Railway firms on track for strong earnings

The mainland's two biggest railway builders - China Railway Group and China Railway Construction Corp - are expected to report strong annual profit growth, buoyed by a spending binge on new railway projects.

Analysts estimate China Railway, which offers railway, highway, tunnel and bridge construction services, will report a net profit of as much as 7.2 billion yuan (HK$8.19 billion) for last year, compared with 1.35 billion yuan in 2008, representing a more than fivefold increase.

CRCC, which specialises in railway construction and consulting for manufacturing and real estate, is expected to post earnings of 5.3 billion yuan to 6.3 billion yuan for last year, compared with 3.6 billion yuan in 2008.

The two companies jointly account for more than 85 per cent of the 163 billion yuan in new railway construction orders in the country in the fourth quarter of last year, according to JP Morgan Chase.

Beijing earmarked 1.5 trillion yuan for 70 new railway projects last year, of which 700 billion yuan of projects have been completed, according to the Ministry of Railway data.

It is estimated that investment in the country's railways will exceed 600 billion yuan each year. The investment is powering growth at the two railway firms, which reported strong profits for the first half of last year.

At China Railway, a 53 per cent surge in first-half sales lifted net profit 61 per cent year on year to 3.1 billion yuan. The value of new contracts secured by the company reached 287 billion yuan by the end of June last year, including a number of projects such as the Hangzhou-Ningbo link.

CRCC saw its first-half earnings jump 46 per cent to 2.22 billion yuan, compared with 1.52 billion yuan in the same period in 2008. Sales soared 58 per cent to 126.2 billion yuan.

Accumulated new contracts' value on hand surged 87 per cent to 257.3 billion as of the end of June, including new overseas contracts of 50.2 billion yuan.

Outstanding contract value reached 589.2 billion yuan, representing an increase of 25 per cent from 471.1 billion yuan at the end of 2008.

Analyst forecast total investment in railway projects this year will top 823.5 billion yuan, of which 700 billion yuan will be earmarked for infrastructure, on par with last year. The railway network's total length will surpass 90,000 kilometres by the end of the year.

Beijing rolled out a 2 trillion yuan investment master plan in railway development in 2008, in a bid to shore up the economy amid the global financial crisis.

It estimates that every 10,000 yuan invested in railway construction will result in the consumption of two tonnes of cement, 0.32 tonne of steel and generate jobs for 25 workers.

Shares of China Railway dropped 0.54 per cent on Friday to close at HK$5.49.

CRCC shares fell 2.3 per cent to settle at HK$9.47.

Lined up

The amount of investment under the central government's master plan for railway development in 2008, in yuan: 2tr yuan