Wednesday, September 21, 2011

Jiangsu Expressway purchased

This morning I added some more share in Jiangsu Expressway (HK:177) to the portfolio. With a trailing PE of around 9.2x and a yield of more than 7.5% the company offers sound value. While the toll road sector has been something of a victim of the PRC government's anti-inflation measures (i.e. reduced tolls), the net profit attributable to shareholders still rose slightly in the last interim reporting period. Gearing is moderate.

I paid HK$5.52 per share.


Daryl said...

What do you think of the measures instituted by the PRC government, as well as public opinion in China that the tolls are generally too high? The first reports of China's government interference only came out in Jun 15, and would not have affected Q1. Do you think Q2 would be greatly affected?

traineeinvestor said...

My HK$0.02 worth is that in general tolls are not too high. If you look at the ROA and ROE of the toll road operators in general and take into account the life of the concessions, its difficult to argue that the tolls are too high. While it is true that the cost of an asset is not a determinant of the price of the services sold off the back of that asset, if toll roads were expected to be at lower levels, many of the roads would either not have been built or would have required a longer concession term and/or bigger subsidies.

Consumers will always claim that prices are too high - so I don't place much store in that.

Governments the world over are very quick to push costs away from consumers where they can - it makes them more popular, so I don't accept the PRC government's assertions either. A look at the losses they are causing Sinopec and Petrochina illustrates the point very nicely.

I expect Q2 revenues to be affected. I don't know by how much. Lower toll charges will mix with rising operating costs, higher traffic, changes in debt levels and (for some opperators)
expanded sources of revenue. Your guess is as good as mine, but the market seems to be assuming lower
future earnings.