Acquisition signals New World unit's mainland thrust
Infrastructure flagship buys into a former state construction venture
NWS Holdings (NWSH), New World Development's infrastructure and services flagship, is poised to expand its contracting business on the mainland after acquiring a 10 per cent stake in China Construction Third Engineering Bureau for 56 million yuan.
NWSH group director Stewart Cheng Kam-chiu said the company was planning to increase the size of its stake in the former state-owned construction company to 20 per cent but he did not give a timetable for the plan.
The mainland expansion was motivated by a shrinking construction market in Hong Kong, Mr Cheng said.
'We see a dropping number of contracts in Hong Kong. Profit margins fell 2 to 3 per cent last year, and the price of raw materials, such as cement, increased,' he said. In contrast, profit margins on the mainland could be up to 6 per cent.
An NWSH spokeswoman said the company's turnover on contracting business contributed about 10 per cent of its profit. For the 12 months to June last year, the company's net profit was $1.21 billion.
NWSH spokesman Kwan Chuk-fai said mainland contracts comprised about 25 per cent of the company's total contract value, compared with about 15 per cent last year.
'I hope the percentage [of our mainland contract value] can be increased to 50 per cent in three years' time,' he said. According to Mr Cheng, China Construction Third Engineering Bureau had turnover of about seven billion yuan last year, with profits of about 200 million yuan.
The mainland contractor was changed from a state-owned company to a shareholding company in December. Construction Third Engineering Bureau holds an 85 per cent stake, while the remaining 15 per cent is shared between China Everbright (Macau), Hip Hing Construction, Echeng Iron & Steel Group, China Hua Wen Investment Holding and the China Academy of Building Research.
NWSH also has two fully owned subsidiary contractors on the mainland, with capital investment of about 100 million yuan.
'Acquiring a stake in a mainland company enables us to cover more provinces. But we also want to own companies that we can fully control,' Mr Cheng said.
An analyst said the impact of the acquisition would be limited due to the small size of the stake.
