Expressway operators are on the road to expansion
Toh Han Shih
Two Hong Kong-listed mainland expressway operators, Zhejiang Expressway and Anhui Expressway, are looking for more projects, after solid rises in profits and revenue.
'We're increasing our efforts in search for suitable toll roads from our parent company for acquisition. Leveraging on the company's strong cash position, we're seeking investment opportunities. We are in negotiations to acquire some highways,' said Zhejiang Expressway chairman Chen Jisong.
The company's state-owned parent is Zhejiang Communications Investment Group.
In addition, Zhejiang Expressway is seeking possible investments in other businesses such as port logistics and property, said Chen.
However, Zhejiang Expressway deputy general manager Jiang Wenyao said it did not yet have firm investment plans.
As of the end of 2010, Zhejiang Expressway's current assets rose 9.9 per cent to 19.67 billion yuan (HK$23.26 billion), of which 30.5 per cent was in cash and bank balances. Its gearing ratio rose to 24.4 per cent at the end of 2010 from 22.5 per cent one year ago.
Anhui Expressway chairman Zhou Renqiang said, 'In 2011, the company will continue to increase investment, speed up construction, strengthen management, continuously explore investment opportunities and continue to expand the principal business.'
'The demand for passenger travel caused by the rapid growth of vehicle ownership and the demand for cargo transportation will provide sustained momentum for the steady growth of the company's business,' said Zhou.
However, Zhou warned: 'With increasing construction cost pressure, the investment benefit prospects are gloomy. The persistent inflation pressure will lead to an increase in construction and labour costs.'
The central government's anti-inflation measures have reduced liquidity and raised interest rates, 'creating great pressure on financing of the company with a sudden increase in financial cost pressure and increased difficulty in financial management,' Zhou added.
Zhou also said high-speed railways would create competitive pressure for Anhui Expressway in the next two years. Anhui Expressway's cash declined by 27.4 per cent to 756.51 million yuan at the end of 2010, from 1.04 billion yuan one year ago.
A report by JP Morgan analyst Karen Li predicts that China's highway construction will peak by next year, but the country's car ownership rate will continue to rise, which will be a growth driver for mainland toll road operators. China's car ownership per 1,000 people rose 22.7 per cent to 47.1 in 2009, according to JP Morgan.
Anhui Expressway's revenue rose by 0.5 per cent to 2.54 billion in 2010, and net profit rose 18.3 per cent to 789.15 million yuan. Anhui Expressway's net profit beat the Bloomberg consensus estimate of 727 million yuan by 15 analysts.
Zhejiang Expressway's revenue rose 12.1 per cent to 6.77 billion yuan in 2010, and net profit rose 4.2 per cent to 1.87 billion yuan. Toll roads accounted for 51.3 per cent of revenue and 68.9 per cent of profit in 2010, while securities accounted for 23.3 per cent and other businesses 25.4 per cent. Zhejiang Expressway's toll road income rose 16.2 per cent to 2.85 billion yuan in 2010, but income from its securities business fell 5.4 per cent to 1.66 billion yuan.