Sichuan Expressway (107 HK, HK$2.61)-meeting takeaways

Sichuan Expressway hold the investor meeting. The following is the meeting takeaways.

n For FY12/08A, the revenue of Sichuan Expressway increased 2.3% YoY to RMB1,347.1m with net profit up 9.9%YoY to RMB544.5m. The net margin increased 2.8 pcp YoY to 40.4%. The revenue from Chengyu expressway (accounting for 60.75% of total revenue) decreased 5.2% YoY to RMB843.9m; revenue from Chengya expressway (accounting for 33.79% of total revenue) increased 19.08% YoY to RMB469.3m; and revenue from Chengbei Exit Expressway and Qinglongchang Bridge (accounting for 5.46%) increased 2.43% YoY to RMB75.9m.

n For the first five month, the revenue of Chengyu Expressway increased 7.5% YoY to RMB383.1m; the revenue of Chengya expressway increased 16.1% to RMB211.8m.

n The company has acquired 100% SC Expressway (operator of Sichuan Chengle expressway) at price of RMB1.1b. For the first five month, the revenue of Chengle expressway increased 31.5% to RMB137.4m. Chengle’s FY12/09 full year revenue would be consolidate to the listco

n Management indicate that the company could make RMB700m-750m net profit for FY12/09F (include full year contribution from Chengle Expressway of about RMB100m)

n The company plans to listed in A share in the middle of this year (probably the end of June to August). The company has get all necessary approval, but need to meet requirement of: 1) issue price will be not higher than its H share price; 2) issue price with more than 1.0x P/B. It plans to issue 500m A shares.

n The management said that the company will issue a special dividend of around RMB400m-500m if it could listed in A share successfully. Furthermore, the company plans a dividend payout ratio of not less than 40% for this year.

n Sichuan Expressway has signed agreement in 1H 2008 to acquire Sichuan section of Suiyu Expressway and Chengnan Expressway at the price of about RMB6b. Management indicate that the acquisition may be finished at the end of 2009 or maybe delayed to 2010.

n The company also announced in May that it was selected as the preferred bidder for BOT project of Chengdu-Meishan Section of Chengdu-Zigong-Luzhou-Chishui (the border between Sichuan Province and Guizhou Province) expressway. The estimated investment is about RMB7.5b and will be completed in 2012. The company expects that this expressway would generate RMB500m revenue for the first year of operation and ROE of 10.5%.

n The company plans to issue short-term commercial papers of RMB2.0b in June.

n The gearing ratio of the company was 12.4% by the end of 2008. (Shenzhen Expressway (548 HK): 93.5%, Anhui Expressway (995 HK): 30.6%, Zhejiang Expressway (576 HK): net cash.)

Valuation. The counter is currently trading at 10.1x FY12/09F P/E based on market consensus, which is lower than other H-share expressway listco average of 12.7x FY12/09F P/E. We think that the market currently underestimates the revenue and net profit of the counter as it has not factored the new contribution from Chengle Expressway.

Table: Peers comparison
	Price	Market Cap	Consensus P/E		P/B	Daily T/O
	(HK$)	(US$)	FY12/09F(x)	FY12/10F (x)	FY12/08A (x)	(US$m)
Shenzhen Expressway (548 HK)	4.02	1599.0	15.5	12.5	1.1	1.4
Zhejiang Expressway (576 HK)	6.03	3359.7	13.1	11.9	1.7	9.7
Anhui Expressway(995 HK)	4.13	1137.9	9.4	9.0	1.1	1.3
Average			12.7	11.1
Sichuan Expressway (107 HK)	2.61	856.5	10.1	9.1	1.0	1.5

Table: Revenue breakdown of Sichuan Expressway (107 HK) (Jan.-May 2009)
	Revenue	YoY	%of total
	(RMBm)	(%)	(%)
Chengyu Expressway	383.1	7.5	49.8
Chengya Expressway	211.8	16.1	27.5
Chengbei Expressway	37.7	22.7	4.9
Chengle Expressway	137.4	31.5	17.8
Total	770.0	14.2	100%
Source: Company data