Analysts say the Hopewell unit's issue may not be cheap for investors, but they will be banking on the region's potential The Hopewell Highway Infrastructure (HHI) share offer is expensive compared with its mainland peers, but it may attract long-term investors looking to tap into growth prospects of Guangdong's western region, fund managers said yesterday. HHI, to be spun off by Hopewell Holdings on the main board, plans to sell 720 million new shares to raise net proceeds of $2.77 billion to $3.63 billion. This translates to a price-to-earnings (PE) ratio of 20 to 27 based on a net profit of $534 million in the year to June 30, and 17 to 22 on a net profit of $645 million in the year to June 30 next year forecast by BNP Paribas Peregrine, a co-lead manager of the deal. The PE ratios - and hence the valuation of HHI - are much higher than the nine to 19 of most main-board listed toll-road firms on their earnings last year, and seven to 16 on this year's earnings forecasts. 'The price is quite high,' said Daiwa SB International chief investment officer Ambrose Chang Chung-kwong. 'A price-earnings ratio of 12 to 14 would be more reasonable for next year's forecast profit.' Mr Chang was also concerned that toll income could fall when a new fee system was implemented on October 1. According to analysts, the new policy will see a change in classification of vehicles for the purpose of toll collection, but the exact formula has not been ironed out and hence the impact on highway operators is unknown. They said Hopewell had obtained an exemption from the new toll fee system, but it was unknown how long it would last. Some investors are also concerned about HHI's high debt load, but analysts said the firm would most likely capitalise its $5 billion loan owed to parent Hopewell before listing, which would turn the loan into shareholders' equity. This would reduce its net-debt-to-equity ratio after listing from more than 140 per cent to between 22 per cent and 33 per cent, in line with that reported by its peers of up to 37 per cent. Rexcapital Asset Management director Kitty Chan said she believed in the long-term growth potential of toll-road firms in the Pearl River Delta, but added it would be more palatable if HHI priced its shares at lower than 15 times next year's earnings. 'Many toll-road shares have recently been bid up a lot as investors find them to be attractive dividend plays amid the current low-interest environment. But this may wear off once interest rates go up,' she said. Ms Chan said HHI might present long-term value if investors were willing to wait five years or longer, citing potential gains from the proposed Hong Kong-Macau-Zhuhai bridge. Hopewell is a prime backer of the bridge. It is also building phase one of the three-phase Guangzhou-Zhuhai highway. According to BNP's research report, HHI's 122km Guangzhou-Shenzhen Superhighway generates almost two billion yuan (HK$1.87 billion) in toll revenue a year, higher than those generated by Zhejiang Expressway's Shanghai-Hangzhou-Ningbo highway and Jiangsu Expressway's Shanghai-Nanjing highway.