China Railway expects to outdo first-half profit
Toh Han Shih
China Railway Group is optimistic earnings this year will beat its strong first-half results but says revenue will slow next year when the impact of the four trillion yuan (HK$4.54 trillion) mainland stimulus begins to wear off.
'Our results at the end of this year will be better than the first half,' said Shi Dahua, the chairman of the state-owned rail construction giant.
But 'next year, the new projects will lessen'.
A Bloomberg survey of 24 analysts forecast the Hong Kong and Shanghai-listed firm's revenue would grow 21.5 per cent to 370.39 billion yuan next year, slower than the 52.7 per cent in this year's first half.
Last week, Daiwa Securities SMBC revised up its forecast net profit for China Railway for this year to 5.92 billion yuan from 5.24 billion yuan but lowered its forecast for net profit next year to 8.75 billion yuan from 9.04 billion yuan.
China Railway's first-half revenue was 142.14 billion yuan and net profit was 3.09 billion yuan. A Bloomberg consensus of 25 analysts forecast China Railway's revenue at 162.78 billion yuan and net profit 3.21 billion yuan in the second half.
The four trillion yuan stimulus, of which 1.5 trillion yuan is devoted to infrastructure, was a key reason for China Railway's strong growth in revenue and 60.9 per cent growth in net profit in the first half, Shi said.
'But can the stimulus continue indefinitely? That's what we're facing as a challenge,' he said.
'After the stimulus, China's infrastructure growth will slow but continue to grow.'
The central government launched the stimulus late last year to counter the global financial crisis. The stimulus spending is scheduled to end by 2012.
'While investment in railways remains strong, there exists no near-term catalyst like the four trillion yuan stimulus package,' said a Daiwa Securities SMBC report by Geoffrey Cheng and Florence Liang, which put a 'hold' rating on China Railway.
China Railway expected its international business to be the latest contributor of profit, Shi said.
During the first half, the firm's revenue from Hong Kong and Macau jumped 157.5 per cent to 138 million yuan, while revenue from other overseas markets leapt 128.2 per cent to 7.26 billion yuan. Overseas business accounted for 5 per cent of China Railway's turnover in the first half.
The company's goal is to have 15 per cent of its revenue from overseas in three to five years, Shi said.
'The recently signed US$7.5 billion contract from the Venezuela Railway Authority shows China Railway also has strong capacity in overseas expansion,' said a Morgan Stanley report by Kate Zhu and Kevin Luo, which had an 'overweight' rating on the company.