 Good day fellow investors. Buffett always says that we have to invest in great businesses. So an emerging market, tall road, I think is a great business. It has a moat, nobody's going to build another road next to you because that's crazy. Then it charges all the people that go around and there is more and more cars being bought in emerging markets, more people, so the growth is there. So is it a great business? Well that's what we discuss in this video. In addition to that it might also be cheap to find such a business. Look at this. So this is Jiangsu Expressway. It's a company that currently really dropped in its price and it's back to 2015 August levels, 2016 January levels when everybody was so scared about China recession slowing down etc etc. So this might be and again a buying opportunity like it was back then. This is what we'll focus. We'll analyze this stock really in detail to give you an overview of what can be found in emerging markets, perhaps great businesses at a great price. Now I have a friend of mine who has his own hedge fund. He started it to manage his own money because he hates banks. When you have dozens of millions those fee that investment banks charge really are big and he hates that so he started his own hedge fund and he's looking for these smaller niche companies that have a big mode, growth, long-term mode, good dividends that really are gems in your portfolio. And a few of them every year I think he has 20 his portfolio really create long-term sustaining wealth and growth. And he told me Sven look at Chinese toll roads there might be something interesting for your YouTube videos. And then I said okay I'll look into it. He has sent me a lot of data so it's a big process that I have to do but this is something that I want to discuss and you will get this in this video. So today the topics covered will be the analysis of a sector short one Chinese toll roads that I will give you a list of all Chinese toll road investment opportunities. We will analyze Jiangsu Expressway, complete analysis, present value of earnings deep dive into the company, the risks of investing through and analyzing the company of course, present value comparing to the stock price, total deep analysis and then we'll give just a quick conclusion on investing in toll roads in China. So let's start with toll roads in China, the environment. China has more than 70% of the world's toll roads. They really invested a lot in infrastructure of course for a growing country. On a macro level things are really simple. The number of cars has been increasing in China will continue to increase because more economic growth means more cars, more people will grow and this is where China is. It is around $15,000 per capita household price parity consumption and the number of cars per thousand motor vehicles per thousand people is at around 154. So look at how much still China has to grow to reach developed countries. When that happens there will be more cars on roads, thus more toll collecting fees. So plenty of room to grow, emerging market, what do we want more? These are the Chinese toll road stocks, Jiangsu, Zeyang, Sichuan, Angyu, Shenzhen, Huayu, China Communications, Arcai, Guangdong Expressway, Qixiu, Transport etc. Completely pronounced those wrongly but here is the list. You can also read this on my stock market research platform, download the report if you prefer reading. The links is in the description below. Just a note here on the three companies with low ad-air prices, stock prices in Asia are usually lower so don't think these are penny stocks, these are just normal Asian priced stocks. Let's dig it into Jiangsu Expressway traded over the counter as an ad-air in the United States, Hong Kong and I think on a stock exchange in China. So you can buy it wherever you prefer. As said the stock price is recently subdued perhaps to what's going on with the trade war, everybody is expecting less economic activity and selling the stock. There is another reason for that, we'll see that later. A look at their numbers will give us a fair indication of what kind of business we are talking about. Revenues doubled in the last 10 years, row one, the red number, that's great business. Gross margins are 50% row two, which leads to high operating income, row three, 50% that's huge. The duct of the interest cost depreciation taxes and you get to net profit margin, row four of 36%, extremely high, talking about a good business. This leads turning per share of 14.79, remain in this case, 56% of that is currently paid out as dividends and the book value has been constantly rising in this case, row eight and the dividend ratio has declined a little bit, which means it can go higher because they are really investing in growth and new opportunities at the moment. The free cash flow is now negative but usually is around what three, five billion renminbi which is higher than the net income because here you have to account for depreciation or better to say amortization in this case because those are concessions. So that is not a cash expense but lowers net income but gives more cash available for the company. So higher cash flows than earnings. Don't focus on earnings, focus on cash flows, lines nine and ten in this case. Just look at the numbers. Price earnings is low 11, 11.45, the dividend is 5.55% but as I said focus on the cash flows which are even higher. What we are somewhere at around seven, price two cash flow. The value of the company lies in its toll rows and there are many, some are around 100%, some are just equity stakes. Then there are also growing, they are investing in the Wu-Feng Shan toll bridge, then the North-South approach, Expressway, Zhendan Expressway, Changi, I don't know, so a lot of investments which will include in the business model and earnings model later. Therefore capital expenditures are high. In 2017 we were at 7.8 billion renminbi, we are expecting something similar for 2018. However the growth also comes from a higher number of cars. In the Jiangsu province there have been 16 million cars in 2017 representing an increase of 1.8 million vehicles over the year. That's 12.99% in the growth of vehicles. So imagine when more economics, more traveling, more people does a lot more money for the toll road. Great business, no? The revenue contributors are clearly explained. Biggest revenue contributor is Shanghai Nanjing Expressway that contributes 51% of the revenue. However there are also risks. There are something that they are doing with their state-owned company, so there might not be always economical logic behind what they do. They invest in ancillary businesses to develop and they want to develop them more. Ningu Investment, they invested 900 million. They tentatively set footprints in areas such as finance, quasi-finance and emerging industries. That's something for example that I don't really like. Further they have about 2.2 billion in inventory on the balance sheet which comes from real estate investments. Also they are mixing their oranges and apples, not really convinced. Further they invest 2.2 billion in wealth management products with an interest rate of around 3% while their short-term loans have an interest of around 4%. This is such a great intelligent thing to do. Then something very important, BlackRock, JP Morgan are also invested and they own 4% of the company. This for me represents a huge risk but also an opportunity because when people are scared about China emerging markets they start dumping those ETFs and those index funds are forced to dump the stock. On a shallow market on an emerging market there is nobody to buy and then the stock drops like you have seen it drop in the chart that I show have shown you before. This is a risk or better to say an opportunity. And now let's go to the main concern that I prefer it would be different but as it is I have to calculate what is there. The main concern is that the concessions on tall roads eventually expire so that those are limited assets and not unlimited growth assets unfortunately. So you can build a road and then charge tall on it for a set amount of years between 25 and 35 in China. They don't disclose what is the concession per road in the annual report so I have calculated their concession balance is around 30 billion their amortization is around 1.12 billion for all the roads which means that as the opening book value in 2017 was 20.6 billion it gives me that at the current amortization rate they still have 16 years on average to use the tolls to the concessions on the tall roads they have built. So cash flow analysis has to include 16 years of future cash flows unfortunately not more than that. I have also checked big deeper just the biggest revenue contributor the shanghai naijing expressway has seen amortization of 600 million and minbi on prior year assets of 12 billion that's 19 years for the major con 19 years for the major contributor which is good. Then there are growth project estimations bufengshan toll bridge that we already mentioned they own 64 percent of it zhen dan expressway 70 percent etc etc I see there an investment of the company of about 10 billion they leverage it 60 percent which means the equity investment will be let's say 5 billion they have a return on equity of 16 percent so if I if kept that return should lead to 800 million in additional net profit for the long term this is what I will put in my model so let's look at stock valuation I always use a 15% discount rate that's my required rate of return I assume 5% growth from the traffic growth inflation etc 16% return on equity on the investment and a 16 year average concession on the current operating assets 25 on the new coming assets put it in all the model you can also download it it on my research platform I get to a some present value of 7.6 remain before the operating assets and a present value of 6.25 for the growth assets total present value 14.6 stock price is 8.67 does the reason this count of 36% however let's look at the risk currency devaluation risk it's present there is a 50% chance for a 30% devaluation according to kyle bass so that's a 15% drop slow down slow down in china 10% drop competition from trains air 5% drop let's say slower future growth I have calculated not 5 by 2% from 2022 onwards that's 4% drop in the stock price black rock or jp morgan selling 20% potential drop in the stock price so that's a 54% cumulative risk which lowers my present value to a buy range of 7.34 which means that for me the stock is now overvalued by 15% if it drops there then it might be a buy and this is exactly the methodology I will use to analyze all the others toll roads in China to perhaps find some real undervalued gem that is not owned by black rock or jp morgan so if you like this analysis check my stock market research platform there will plenty more as for investing this one I will analyze lots of Chinese stocks and then we'll put it all in a risk reward model and see whether it is best for now it looks like a great investment you will get around 10 13% definitely relatively surely over the long term within accounting for the risks thank you for watching looking forward to your comments