'[The yuan's] appreciation may drag the profitability of the firm's overseas projects,' Core Pacific-Yamaichi analyst Roslyn Ji said before the results announcement.

China Railway is one of the world's largest construction contractors whose foreign projects include a railroad in the Philippines and mines in the Congo and in Australia.

'China Railway has weak pricing power due to the government's pricing control. Besides, its small customer base with big clients [large mainland state-owned firms] also caps its bargaining power against suppliers, resulting in higher costs and lower margins,' wrote Ms Ji.

'As the Chinese government is shifting its focus to railways from highways, we believe China Railway will profit greatly from the booming railway construction.'

The Ministry of Railways announced recently that railway investment on the mainland in the five years to 2010 has been increased from 1.25 trillion yuan to 2 trillion yuan, several times higher than the previous period.

Meanwhile, China Railway Construction posted a net profit of 860.64 million yuan and revenue of 53.09 billion yuan for the third quarter.

For the first nine months, net profit was 2.38 billion.

The company's net profit was affected by a 320 million yuan foreign exchange loss booked in the third quarter.

'The company strongly believes that with its strength and the support of state policies, investors' confidence will be boosted,' China Railway Construction said.

The value of new contracts signed by the company as of September 30 totalled 216.09 billion yuan, representing 86.4 per cent of the planned new contract value for the full year and a year-on-year increase of 22.7 per cent, the group said in an announcement.

Heavy load

CRCC's third-quarter profit slows on foreign exchange losses

China Railway Group's loss from structured deposits, in yuan: yuan 1.62b