China Railway is hopeful to hit 2017 contract target despite drop in overseas orders

The rail and infrastructure builder has signed new contracts worth less than half of its full year target in the first 6 months

PUBLISHED : Tuesday, 05 September, 2017, 9:02pm
UPDATED : Tuesday, 05 September, 2017, 9:02pm

China Railway Group, one of the country’s largest rail and infrastructure builders, is confident of hitting its full-year goal of 1.2 trillion yuan (US$183.2 billion) in new contracts signed, even though it has secured less than half of the year’s target in the first half as overseas orders fell, according to its president.

“We do not expect to have problem reaching the goal,” Zhang Zongyan told reporters on Tuesday. “China still has huge room for infrastructure investment growth ... and we are pushing forward work to secure various overseas projects.

“China has 124,000 kilometres of railways, compared to 260,000 km in the United States ... in 2025, China’s planned railway is planned to rise to 175,000 km, and we are far behind the US in terms of highways and airports in operation.”

The state-backed company, which last Wednesday reported a 41 per cent year on year rise in net profit to 7.7 billion yuan for the year’s first six months, had signed 561.7 billion yuan worth of new orders in the period, up 34.5 per cent year on year.

That raised its backlog of uncompleted contracts by 8.2 per cent to 2.2 trillion yuan from the level at the end of last year.

But the volume of overseas new orders signed dropped 8.2 per cent year on year to 28.6 billion yuan in the six months.

Zhang said the decline was not out of the ordinary.

China Railway looks to double overseas revenue contribution

“Overseas orders signing come in varied cycles ... we have done a huge amount of preparation work years ago to obtain projects in nations along the New Silk Road and Maritime Silk Road and we have landed quite a lot of contracts in previous years.”

He said the firm had made progress on work towards the confirmation of railway projects in Pakistan, Malaysia, Laos, Brazil and Peru, even though some had faced delays due to fundraising, land requisition and village resettlement issues.

“These are normal obstacles that we also face within China, which takes time to sort out,” he said.

These are normal obstacles that we also face within China, which takes time to sort out
Zhang Zongyan, China Railway

Infrastructure construction – including railways, highways, municipal works and buildings – accounted for 87.4 per cent of total revenue in the six months, but only 82.6 per cent of pre-tax profit due to lower profit margins.

Property development was much more lucrative, accounting for 3.7 per cent of total revenue and a higher 11.4 per cent of pre-tax profit.

Meanwhile, company secretary Yu Tengqun said subsidiary China Railway Engineering Consulting Group was among 10 firms that underwent a pilot scheme on Beijing’s orders, to achieve “mixed ownership”.

It has recently completed a shares sale exercise that saw key employees of the subsidiary collectively owning a 20 per cent stake, while Beijing-based tourism-to-mining privately owned conglomerate Microlink Group and automobiles and rechargeable batteries maker BYD together owning 10 per cent.

Asked if China Railway’s other subsidiaries would undergo similar reshuffles, Yu said any such development would be determined by State-owned Assets Supervision and Administration Commission.

China Railway on Tuesday closed 0.6 per cent lower at HK$6.32. It has lost 0.9 per cent year to date, trailing a 26 per cent gain of the Hang Seng Index.