September 08, 2008

China Railway Group to increase CAPEX in 2008

China Railway Group Limited will raise spending on tunnel making machines, factories and other capital projects by 47% in 2008 amid a construction boom in the world's fastest growing major economy.

Mr Li Jiansheng VP of China Railway Group said that investments will climb to CNY 18.1 billion from CNY 12.3 billion in 2007.

The company's capital expenditure for 2008 is about CNY 18 billion, of which CNY 6 billion will be used to purchase equipment for the railway construction business. In addition, the company will pour about CNY 3 billion into its mining business.

Owning about 50 ore mines, Mr Shi Dahua chairman of China Railway Group said that the mining business would become the company's new growth engine. Some of the mines have been under development and they will gradually step up investment in the area.

Its new contracts increased by 26% to CNY 248 billion in 2007, while the order backlog rose by 36% to CNY 216 billion. Affected by a 25% rise in raw material prices, China Railway Group's overall gross profit margin dipped by 0.5 percentage points to 7.3% in 2007.

China Railway Group posted an 18.4% YoY gain in its net profit to CNY 2.42 billion in 2007, while its revenue grew up by 13.1% YoY to CNY 173.7 billion. The gross profit margins of the four core segments namely infrastructure construction, survey consulting services, engineering equipment manufacturing and property development recorded drops last year as a result of price hikes.

Mr Shi Dahua chairman of China Railway Group said that he believed the decline could ease this year. He added that "Gross profit margin is widening on new contracts and we are confident it will increase in 2008. We have already been working on contract price adjustments and we will continue to do so."