Railway Erju aims to raise revenue on strong construction orders

PUBLISHED : Saturday, 17 April, 2010, 12:00am
UPDATED : Saturday, 17 April, 2010, 12:00am

China Railway Erju, a Shanghai-listed railway construction firm, aims to increase its revenue by 11 per cent to 45 billion yuan (HK$51.17 billion) and the value of its new orders by 17 per cent to 48.5 billion yuan this year, the company said in an announcement posted on the Shanghai Stock Exchange yesterday.

Railway Erju is 51 per cent owned by China Railway Group, a state-owned railway construction firm listed in Hong Kong and Shanghai.

'The company still keeps strong momentum in signing new contracts. We predict its infrastructure construction revenue growth in 2010 at around 27 per cent,' a SWS Research report said.

As of February 23, Railway Erju has won 13.24 billion yuan of tenders, which is 27 per cent of its order target for this year, SWS said.

Last year, Railway Erju's revenue soared 69 per cent to 40.62 billion yuan, exceeding the company's target by 43 per cent. But the value of orders fell 5.9 per cent to 41.45 billion yuan, though this was nevertheless above the company's target by 39 per cent. Railway Erju's net profit rose 34per cent to 684 million yuan last year.

However, JP Morgan has a cautious attitude towards China's massive railway spending this year.

'Given that MOR [Ministry of Railways] needed to spend significant effort to ensure that railway contractors met the 600 billion yuan [railway capital expenditure] target in 2009, MOR might face even more difficulties to meet the current year target of 700 billion yuan,' said a JP Morgan report. 'Coupled with the expected monetary policy normalisation this year, we believe MOR might fall short on its capex target again.

'China's plan to shift away from a fixed-asset driven economic growth along with the recent monetary policy normalisation [means] uncertainty for the medium to long term growth outlook in the railway sector,' JP Morgan said. 'This will also mean projects will not be rushed like in 2009.'

China Railway Group and China Railway Construction Corporation jointly accounted for over 85 per cent of the 163 billion yuan in new railway construction orders in China in the fourth quarter last year, according to JP Morgan.

Recently, a Polish railway delegation expressed interest in partnering China Railway Group in constructing railways, during a visit to China Railway Group's project in Nanjing.