Tuesday, February 16, 2016

A quick stress test on CM pacific

Taken from 2014 AR. The bulk of loans are loans F and G which are in USD and depend on BBA libor rate. CMPH loans are all amortized

Assume 7.78 HKD to 1 USD and interest rate as what is stated in 2014 AR.

The amount of money to be paid over the next few years including interest cost are:

2016: 703 mio HKD
2017: 751 mio HKD
2018: 890 mio HKD
2019: 879 mio HKD

Capex for 2015 9M is the highest for the last 6 years, at 150 mio. Assume
A higher capex of 200 mio  due to more expressways and the fact that Guixing is not fully completed. And that they need to pay 743 mio HKD. As dividends for the enlarged base

They need to generate OCF of 1.66 billion of HKD, and they need to add 100 mio for Q4. Not tall order.

2018 is the year they need to pay the highest loan. 890 mio. So they need an OCF of about 1.85 billion.

If we annualise 9 M 2015 results, OCF will be about 2 billion. So there is some buffer. There is excluding the 3 new acquisitions' contributions.

Assume interest rate increase by 1% in 2016( unlikely if u ask me), 2% in 2017 and normalized at 3% in 2018.

Repayments of loans will be:

2016: 731 mio
2017: 798 mio
2018: 941 mio

Assume HKD weakens by 10%, 8.85HKD to 1 US dollar

2016: 750 mio
2017: 810 mio
2018: 971 mio

Assume double whammy of strengthening USD and hiking of interest:

2016: 778 mio
2017: 857 mio
2018: 1.22 bio

If the company can generated 2 billion of OCF, it can still maintain dividends in the   double whammy situation.

Hence, I think we should seriously worry more about the operating business than what many people are harping on, currency and interest hike.

I wanted to post this before their annual results so that readers can see for themselves what OCF they can generate for themselves with a quarter of contribution of 3 expressways.

If full year 2015 OCF hits 1.8 - 2 billion, I will sleep well.

If the tolls start falling due to economic slowdown (less goods transport around the country), I will study how big the fall is and decide if I will reduce or cut loss.

1. Hi SI,

This is great! Another side of the story.
Don't be offended, I gg to poke u! :-)

Is it better to do stress test before buy or after buy? hehe.

Or just like CW said less analyzing more investing!

2. Rolf,
No worries, of course do stress test before buy la; better. I must confess I silly... Lol

But I also agar agar du du before... I look at the strong and rather stable FCF and the fact it is improving.

Look at the buffer, think that it will be enough to handle interest and currency movements( NOT shocks)

But when Chua said the buffer and MOS is very small, I want to ascertain it be numbers. I am glad I am more right than my agar agar.

I thought it willbe handle either rate hike or currency but not both happening at the same time. But it could ... Hehehe

Rather be sillily lucky than be intelligently unfortunate.

傻人有傻福

1. Actually, why I agar agar du.

Because in the end, we cannot control a lot of things. Could USd strengthen beyond 10%? Of course yes.

Could interest rate go higher than 3%, unlikely.

But most importantly, the operating numbers, could it turn for the worse and make all these numbers crunching meaningless? Yes! Yes! Yes!

But why buy? Track records lor. China loans interest are ridiculously high! 18% is the "norm", I read from YZJ AR PBOC rate is already 6% (IIRC) in 2013. But looking at the AR of 2014, having a "merchant" parent has its advantages of "cheap" finacing.

This is well the reason why Jiurui can be turned around so quickly and I suspected it's the same reason for Yanping.

Seriously, I am more worried about operating numbers as the highest margin toll is of goods vechicles

2. Even u think u can control, the stock market will also behave crazy. Even Saudi who was the main culprit of sending oil price to floor n who think they can control the market also find it hard now.

China and CMHP will be just fine in the long term. China merchant is a very strong backing. i When CMHP not good, then the whole market will be doing bad also. Vehicles in the long term in China will only go up n not down. Even toll may increase!

But the next 2-3 yrs may have pain, so better to spread out purchase of CMHP or just include it as part of ur dividend portfolio. 10 lots 10 lots buy very fast will run out of ammo.

3. Hi SI

Thanks for this exercise. I've been lazy trying to figure out their amortization of loans and the various sensitivity analysis impact on the increase and decrease of various factors. Bravo to you.

I've done something similar to this but looking at it more from an FCF angle (no difference actually with OCF which you are doing) and comparing them against the required return on their weighted average concession of 26.9 years. If we divide them 1/26.9, we get 5.9% yield and this is the minimum required fcf yield i need to have at least. Fortunately, the fcf yield is still higher at about 13%, so that makes the difference of 13-5.9 = 7.1% yield as premium, which then we will need to consider the loans from there.

Given your exercise, it does seem that the mos is not very huge at this point, but the key is they are AT THIS POINT when some of their tollways are still at their infant stages, especially those newly required ones. If they are able to surprise on the upside, which I believe that's the management intention, then we can see mos spread wider and we could have a better outlook than what we are seeing now.

Perhaps, that's the reason I am still holding play now and trying to see any hints of operating business improving.

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