Scoring an acquisition hat trick
- Buying three roads in Guangxi Zhuang Autonomous Region totalling 160km for RMB3.04bn.
- This will lengthen the Group’s road portfolio by 39% to 575km and the average remaining concession period by c.24% to 16.9 years.
- These acquisitions should be EPS accretive from 2017F onwards, and could pave the way for CMHP to seek a dual-listing in HK in the future.
- Maintain BUY with raised TP of S$1.54.
Acquisitions provide more scale and longer-term growth for CMHP.
- The proposed acquisitions of three toll roads in Guangxi Zhuang Autonomous Region will substantially enlarge the Group’s toll road business, and underpin its longer-term earnings growth – given that these roads have over 22-26 years of concessions remaining and are located in a fast-growing region.
Positive for longer-term EPS growth.
- The estimated enterprise value of this transaction is RMB8.06bn and will fully utilise the Group’s balance sheet and more.
- Assuming CMHP raises new equity by issuing 231.8m new shares at S$1.01 (c.20% dilution) to fund this transaction along with debt, we estimate that the Group’s net gearing would stand at 0.9x at end-2015F, declining to 0.8x by 2016F.
- We also estimate that this deal would dilute EPS by c.6.8% in 2016 but should start to be EPS accretive from 2017F (+5.6%) onwards.
- Excluding negative goodwill gains on the acquisition, our core absolute earnings estimates are raised by 1% and 12% for FY15F and FY16F respectively.
TP raised to S$1.54 (9.8% WACC).
- Assuming an equity fund raising as outlined above and factoring in these acquisitions, our DCF-based TP is raised to S$1.54.
- Meanwhile, we also maintain our 7-Sct DPS forecasts for 2015F and 2016F, translating into 87% and 72% payouts on core earnings respectively.
(Paul YONG, CFA)
Source: http://www.dbsvickers.com/
Source: http://www.dbsvickers.com/
