Sid Choraria presented his in-depth investment thesis on Shenzhen International (Hong Kong: 152) at Asian Investing Summit 2015.
Shenzhen International: Multiple ways to win in current environment. Toll roads is recurring FCF business with attractive IRR in low-rate environment. Logistic parks offers growth tailwind due to demand. 49% stake in domestic airlines benefits from low fuel prices and tourism. Asset value and catalysts present, yet trades at 10x P/E, not valuing growth.
Toll roads business is recurring FCF-generative business with attractive IRR in current low-rate environment.
- Toll road operations span Shenzhen region, Guandong Province and other provinces through investments in Longda, Wuhuang and Shenzhen Expressways. Long-term concession rights, average of nearly 14 years remaining
- Significant recurring FCF generation and attractive IRR in low interest rate environment. Future maintenance capex is minimal and management deploying excess cash flow into high growth logistic parks business
- In 2014, Meiguan Expressway adjustment agreement contributed one-off gain of HK$730mm to net profit to shareholders
- Stable revenue stream and catalysts, include increasing traffic volume, toll revenue, urbanization and auto ownership
Logistic parks has long growth tailwind witnessing strong demand from e-commerce, warehouse and delivery companies.
- Existing 6 logistic parks witnessing strong demand from e-commerce, warehouse and 3PL companies in China. High occupancy rates of 96% with increased economies of scale and consistent margin expansion over the last 5 years
- Upcoming integrated urban logistics hub with planned site area of 2.55mm sq ft, provides long tailwind of growth due to strong demand, shortage of supply, strong SOE background, government policy and proven operational expertise
- Shenzhen Qianhai land asset value recorded at cost, conservatively worth multiples higher
Other financial investments include 49% stake in Shenzhen Airlines benefits from low fuel prices and booming tourism. Stake disposal of CSG shares highlight shareholder-oriented management and focus on logistics growth.
- 49% stake in associate, Shenzhen Airlines benefits from low fuel prices and tourism.
- CSG share disposals over last few years demonstrate focus on logistics growth and shareholder-oriented management
About the instructor:
Sid Choraria is a member of the Asia Pacific equity investment team at APS Asset Management, which was founded in 1995 by Wong Kok Hoi and amongst the largest hedge funds in Asia with firm-wide AUM of over $3bn. APS employs a primary, investigative approach managing across the Asia Pacific region and regulated by the MAS in Singapore and investment advisor with the US SEC. Prior to APS, Sid managed a deep value India portfolio for a family office. Previously, Sid worked at Goldman Sachs in Hong Kong in the Technology, Media and Telecom and Consumer Retail Investment Banking Division. Prior to Goldman, Sid worked as an investment analyst at Bandera Partners, a value-oriented hedge fund in New York performing bottom-up, fundamental research across value and event-driven opportunities. Sid received his MBA in Finance from New York University Stern School of Business where he was recipient of the Harvey Beker Scholarship and a member of Michael Price Value Fund, a student endowment fund at NYU endowed by legendary value investor, Michael Price.
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