China Merchants Pacific

China Merchants Pacific: 1Q15 results missed estimates, as net profit fell 4% to HK$142.3m on revenue of HK$494.3m (+6%). The higher top-line was largely due to revenue growth from Yongtaiwen Expressway (+4.5%) and the consolidation of revenue contribution from Jiurui Expressway acquired in Sep '14.

This was partially offset by a marginal decline in revenue from the Beilun Port Expressway, as a result of the change in traffic mix whereby traffic flow of passenger vehicles with lower toll rates increased and the traffic flow of goods vehicles with higher toll rates decreased.

Accordingly, Yongtaiwen Expressway, Beilun Port Expressway and Jiurui Expressway contributed 77.3%, 17.6% and 4.7% of total revenue respectively. Gross margin improved 1.3ppt to 55.8%.

Bottom-line was however weighed by a 17% decline in JV contributions to HK$63.5m, due to lower contributions from Gui Huang Highway. Additionally, finance costs rose 7% to HK$33.0m, as a result of increased bank borrowings.

The performance of the Guihuang Highway was affected by the decline in toll revenue of 6% y/y, and a one-off compensation of HK$16.5m received from a local government-linked enterprise in 1Q14. Excluding the impact of the one-off compensation, profit contribution from the Guihuang Highway would have increased 10% over the same period last year.

Going forward, the group guides that despite signs of slowing growth in the Chinese economy, CM Pacific remains optimistic about the business outlook of the toll road industry in China and expect its toll road business to continue to deliver positive results.

Balance sheet remains fairly strong with net gearing at just 29.7%.

The stock continues to sit in Market Insight’s yield portfolio, backed by a forward yield of 5.9%.