Component supplier hit by crash aftermath

China Automation Group, a leading supplier of rail signalling systems, said it had been unable to deliver rail components to its customers for much of the third quarter due to the suspension of rail projects following the deadly high-speed-rail accident in Wenzhou on July 23.

The Hong Kong-listed company, which reported a small rise in first-half net profit yesterday, said investors could no longer count on high growth in the business in the short term.

Cui Dachao, the company's chief financial officer, said a safety inspection of the rail network from July to September had temporary halted rail construction projects nationwide.

The July accident, in which at least 40 passengers died and nearly 200 were injured, was initially blamed on signalling failure, but China Automation chairman Richard Xuan Ruiguo said this would not affect the company.

'As a major supplier of rail signalling systems, we will be part of the rail safety inspection,' he said. 'But we have high safety standards, so there should be no problems for us.'

Roughly half of China Automation's revenue comes from rail signalling systems and the other half from safety systems in petrochemical facilities.

The company yesterday announced a 7.8 per cent rise in interim net profit to 153.1 million yuan (HK$187 million) on a 42 per cent jump in revenue to 1.07 billion yuan. Its profit margin was hurt by a fivefold rise in financing costs, as well as a larger-than-expected amortisation of intangible assets of 9.6 million yuan.

'This year, we saw a big change in the government's railway plan,' said Cui. 'We adopted a conservative approach to amortisation because of uncertainty over the Railways Ministry's policy. We can no longer tell the market we will have high growth in our railway business.'

China Automation's share price fell 11.3 per cent to HK$2.51 yesterday. Its share price has plunged 46.6 per cent from HK$4.70 on July 22, a day before the high-speed-rail accident.

'In August, China readjusted the development pace of high-speed rail and resumed [a policy of] safety first,' said Xuan. 'The shift of emphasis by the Railways Ministry to safety will have an impact on the entire rail industry. Since the second quarter, we have felt a slowdown in orders.'