I never intended to buy overseas stock actually, but got really attracted in this company after reading about it on a fellow investor/blogger site.
This is a toll road company owning (co-owning) 4 major expressways/roads in China. What does it do? To simplify, this is basically a 'ERP' collection company. All traffic using these expressways will have to pay charges.
What are its "statistics" like? The 4 roads totaled approximately 367km with a traffic volume of about 50 million vehicles per year. That translates to about $2.2billion RMB revenue a year.
It owns 51%, 100%, 40% and 60% of each expressway respectively, connecting fast-growing regions such as Zhejiang (Hangzhou, Wenzhou, Taizhou), Guangxi (Guilin, Liuzhou, Nanning), Guizhou (New airport to Guiyang capital). These areas are all under-going economic/tourism developments, with rising traffic demands.
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The major factors enticing me to purchase these stock are:
1) STRONG Backing
The parent of this company is China Merchant Group, which is one of the largest state-owned enterprise directly under the China State Council (国务院).
In local text, it's 'ahgong' company. You think Singapore ERP gantries will collapse meh?
2) Strong history of growth and dividends.
Consistently giving out dividends since 1992 without a single rights issue. The dividends have also been growing consistently, just like how ERP gets more and more expensive every year.
Future toll rates "adjustments"? Yes! Yes! Yes!
3) Strong balance sheet
The net gearing (aka debt) of the company is only 28%, which is relatively low. This allows room for more acquisition in the future. (Buy more roads, build more ERPs!)
In addition, it enjoys extremely low borrowing costs given its status as "gahment-link" company. (2.5% compare to 4 to 6% by its competitors)
4) Relatively cheap valuation
The price to book ratio of the company is 0.8 (selling at 20% discount to its net asset value), with a p/e ratio of 7.4 (among the lower ones in the industry)
That sounds pretty attractive to me. Finally, I guess it helps diversify my investments a bit to the overseas market.
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Of course, there are always potential risks, such as:
1. Slow down in China economy -> less cars -> less revenue.
2. Potential competing roads opening that divert away traffic from the expressways.
3. New government policy curbing toll rates growth... (Would not be worry if it's in Singapore......)
4. Currency - Overseas stock means exchange risk if RMB falls against SGD.
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Regardless, after reading through research reports and several opinions, I feel that the fundamentals of the company is sound with a strong economic moat.
It's 7.5% dividend is the main temptation (I'm expecting to receive $700 in dividends every year!). It's only giving out 60% of its profit and it's already 7.5% yield. Definitely room for further growth here.
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