Mainland rail companies battered on HK exchange

PUBLISHED : Tuesday, 01 November, 2011, 12:00am
UPDATED : Tuesday, 01 November, 2011, 12:00am


The mainland's railway companies were among the worst performers of the stock market yesterday following unsatisfactory third-quarter results.

The share price of China Railway Group fell 14 per cent to HK$2.63, while that of China Railway Construction Corporation (CRCC) was down 11.7 per cent to HK$4.70. CSR Corporation lost 10.1 per cent to end the day at HK$4.70.

Although China Railway's 48.6 per cent drop in net profit to 1.14 billion yuan (HK$1.38 billion) during the third quarter was in line with market expectations, the poor market sentiment towards the industry has been dragging stocks down, said Guotai Junan Securities analyst Gary Wong.

As of September 30, the state-owned firm's loss from a highway construction project in Poland stood at 644 million yuan (. Recently, a Polish court ordered China Railway and two other companies to pay US$41.3 million over an aborted highway project.

State-owned CRCC did better as it swung into the black with a net profit of 1.35 billion yuan in the third quarter, against a 1.35 billion yuan net loss for the same period last year.

'If you exclude the loss in the third quarter last year, CRCC's results don't look that good. The market fears heavy risks,' Wong said.

Although the net profit of CSR, a train maker, grew 9.7 per cent to 772.6 million yuan in the third quarter, the state-owned firm suffered a net operating cash outflow of 13 billion yuan in the first nine months of this year.

Money owed to it more than tripled from 11.18 billion yuan at the end of last year, to 35.09 billion yuan on September 30, mainly due to delayed payments from the country's cash-strapped Ministry of Railways. CSR yesterday received 6 billion yuan in payment from the railway ministry, which is likely to help its finances.

A Citic Securities report said 2011 has been a devastating year for China's railway industry, with 'no light at the end of the tunnel.

The mainland rail sector's growth has ground to a near-halt following the arrest of former railway minister Liu Zhijun in February, the high-speed train crash in July and public concerns over the ministry's massive debt, which stood at 2.1 trillion yuan - or 5 per cent of the nation's gross domestic product - in the first half of this year, said Citic Securities.

A JPMorgan report, however, said spending in the sector appeared to be recovering in light of favourable government policies.