State Construction sees mainland sales rising to 40pc of revenue

PUBLISHED : Tuesday, 08 December, 2009, 12:00am
UPDATED : Tuesday, 08 December, 2009, 12:00am

China State Construction International Holdings expects mainland sales to contribute 40 per cent of its revenue by 2015 from 11 per cent at present, as it secures more infrastructure projects.

A large number of build-transfer projects had been offered under the mainland's four trillion yuan (HK$4.54 trillion) stimulus package, executive director Jackson Cheong said yesterday. In a build-transfer scheme, the company bears the construction costs and the government buys the completed project at a premium. This helps local governments that are unable to fund all their projects at once.

This year, China State Construction secured 2.6 billion yuan worth of such projects, while its parent company, China State Construction Engineering Corp, signed contracts for 17 billion yuan worth.

In the past, China State Construction has had to avoid direct competition with its parent, which has meant it had focused mainly on foreign-invested projects. However, the situation has changed owing to the government's stimulus package.

The cash-rich company was now looking for opportunities to invest in transport-related infrastructure on top of its existing portfolio, which included two bridges in Nanchang, Cheong said. The company has HK$3.5 billion cash on hand and a net cash position of HK$2.5 billion.

Cheong was also upbeat about Hong Kong's infrastructure development in the next two years, with the launch of the cross-border transport network.

'It can be compared to the infrastructure boom in the 1990s, when the British government in Hong Kong initiated 10 mega projects encompassing the new airport,' he said.

The surge in infrastructure projects had seen gross margins in the industry jump from 1.5 per cent to 9 per cent, Cheong added.

'I am not saying we will grow in the same way as 10 years ago. But less competition and more projects right now will mean an increase in profit margins,' Cheong said. Nevertheless, he saw Hong Kong's sales contribution to the company dropping by half to 30 per cent by 2015.

Internationally, China State Construction will focus on India and Abu Dhabi.

The Dubai World crisis had not stopped the company's development in the United Arab Emirates, since it had kept the risk in check, Cheong said. The company's exposure to Dubai amounted to only HK$300 million, with none of the projects related to the financially strapped Dubai World.