China Railway looks to double overseas revenue contribution
Rail and infrastructure firm’s chairman reveals 49.6 per cent surge in new international contracts to a record 102.5 billion yuan last year
China Railway Group, one of the country’s largest rail and infrastructure builders, expects to more than double its overseas business as a proportion of total revenue to 10 per cent, according to chairman Li Changjin.
This is despite contribution from the firm’s international revenue dropping to 4.4 per cent of the total last year from 5 per cent in 2015.
Li’s projection is backed by a 49.6 per cent surge in new contracts clinched overseas to a record 102.5 billion yuan (US$14.9 billion) last year, which boosted its overseas order book by 62 per cent to 170.8 billion yuan.
Last year’s overseas revenue fell 8.6 per cent to 27.6 billion yuan.
“That decline was because of the longer order-to-revenue conversion cycle of overseas business, which can take a year if everything goes smoothly, or three to four years otherwise – one to two years longer than it takes for domestic projects,” he said.
For example, the company’s China-Laos railway project was delayed by fundraising, land requisition and village resettlement issues although construction would “fully” start and see a “revenue-booking peak” this year, Li said.
“The same goes with our Indonesia project,” he added.
China Railway and its Indonesia partners received permits to start building last month after a year’s delay on the planned Jakarta-Bandung high-speed-rail project due to local resistance to the route.
The firm won the right to build a rail bridge in Bangladesh last year, but it will still take time for its Chinese financiers to negotiate credit terms with the Dhaka government.
Li said the company was also in talks on a light-rail project in Kazakhstan and a 1,600km railway upgrade project in Pakistan, both of which it hoped to clinch in the second half of this year.
He expects China Railway, which also builds highways and municipal facilities and develops properties, to receive total new orders this year at least matching the 1.2 trillion yuan clinched last year, which was 29 per cent higher than the 2015 level.
A week ago, the company posted a 1.1 per cent rise in annual net profit to 11.8 billion yuan as revenue grew 5.5 per cent to 632.9 billion yuan.
Its gross profit margin inched lower to 7.9 per cent from 8.1 per cent in 2015 due to higher raw material costs, partly caused by a change in taxation policy. Li said the firm was seeking compensation from some of its customers to offset those costs.
The margin would be lifted next year by the “peak” revenue-booking of public-private participation projects, which commanded a higher average gross margin of 9 per cent, he added.
These projects, in partnership with private enterprises, accounted for 20 per cent of the firm’s outstanding contracts and were expected to contribute 15 per cent of total revenue next year, he said.
Shares in China Railway edged up 0.7 per cent on Thursday to HK$7.10. They have risen 11.3 per cent this year, compared with a 10.3 per cent gain in the Hang Seng Index.