China Communications Construction, the mainland's leading port construction company, will be hit by the slowdown in port investment caused by weakened international trade. However, the Hong Kong-listed firm's non-core businesses of roads, railways and bridges will benefit from Beijing's aggressive stimulus spending. 'China Communications' port and port machinery business will grow less this year, being affected by the global crisis,' said Jack Xu, a SinoPac Securities analyst. 'Port investment will slow, because of the drop in container trade. But the company's rail orders are growing quickly and will make up for the decline in its port business.' Xu forecast that China Communications will have decent net profit growth of 30 per cent to about 7.9 billion yuan (HK$8.96 billion) for the whole of this year, partly because raw material costs in the first half were manageable. 'We expect China Communications' bottom-line year-on-year growth to slow down to 18.5 per cent in the second half 2009 and decline further to 8 per cent in 2010. This is mainly because of weak global port construction investment,' said a Morgan Stanley report by Kate Zhu, Wang Bin and Kevin Luo. For the first half, Morgan Stanley expected China Communications' earnings to rise 27.1 per cent to 2.8 billion yuan, slightly below market consensus, and its turnover to grow 24.7 per cent to 94.5 billion yuan. Morgan Stanley projected the state-owned firm's port construction business will remain flat in the first half at about 20 billion yuan. China Communications' revenue growth in the first half will be mainly driven by increases in the road, bridge and dredging businesses, Morgan Stanley said. For the first half, the bank expected the company's road and bridge revenue to grow 40 per cent to 23.1 billion yuan, because of a strong recovery in China's highway construction investment. Dredging is another growth driver for the company. Revenue there will increase 30 per cent to 11.3 billion yuan in the first half, said Morgan Stanley. The government is spending heavily on dredging, including a plan to invest 43 billion yuan from this year until 2020 to dredge the Yangtze River, enabling larger ships to pass through. Morgan Stanley expected China Communications' overseas business, mostly in port construction, to rise 10 per cent to about eight billion yuan in the first half. However, the overseas business has been hurt by reports that one of its subsidiaries allegedly engaged in bribery in Bangladesh. Another subsidiary was allegedly involved in collusive behaviour in a World Bank highway project in the Philippines, wrote Carmen Wong in a Phillips Securities report. Earlier this year, the World Bank banned China Communications from World Bank-financed projects for eight years because of the Philippines case. 'Although China Communications has rejected both claims, the incidents that broke out within a short period will adversely affect the goodwill of the company as well as overseas business that accounted for 17 per cent (of its revenue) in the first half of 2008,' wrote Wong. As for railway, China Communications' revenue from this sector will jump 130 per cent to 7.3 billion yuan in the first half, predicted Morgan Stanley. This will be driven by the mainland's four trillion yuan stimulus plan launched late last year to combat the crisis, of which a large share will go to railway construction. 'China Communications is one of the beneficiaries from the four trillion yuan stimulus, but it is worse off than China Railway Group and China Railway Construction Corp because China Communications does not focus on railway,' said Wong. China Railway and China Railway Construction dominate the nation's rail building sector, while China Communications' market share is only about 4 per cent. In the first half, China Railway's net profit rose 60.9 per cent and its revenue grew 52.7 per cent, while China Railway Construction's net profit increased 45.7 per cent and its revenue rose 58.2 per cent. Their growth was faster than the top-line and bottom-line growth predicted by analysts for China Communications in the first half. Analysts expect China Communications may win a large share of the 70 billion yuan contract to build the Hong Kong-Macau-Zhuhai three-way bridge, expected to be announced in the second half. China Railway also plans to bid for the project.