China Merchant Hldgs Rate hikes to drive earnings in 2H07

Comment on Results Outlook Recommendation
2Q07 results were in line, with
bottomline up by 23% to y-o-y
HK$88.3m and revenue up by 27% yo-
y to HK$120m. The firm
performance was led by the Group’s
toll road business, which registered a
36% y-o-y increase in contribution to
overall PBT in 2Q07. This was
underpinned by increase in traffic
volume for both Guiliu Expressway
and Guihuang Highway as well as rate
hike increases for both these toll roads
during the quarter
An interim dividend of S 2.75cts was
declared, the same as last year.
We remain positive on the prospects
for CMH, whose earnings should be
driven in the long run by increasing
utilisation of its toll roads, as China’s
economy powers on and car
ownership in the PRC continues to rise.
Looking ahead, we are expecting a
stronger second half for the Group,
driven by a 30% rate hike increase for
Guihuang Highway w.e.f. 1 June as
well as an 8% rate hike for Guiliu
Expressway w.e.f. 10 May.
Offering a prospective net yield over
6.5%, we maintain our BUY call on CMH
(Pacific). Our target price of S$1.18 is
based on a target net yield of 5.5% for
FY08.
A potential catalyst for re-rating could
be in the form of toll road acquisitions,
following a recent corporate
restructuring exercise to bring majority
ownership of the Company directly
under the China Merchants Group from
China Merchants International
previously. We have not assumed any
acquisitions in our estimates.