CIMB Research 2015-06-24: Upgrade China Merchants Holdings from Hold to ADD with TP S$1.18

Three acquisitions at one shot 

• We are in favour of China Merchants Holdings’ (CMH) intended acquisitions of three toll roads in Guangxi as the acquisitions would 
  1. provide earnings diversification to CMH’s existing toll roads; 
  2. increase the average remaining concession period of CMH’s toll portfolio and 
  3. allow earnings enhancement by CMH via refinancing the debt associated with the acquired toll assets. 
• Due to insufficient information, our estimates have yet to incorporate the impact of the acquisitions. Our target price (based on CY15 residual income valuation) is raised to S$1.18 as we rerate CMH and lower our discount rate applied from 9.5% to 9% to reflect the reduced concentration risk and the potential enlarged market cap of CMH. 
• We upgrade our call from hold to Add. 

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