China Railway to diversify into property

PUBLISHED : Monday, 10 December, 2007, 12:00am
UPDATED : Monday, 10 December, 2007, 12:00am

A day after China Railway Group's Hong Kong stock debut, chairman Shi Dahua said property development and overseas expansion would be the way to achieve a more diversified corporation.

The company plans to increase its property business to 10 per cent of the company's total turnover in three years, up from 1.7 per cent.

'We're never scared of the property bubble in China because the company is working hand-in-hand with the government on redeveloping the cities.' Mr Shi said.

'To China Railway, the property business is not just the construction of a building.'

Shares of China Railway, the country's largest railway construction contractor, closed 27.34 per cent higher at HK$7.36 on its debut on Friday. Analysts say this reflected investors' bullishness about the company's improving price-earnings ratio, supported by growth in property development and overseas expansion.

China Railway's revenue reached 72.49 billion yuan in the first six months of this year, up 20.07 per cent from a year earlier.

'China Railway, as a big corporation with an advantageous position, should make faster progress in taking a strong foothold in profitable businesses,' Mr Shi said.

'On the other hand, we'll maintain the core business at 70 per cent of the overall business.'

The company is qualified to undertake foreign contracts in its main businesses from the Ministry of Commerce. These include railways, expressways, highways, bridges, tunnels, buildings, dredging and airports - in more than 55 regions.

Mr Shi said he was most concerned about the strategic development of the company because he was 'now the boss of a big-scale corporation instead of staff only'.

Besides increasing the size of the company's property business, expanding overseas businesses and streamlining the corporation would be important tasks, he said.

'I've found out the uniqueness of different overseas markets by nurturing a group of veteran professionals in the regions where we'll launch business.'

The company had a five-year expansion plan to boost overseas sales to 20 per cent of turnover from the current 5 per cent, said its president, Li Changjin, in an online roadshow for the company's A-share offering.

'There are many railways in Africa that only meet the standards of China's railways in the 1960s,' Mr Shi said. 'This is the room for growth and we're ready for a plentiful harvest.'

On top of hastening the growth of profitable businesses, Mr Shi aims at cutting the company's subsidiaries to 180 from 800.

'There are too many tiers now for handling the company's different projects. I think at least the third and fourth layers can be slashed,' he said.

'That won't lead to large-scale unemployment because staff in the third and fourth layers will be distributed to the first and second tiers.'

Mr Shi said launching an initial public offering in Hong Kong provides a platform for transforming the old corporation into a modern company under an international legal framework.