China Railway to invest 18b yuan on equipment in new income areas

Newly listed China Railway Group plans to spend 18.16 billion yuan (HK$20.2 billion) this year on equipment to build bridges and subways as well as on build-operate-transfer projects, as a way to reverse the decline of its gross profit margin.

Chairman Shi Dahua hopes substantial returns from its railway investment and corporate streamlining this year will offset rising raw material prices, which narrowed the gross profit margin to 7.3 per cent from 7.8 per cent in 2006.

'We're planning to modulate our businesses and capital structure as a way to generate higher growth,' Mr Shi said. 'For the projects managed by 3,000 staff before, we'll cut to 1,000.'

China Railway, the largest railway construction contractor on the mainland, reported net profit increased 18.4 per cent to 2.42 billion yuan last year on revenue of 173.75 billion yuan, up 13.1 per cent.

However, its four main businesses - infrastructure construction, consulting services, engineering equipment and property development - all posted lower gross profit margins.

'We did many massive investments before launching the A- and H-share dual listing [last December] which have not yet truly contributed to net profits,' Mr Shi said.

The company is also eyeing profitable returns from its mining and property businesses.