China Merchants Holdings (Pacific) is 82.5%-owned by China Merchants Huajian Highway Investment Co., Ltd., one of China’s largest players in toll road investment and management. At right, CEO of the Singapore listco Jiang Yanfei. NextInsight file photo

CHINA MERCHANTS HOLDINGS (Pacific) stock shot up from 71 cents to close at 76 cents yesterday after it announced it has agreed to buy a holding company which owns the rights to operate the Jiurui Expressway (Jiujiang - Ruichang Section) (江西省九江至瑞昌高速公路).

This is a 48.14 km long expressway located in Jiangxi Province in China.

The sellers are Liu Qiang and Gong Xiaoping.

In the past two years, China Merchants Holdings Pacific, which is listed on the Singapore Exchange, has vastly expanded the scale of operations of its toll road business.

It has made three major acquisitions (including the acquisition of the Jiurui Expressway announced yesterday) – the Yongtaiwen Expressway in August 2011 and the Beilun Port Expressway in November 2012.

The company currently manages and operates four toll roads in China.

With the expected completion of the disposal of Yuyao Highway at the end of this year, its toll road portfolio will comprise wholly of expressways.

The four toll roads total approximately 367 km and are located in Guangxi Zhuang Autonomous region, Guizhou Province and Zhejiang Province.

The acquisition is expected to be completed in the first quarter of 2013. China Merchants intends to finance the acquisition by:

> The issue of new ordinary shares at S$0.84 apiece,
> The transfer of China Merchants' loss-making property development business in New Zealand to the sellers and
> Payment of a cash consideration of RMB75 million.

For details, read the press release here.

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SHAREHOLDERS OF Sapphire Corporation have approved at an EGM on 12 December the acquisition of:

> Longwei Metal Product Co., Ltd (Longwei) from the Sichuan Chuanwei Group Co., Ltd. (Chuanwei) and
> A rebar production line from Chengyu Vanadium & Titanium Technology Co., Ltd (CVTT).

Silicon steel is silicon added to steel, and looks just like cold rolled coil (CRC) above. As the CRC name suggests, steel is processed while cold. It is manufactured from hot rolled coil that has been chemically cleaned before being rolled. Photo: Internet

There is strategic value in the acquisition of Longwei.

Sapphire will use its hot rolled coil (HRC) line to produce feedstock for Longwei which in turn would produce raw materials for the making of silicon steel products.

Silicon steel is steel with silicon added to it, resulting in higher qualities of electrical resistance and penetration by magnetic fields.

Silicon steel is used in many electrical applications where electromagnetic fields are important, such as transformers, magnetic coils and electrical motors.

Silicon steel can reap RMB2,000-3,000 in proft per tonne, compared to a few hundred RMB for other steel products, said CFO Ng Hoi-Gee recently.

Sapphire stock has fallen to just above 11 cents where it is at only 0.38X price/book. Chart: FT.com

As for the acquisition of the CVTT rebar processing line, Sapphire will process no less than 500,000 tonnes of rebars and CVTT has agreed to buy them at RMB300/tonne over the next five years.

That works out to 500K tonnes x RMB 300 = RMB 150 million in revenue, or RMB60 million in gross profit a year.

Compare that with the Group's RMB24.2 million in gross profit in FY2011 or RMB8.1 million in 1H2012.

The above 2 acquisitions are expected to contribute, said SIAS Research analyst Liu Jinshu, to Sapphire's profitability next year (S$11.3 million) compared to a forecast loss of S$7.7 million in 2012.

To read the SIAS Research analysis, click here.

Sapphire's circular to shareholders contains extensive details of the acquired businesses. Click here.

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