Depressed profits hit rail firms' share prices
Shares in China Railway Group and China Railway Construction Corporation (CRCC) fell yesterday after the two state-controlled companies announced profits that fell below market expectations.
The two command more than 80 per cent of the mainland's huge rail-construction market and are also engaged in other businesses, including mining, property and roads.
Shares of China Railway fell 3 per cent to HK$5.02 in Hong Kong yesterday, while they dropped 2.2 per cent to 5.02 yuan (HK$5.95) in Shanghai. CRCC declined 3.3 per cent to HK$8.08 in Hong Kong while its Shanghai shares shed 1.7 per cent to 6.87 yuan.
Although the combined turnover of the two companies saw double-digit growth to nearly 1 trillion yuan last year, China Railway's target revenue this year is lower than last year's. For this year, it is looking at a revenue of 447.5 billion yuan, lower than the 456.1 billion yuan it earned last year. However, 14 analysts polled by Bloomberg forecast China Railway's turnover to rise to 490.21 billion yuan this year.
In future, China Railway said, it would shift 'from a big business to a strong and high-quality business, from being one of China's largest enterprises to a big enterprise with international competitiveness'.
CRCC's net profit plunged 35.9 per cent to 4.32 billion yuan in 2010, below the Bloomberg consensus estimate of 5.18 billion yuan by 11 analysts. The company said the main reason for the profit drop was losses incurred by its Mecca light rail project in Saudi Arabia.
China Railway's net profit increased 8.9 per cent to 7.49 billion yuan in 2010, below the Bloomberg consensus estimate of 8.05 billion yuan by 12 analysts.
'The profits of both companies were not very good,' said Anderson Chow, Asia head of infrastructure research at Macquarie Securities. 'Their selling, general and administrative expenses were higher than I expected.'
The administrative expenses for CRCC's construction operations increased 48 per cent to 17.3 billion yuan in 2010, while those of China Railway grew 27.1 per cent to 13.56 billion yuan.
Despite setbacks in Libya, 'CRCC will not alter its direction of aggressively expanding overseas', said a CRCC spokesman.
In February and March, the civil war in Libya prompted CRCC to abandon US$4 billion of infrastructure projects in the North African country and evacuate all its 3,573 workers.
'CRCC will increase its risk management proactively yet cautiously developing its international business,' the CRCC spokesman said.
Last year, CRCC's new contracts grew 24.3 per cent to 747.20 billion yuan, of which overseas contracts amounted to 25.91 billion yuan, or 3.5 per cent. China Railway chief financial officer Li Jiansheng told the South China Morning Post that overseas business accounted for 5 per cent of the firm's revenue.
This year, CRCC aims to bag 550 billion yuan of new contracts and 495 billion yuan in revenue. A Bloomberg consensus of 12 analysts forecasts CRCC's turnover will be 492.87 billion yuan this year.