Hua Nan Expressway affected by Toll Revisions

Profit of Hua Nan Expressway will be affecting MIIF dividend distributions by roughly 20-25% of Hua Nan’s contribution

An often enquired stock on my dividend stock tracker have Macquarie International Infrastructure Fund (MIIF). At a current forecasted yield of 10% in this low yield environment, it looks attractive.

In my opinion, MIIF are just balancing very close cash flow figures to their targeted yield.

And recently, its been disclosed that the China govt will be standardizing the mechanism to calculate the toll.

Today I received a release from MIIF on this

Singapore, 31 May 2012 – Further to the disclosure made on 22 February 2012, Macquarie International Infrastructure Fund Limited (MIIF) today announced that Hua Nan Expressway (HNE) has received notification from the Guangdong Transport Bureau and the Guangdong Price Bureau that the toll rate and toll mechanism used to calculate tolls on all highways in Guangdong Province, including HNE, will be standardised from 1 June 2012.

MIIF has an 81 per cent interest in HNE which operates under a concession that expires in 2026.

The notification states that toll roads with six or more lanes such as HNE are instructed to charge tolls based on a rate of RMB0.60/km. As a result, the toll rate for HNE Phase 1 will be reduced from an average rate of RMB0.75/km to RMB0.60/km. The toll on HNE Phase 2 will not be affected as it currently charges a rate of RMB0.60/km.

The notification also requires a change in the methodology used to calculate the length of slip roads. The change effectively reduces the toll-able distance of slip roads and will affect both HNE Phase 1 and Phase 2.

The tolling revisions will have an adverse impact on HNE, with revenues estimated to be reduced by approximately 20 to 25 per cent based on current traffic levels.

HNE has been operating strictly in accordance with its legally binding contract with the Guangdong Provincial Government (Government) and charging approved toll rates in accordance with applicable laws. Accordingly HNE has reserved its rights in relation to the changes and will pursue all available options to seek a favourable resolution on this matter. Discussions with the Government are on-going and it is currently not clear what impact the toll revisions will have on the valuation of HNE.

This will impact MIIF because HNE is one of the big contributors. This together with a slow down in traffic from a slowing china will impact your yields.

MIIF is issuing a dividend guidance of 2.75 cents per share (cps) for the six months to 30 June 2012. The semi-annual dividend will be fully covered by the income that MIIF will receive from its businesses this year in respect of 2011 earnings.

MIIF will release further guidance on future dividends once the impact of the toll
revisions on HNE is fully assessed

If you want to purchase MIIF, do it below 50 cents for more safety. Although TBC and HNE cash are likely to grow, give yourself more safety for the risks put in.

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Kyith

Kyith is the Owner and Sole Writer behind Investment Moats. Readers tune in to Investment Moats to learn and build stronger, firmer wealth foundations, how to have a Passive investment strategy, know more about investing in REITs and the nuts and bolts of Active Investing.

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Kyith worked as an IT operations engineer from 2004 to 2019. Currently, he works as a Senior Solutions Specialist in Insurance Start-up Havend. All opinions on Investment Moats are his own and does not represent the views of Providend.

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