quarter earnings yesterday evening.
China Merchants Holdings, which is part of the Chinese state-owned enterprise China Merchants Group, is a leading toll road company focused on investing in and managing toll roads in the PRC. These roads form the main component of the national and provincial road networks, being well situated to connect destinations that provide traffic growth opportunities.
Let’s take a look at China Merchant Holding’s report card for the 3rd quarter ended 30 September 2015 (Do note that the figures are in HKD dollars, which converts to around 5.5 HKD for every SGD).
Total revenue inched up 4% to HK$548.78 million, on the back of revenue growth from the Yongtaiwen Expressway and the consolidation of revenue from the Jiurui Expressway and Yangping Expressway acquired in the past year.
However, net profits came in at HK$266.9 million, 12% lower than that of the corresponding period in 2014. The drop in its net income can primarily be attributed to i) a drop in other operating income due to an absence of negative goodwill of HK$22.8 million recognized in 2014 arising from the acquisition of subsidiaries ii) lower profit contribution from Share of results of joint ventures in the Group’s two toll roads, namely Gui Liu Expressway and Gui Huang Expressway.
On the balance sheet front, the company is in a net-debt position with a cash hoard of HK$3.63 billion and interest bearing borrowings of HK$4.71 billion. While the long-term borrowings have roughly remain unchanged, we can see a 123% surge in its short-term liabilities from HK$402 million to HK$897 million. According to the earnings release, the jump in borrowings is driven by the consolidation of Yangping Expressway and increase in short term loans for working capital requirements.
Moving on to the cash flow statement, China Merchant Holdings’ cash flow from operations had an impressive jump of 47.7% from HK$367.46 million to HK$542.80 million, mainly due to exchange difference gains, a jump in both Trade and other receivables and Trade and other payables.
Meanwhile, cash and cash equivalents skyrocketed from a negative HK$1.3 billion to a positive HK$1.9 billion, propelled through the issue of shares pursuant to preferential offering and mitigated by a net cash outflow on acquisition of subsidiaries as well as a lump sum payment of dividends.
Valuation and Prospects
Chairman and CEO Mr Luo Hui Lai gave some insights to the company’s future growth plans:
“The acquisitions of the Guixing Expressway, Guiyang Expressway and Yangping Expressway were completed in September and October 2015. These newly-acquired toll road assets are expected to have a positive impact on the Group’s toll road profits. Underpinned by the stable economic growth in the respective regions where the Group’s toll roads are located, we expect our toll road business to continue to be profitable”
China Merchant Holdings last changed hands at S$0.985, trading at around 9.7 times its 12 months trailing earnings. It also dishes out an attractive 6.78% dividend yield, which could entice investors with both high dividend yields and stable growth prospects in the form of toll road acquisitions.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.