CSR still on track for success

PUBLISHED : Wednesday, 15 February, 2012, 12:00am
UPDATED : Wednesday, 15 February, 2012, 12:00am


The chairman of one of the nation's leading train makers, CSR Corporation, has admitted that funding shortages could force cutbacks in his company's 14.8 billion yuan (HK$17.2 billion) investment plan as well as the nation's railway spending.

The investment plan of Hong Kong- and Shanghai-listed CSR will be partly financed by a 9 billion yuan A-share placement on the Shanghai Stock Exchange, which was approved by the China Securities Regulatory Commission (CSRC) on January 11. The rest will be financed by bank loans and bonds, CSR chairman Zhao Xiaogang said.

'Of course, we cannot avoid modifying investments in some projects,' Zhao said. 'Some of these may have to be cut by 10 to 20 per cent.'

The state-owned firm plans to spend 5.37 billion yuan building high-speed trains and heavy-duty freight trains, 4.54 billion yuan on intercity trains and 2.56 billion yuan on new product lines such as electric cars.

'Local governments are having problems with their investment vehicles. The possibility of withdrawing metro rail projects in some cities can't be ruled out,' Zhao told a shareholders' meeting in November 7 in comments posted on CSR's website on Monday. In Zhejiang and Jiangsu, local governments had been 'zealously' building additional high-speed rail lines that were not part of the central government's plan, and some of these projects were halted last year, Zhao said. While the Shanghai-Beijing and Wuhan-Guangzhou high-speed rail services were highly profitable, others were losing money.

This year, the budget for rolling stock purchases by the Ministry of Railways is 36.5 per cent lower than 2011 and 25 per cent lower than 2010, wrote Vivian Liu in a SinoPac Securities report. 'Part of railway vehicle purchase scheduled for 2012 is expected to be postponed until 2013.'

According to Zhao, the country's railway sector has suffered a funding shortage since the second quarter of last year, and thus cannot be entirely blamed on the high-speed rail collision of two CSR-made trains near Wenzhou, which killed 40 people. 'This funding shortage was a nationwide problem. [Last year] China's commercial banks encountered huge problems.'

To ease the financing crunch, the State Council approved the release of funds on October 31, of which CSR received 6 billion yuan, Zhao said.

The 9 billion yuan A-share issue and a 2 billion yuan injection by the State-owned Assets Supervision and Administration Commission will ease some of CSR's financial pressure, said a report by Kingston Securities. At the end of December, the commission injected 2 billion yuan each into the state-owned parents of CSR and another train manufacturer, China CNR Corporation, according to mainland media reports. CSR and Shanghai-listed CNR dominate the country's rolling stock market.

CSR's orders on hand fell from 90 billion yuan at the beginning of 2011 to 80 billion yuan on October 31, Zhao revealed. Nonetheless, CSR aims to take in 150 billion yuan in revenue in 2015, he said. In 2010, the turnover was 63.9 billion yuan and its net profit was 2.53 billion yuan.

'Despite negative events for the rail sector, CSR still beat expectations [throughout] 2011 on better profitability,' a JP Morgan report said. The firm raised its profit forecast for CSR by 9 per cent for 2011 and 10 per cent for 2012.