Hopewell Highway Infrastructure: Interim Results FY 2014/15

Analysis, Slider 27 Jan 2015
Hopewell Highway Infrastructure: Interim Results FY 2014/15

HOPEWELL HIGHWAY INFRASTRUCTURE LIMITED ANNOUNCES FY 2014/15 INTERIM RESULTS

Highlights

• Profit attributable to owners of the Company was RMB261 million or RMB8.48 cents per share

• GS Superhighway’s average daily toll revenue has stabilised at around RMB8.9 million, which

is the level in 2013. The Company believes diversion impact from the full opening of Coastal
Expressway has fully been realised

• Western Delta Route’s EBITDA rose 11% year-on-year to RMB197 million. It is targeted to achieve profit breakeven in the second half of financial year 2015 and will benefit from the People’s Bank of China’s lending rate cut

• The Company believes HHI’s net profit will bottom out in financial year 2015

• Application for Phase II West’s registered capital increase is in process and the first tranche has been approved in January 2015. HHI will receive RMB682 million shareholder’s loan repayment from West Route JV

• Further capital expenditure will be not more than RMB44 million, which is sufficiently funded by the Company’s solid financial position

For the period under review, HHI’s share of the aggregate net toll revenue fell by 2% year-on-year to RMB988 million mainly because the net toll revenue of Guangzhou-Shenzhen Superhighway (“GS Superhighway”) dropped by 6% year-on-year after the full opening of the Coastal Expressway since
28 December 2013.

With the increase in operating expenses due to the increased staff costs of the two PRC JV companies, the aggregate EBITDA of toll expressways decreased by 6% year-on-year to RMB800 million. In addition, the net exchange gain on GS Superhighway JV’s US Dollar and HK Dollar loans reduced to RMB6 million given the slowdown in RMB appreciation to 0.5% in the first half of financial year 2015 compared to 3% in the same period of last year. As a result, profit attributable to owners of the Company declined by 16% year-on-year to RMB261 million.

The Company believes HHI’s net profit will bottom out in financial year 2015 given (i) GS Superhighway’s average daily toll revenue has stabilised at around RMB8.9 million, which is the level in 2013, following the full opening of Coastal Expressway on 28 December 2013; (ii) Western Delta Route maintains healthy growth and is targeted to achieve profit breakeven in the second half of FY15; and (iii) the People’s Bank of China’s lending rate cut for RMB loan announced on 21 November 2014 will benefit the future performance of the Western Delta Route.

On 5 January 2015, the Board of Directors declared an interim dividend of RMB8.4 cents (equivalent to HK10.6376 cents at the exchange rate of RMB1: HK$1.26638) per share in respect of the financial year ending 30 June 2015 (interim dividend of financial year 2014: RMB9.8 cents per share, equivalent to HK12.4590 cents per share).

Shareholders have been given the option of electing to receive the interim dividend in either RMB or HK Dollars or a combination of RMB and HK Dollars. The interim dividend will be paid on 17 February 2015 to shareholders registered at the close of business on 20 January 2015.

Mr. Thomas Wu, Managing Director of HHI, said: “We are pleased to see the encouraging performance of the Western Delta Route. We see strong growth potential in it as it offers direct and convenient access from Guangzhou to the Hengqin State-level Strategic New Zone and to Hong Kong via its connection with the forthcoming Hong Kong-Zhuhai-Macau Bridge.

HHI is well-positioned to benefit from the strong growth in Hengqin and the increase in demand for cross border passenger and freight transportation brought along by the rapid development of these regions.”
Due to the impact from the full opening of the Coastal Expressway, GS Superhighway’s average daily toll revenue fell by 6% year-on-year to RMB8.6 million in the first half of financial year 2015. An 18- km stretch of the Coastal Expressway being toll-free since its opening had resumed tolling from 1
August 2014.

Meanwhile, GS Superhighway’s average daily traffic recorded a mild drop of 1% year- on-year to 459,000 vehicles while its average daily full-length equivalent traffic decreased by 7% year-on-year to 90,000 vehicles. Nevertheless, the average daily toll revenue of the GS Superhighway has stabilised at around RMB8.9 million, which is the level in 2013. The Company believes the diversion impact of the Coastal Expressway on GS Superhighway has fully been realised.

During the period under review, benefitting from the growth in car ownership in Guangdong Province, the average daily traffic and average daily toll revenue of the Western Delta Route continued to grow healthily and achieved 12% and 13% year-on-year growth to 140,000 vehicles and RMB2.8 million respectively.

The total toll revenue derived from the Western Delta Route accounted for 25% of HHI’s shared aggregate toll revenue in the first half of financial year 2015, compared to 22% during the same period last year. Its EBITDA recorded an 11% year-on-year growth to RMB197 million.

It is targeted to achieve profit breakeven in the second half of financial year 2015 when its average daily toll revenue reaches RMB3.2 million for a full month. Besides, its future performance would benefit from the People’s Bank of China’s lending rate cut announced on 21 November 2014.

Phase I of the Western Delta Route (“Phase I West”) recorded healthy growth, attributed to the synergy created among the three phases of the Western Delta Route. Phase I West’s average daily traffic and average daily toll revenue grew by 10% and 6% to 53,000 vehicles and RMB532,000 respectively.

Phase II of the Western Delta Route (“Phase II West”) has continued to grow since its opening in June
2010. Phase II West’s average daily traffic and average daily toll revenue were 112,000 vehicles and RMB1,702,000, representing a growth of 14% and 9% respectively. Phase II West has become profitable since the first half of financial year 2014.

Phase III of the Western Delta Route (“Phase III West”) recorded robust growth with its average daily traffic and average daily toll revenue increasing by 32% and 33% to 25,000 vehicles and RMB546,000 respectively.

Phase III West’s performance is expected to improve along with its traffic and toll revenue ramp-up. Phase III West may achieve its operating cash flow breakeven target (after taking interest expense payment into account) in financial year 2016 when its average daily toll revenue reaches RMB900,000.

HHI has a sound financial plan and enjoys a strong and solid financial position. As at 31 December
2014, HHI’s net cash on hand (excluding JV companies) together with the shareholder’s loan receivable from the West Route JV amounted to RMB1,219 million.

The application for the increase in Phase II West’s registered capital of a total of RMB636 million is in process. The additional registered capital will be injected in stages.

West Route JV had in January 2015 obtained the approval for the first tranche of additional registered capital of RMB212 million in Phase II West to be injected by the Company and the PRC JV partner on a 50:50 basis, out of the total of RMB636 million. Subject to approvals, the increase in registered capital is targeted to complete by mid-2015.

The total additional registered capital of RMB318 million to be injected by HHI will be provided by capitalising an equivalent amount from the RMB1 billion shareholder’s loan advanced by HHI to West Route JV as interim financing previously.

Besides, West Route JV may consider to borrow additional project bank loans. Subsequently, West Route JV may use these funds obtained to repay the remaining shareholder’s loan of RMB682 million provided by the Company and to settle outstanding project payments of not more than RMB320 million. This new financial plan will help

Hopewell Highway Infrastructure Limited Announces FY 2014/15 Interim Results
improve HHI’s liquidity and West Route JV’s financial position, and HHI no longer needs to inject shareholder’s loan into Phase II West.

Further capital expenditure of HHI for Phase III West will be not more than RMB44 million and the amount will be sufficiently funded by HHI’s net cash on hand and available committed undrawn banking facilities. Details of the expressways’ traffic and revenue figures can be found at the website:
www.hopewellhighway.com

Financial Highlights

(in million RMB, unless otherwise stated)

For the six months ended 31 December 2013 2014 % Change
Net toll revenue 1,011 988 -2%
EBITDA of toll expressways 852 800 -6%
Profit attributable to owners of the Company 311 261 -16%
EPS (RMB cents) 10.09 8.48 -16%
Interim DPS (RMB cents/HK cents) 9.8 / 12.4590 8.4/10.6376
30-Jun-14 31-Dec-14
Total debt/Total assets 44% 45%
Net debtN1/Equity attributable to owners of the Co. 78% 74%
Net cash (HHI corporate level)N2 116 219

N1: Net debt is defined as total debt less bank balances and cash, together with pledged bank balances and deposits for

HHI corporate level and share of JV companies.

N2: Net cash is defined as bank balances and cash less corporate debt, excluding JV companies’ bank balances and cash of RMB270 million as at 31 December 2014 (as at 30 June 2014: RMB201 million).

 

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