Subsidiaries of China South Locomotive & Rolling Stock Corp (CSR) have landed contracts worth a total of 72.4 billion yuan (HK$82.18 billion) to supply trains for the country's ambitious high-speed rail projects.
CSR Qingdao Sifang Locomotive & Rolling Stock, together with the Wuhan Railway Bureau of the Ministry of Railways, won a 45 billion yuan contract to supply an unspecified number of the 380km/h trains.
State-owned CSR, listed in Hong Kong and Shanghai, will book the order as revenue only after delivery has taken place, said SinoPac Securities analyst Jack Xu.
The second contract, worth 27.4 billion yuan, was awarded to CSR's 50 per cent-owned subsidiary, Bombardier Sifang (Qingdao) Transportation, and the ministry's Shanghai Railway Bureau.
Under this deal, Bombardier Sifang will supply 80 trains comprising 1,120 cars, according to the website of joint-venture partner Bombardier, a Canadian aircraft and train maker.
'Revenue contribution from the trains will overshoot locomotives to be the main driving force of CSR's revenue,' wrote Carmen Wong in a Phillip Securities report.
According to a Ministry of Railways spokesman, the number of high-speed trains operating in China will jump from 176 last year to 800 by 2012.
'China's rail market is pursuing high technology, and MU [multiple-unit train control] will be the thing of tomorrow, so CSR will enjoy higher profit margins and economy of scale as sales increase,' said Wong.
According to Wong's forecast, CSR's revenue will grow about 20 per cent annually from 35.09 billion yuan last year to 61.65 billion yuan in 2011, while its net profit will rise from 1.38 billion yuan to 2.42 billion yuan.
'The firm will benefit immensely from the government's massive capital expenditure plans. The macro picture now looks favourable, with Ministry of Railways bids picking up and additional procurement plans under negotiation,' wrote Stephen Wang in a KGI Securities report.
Wang expected CSR's earnings to grow at a compound annual growth rate of 28.5 per cent from 1.38 billion yuan last year to 2.94 billion yuan in 2011.
'CSR's sales are set to grow rapidly in the next few years, as a number of major high-speed passenger lines will be completed. Demand from overseas also looks promising, with a US$100 million order signed with Tunisia in April,' wrote Wang.
Separately, CSR recently signed a 1.76 billion yuan deal to supply trains to the metro rail system of Hangzhou, the capital of Zhejiang province.