H share Chongqing Iron & Steel plans to raise 800 million to 1.4 billion yuan (about HK$751.03 million to HK$1.3 billion) by issuing A shares in the first half of next year as part of funding for a five-year 2.08 billion yuan expansion of production facilities. News of the plan came after the company reported a 38.01 per cent year-on-year rise in net profit to 286.06 million yuan last year and an 11.23 per cent turnover increase to 4.18 billion yuan. Its shares surged 8 per cent to HK$1.35 yesterday. This came just over two weeks after China's top steelmaker, A-share Baoshan Iron and Steel, posted a 66.8 per cent rise in 2002 profit to 4.27 billion yuan, buoyed by recovering steel prices and strong sales volume growth. Chairman Tang Minwei said Chongqing Iron's expansion plan would be backed by rising demand from the urbanisation of Sichuan province's Chongqing city, whose population is about 80 per cent rural, as well as infrastructure projects under China's Western region development programme. The expansion project is expected to start this year and will have annual capacity in five years to make one million tonnes of hot-rolled steel strips, 600,000 tonnes of cold-rolled sheet coils, 150,000 tonnes of hot galvanised steel coils and 100,000 tonnes of colour coating steel coils. When completed, the project was forecast to achieve annual sales of 1.88 billion yuan, profit after tax of 428.23 million yuan, with a return on investment of 30.67 per cent and internal rate of return of 18.09 per cent, the company said. It will be funded by the issue of no more than 350 million shares at a price not less than its audited net asset value per share and not higher than 20 times its net profit per share a year ahead of the issuance. The project is part of the company's plan to boost steel production from 1.86 million tonnes last year to 3.5 million tonnes in five years. It plans to raise production of molten iron from 1.68 million tonnes last year to 1.85 million tonnes this year, steel from 1.86 million tonnes to two million tonnes and steel products from 1.74 million tonnes to 1.85 million tonnes. Last year's profit growth was driven by a 15.68 per cent rise in sales volume, lower production cost and more efficient material consumption, despite a 2.53 per cent year-on-year fall in average selling price. The company cut 1,000 staff and hired about 350 university graduates last year. Mr Tang said it planned to do the same this year. It had 11,758 employees at the end of last year. He expected prices to remain at present levels but said these might fall in the second half as the industry showed two-year cycles with strong and weak prices in alternate years. Last year, prices fell in the first half before rebounding.