China Communications diversifying investments to improve margins
China Communications Construction, the country's biggest port designer and builder, will focus on improving profit margins this year by diversifying its investments.
'To attain a higher profit margin is the target of the company,' chairman Zhou Jichang said after its shareholder meeting yesterday.
'We plan that our overseas business will record an increase of 0.8 percentage point year on year.'
The company is in talks to invest in four or five toll roads and two port projects, as well as looking into investment opportunities in land reclamation work in Tianjin and Lianyungang, Jiangsu province.
Mainland construction companies such as China Railway Group, China Railway Construction Corp and China Communications Construction, are under pressure from rising steel and cement costs, which will eat into their profit margins.
'Higher raw materials costs will affect us, but our revenue also posted a healthy increase in the first five months from a year earlier,' said Mr Zhou.
China Communications Construction recorded a flat gross margin of 10.3 per cent last year because of a one-off expense from the relocation of its subsidiary Shanghai Port Machinery.
The company said in April that it had set aside 14.3 billion yuan (HK$16.2 billion) this year to buy machinery that will drive its expansion into new markets, such as railway and metro-transport construction.
CLSA analyst Manop Sangiambut said: 'Future contributions [for the company] would be from railways, overseas projects, build-operate-transfer projects, port-machinery synergy and land sales.'
Simon Cheng of Deutsche Bank wrote in a report that China Communications Construction could always pass on raw-material cost fluctuations.
The bank believes that the company can record higher profit margins by reducing sub-contracting activities for its new projects.
