Barry Mok, executive director, Hopewell. Photo by Don Tam.
HOPEWELL HIGHWAY Infrastructure Ltd is hoping to hitch a ride on the stimulus express, with China’s 4.5 trln yuan in earmarked spending seen directly boosting the fortunes of such roadway construction and investment firms.
“The stimulus package will directly benefit the Chinese economy, and therefore benefit us, especially our Guangzhou-Shenzhen Superhighway (GSS). It’s definitely a positive factor,” said Hopewell Highway Infrastructure Ltd’s Executive Director Barry Mok.
He added that the company, with a market capitalization of around 13 bln hkd, was in a “strong, solid financial position for future investments.”
“We have quality upcoming projects to enhance shareholder value.”
Hopewell Highway Infrastructure currently has four 50:50 joint venture projects with the Guangdong municipal government, namely: GSS, Phase I West, Phase II West, and Phase III West, with concessionary rights to the first two until 2027 and 2033, respectively.
Phase II West is currently under construction while Phase III West is awaiting government approval.
He said the fact that China was the world’s second biggest vehicle sales market behind the US -- even outstripping the States in first quarter sales – as well as the high 12.8% vehicle ownership ratio in Shenzhen compared with a 3.3% national average, made for a very turbocharged operating environment for Hopewell Highway, whose projects are all in the Pearl River Delta region.
Hong Kong-based Hopewell Highway, which spun off from parent Hopewell Holdings in August 2003, was one of the inaugural foreign enterprises to invest in infrastructure projects in China’s Pearl River Delta region beginning in the 1980s.
China’s stated emphasis on boosting infrastructural development as part of its massive stimulus plan fits into Hopewell’s overall strategy quite neatly.
“Our major concern is that China maintain healthy economic growth and invests more in new roads,” Mr. Mok said. He said there was a “strong correlation” between Guandong Province’s GDP and traffic flows between the major commercial cities of Guangdong and Shenzhen which GSS connects.
Mr. Mok added that the company long ago had the foresight to hedge its loans in three major currencies -- USD 57%, RMB 36% and HKD 7%.
“This has made us much less prone to fluctuation than some of our peers who are more heavily leveraged in one major currency.”
The company has admittedly been hit of late by a slowdown in external demand and the effect that has on Guangdong – China’s biggest exporting province with its massive fleets of container trucks.
Analysts and fund managers in discussion with Barry recently. Photo by Don Tam.
However, analysts believe that GSS’s traffic growth should recover when economic conditions improve, thanks to its strategic location and its status as one of the main arteries in the Delta region.
Possible competition from mass transit development projects in the region to the company’s network of toll roads and bridges was not a major concern.
“We don’t expect direct competition from railroads because they are mainly fixed line and on fixed schedules,” he said, pointing to the freedom and autonomy of automobile travel.
Global oil prices have seen severe volatility over the past year, but Mr. Mok said the fluctuations had a “mixed effect” on traffic volume, in part due to government subsidies that often kept prices at the pump more affordable for the masses.
And the company was planning to reward its shareholders with a 100% dividend in the next payout period, “unless major new projects are pursued,” he added.
Taifook Research’s 12-month target price has a 28% upside to its end-March valuation. Hopewell Highway Infrastructure’s two online projects are both BOT models, namely the GSS and Phase I of the Western Delta Route, which connects Foshan and Shunde.
One thing to watch for is the proposed pilot scheme introducing a short-term quota system for cross-boundary private cars using the Shenzhen Bay Port, which may be a prelude to opening up cross-boundary vehicular traffic and likely boost utilization of the GSS.
“However, any opening will certainly be wider on the Hong Kong-to-Mainland direction, as allowing unlimited vehicular access from the Mainland into Hong Kong would be madness. There simply is not enough room,” Mr. Mok said.