Sichuan Expressway rated 'outperform'

Macquarie Research Equities reinitiated its coverage on Sichuan Expressway Co Ltd with an ""outperform"" rating and a target price of 4.30 hkd, citing revaluation of the stock after the toll road operator agreed to buy assets from its parent.

Sichuan Expressway said yesterday it has agreed to acquire Sichuan Chengle Expressway from its parent for 1.09 bln yuan.

The investment bank said the acquisition would add 0.36 hkd to its valuation of the firm, which is based in southwestern China's Sichuan province.

Macquarie also believes that Sichuan Expressway has a 50 pct chance of buying Chengnan Expressway, another expressway located in the province, from its parent.

""We estimate the acquisition of Chengnan Expressway could be more significant and add 1.30 hkd to our valuation"" added Macquarie.

Macquarie also sees the company's likely issue of A-shares to fund acquisitions as a further price catalyst.

It also cited the incremental effects on revenues from its weight-based tolling scheme.

Since Sichuan province switched the scheme on June 1, Sichuan Expressway's revenues from the Chengyu and Chengya expressways have increased nearly 28 pct and 19 pct respectively during the first three months of operation.

Macquarie expects this trend to continue for the next 12 months.

Moreover, Sichuan Expressway's operating margin is likely to improve in the second year after the implementation of the new tolling scheme as road maintenance costs will likely decrease sharply due to the experience of other toll road operators, Macquarie added.

Sichuan Expressway finished the morning session down 0.22 hkd or 6.07 pct at 3.4 hkd.