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Asia300

China Railway affirms foreign revenue goal despite setbacks

New overseas contracts down 8.2% in first half

China Railway Group President Zhang Zongyan at a press briefing on the company's first-half results in Hong Kong on Sept. 5. (Photo by Joyce Ho)

HONG KONG -- China Railway Group reiterated Tuesday that overseas infrastructure projects remain on track to contribute 10% of its revenue in the near future, up from the current 5.5%, dismissing short-term setbacks and uncertainties.

The Beijing-based contractor, which is 54% owned by the State Council's China Railway Engineering Corp., saw the value of new contracts from abroad decline 8.2% in the first half from a year earlier to 28.62 billion yuan ($4.37 billion).

The contribution from overseas business ticked up by just 0.2 percentage point from a year earlier on the back of a 15.2% increase in contracted sales to 16.28 billion yuan.

The overseas contract backlog totaled 181.1 billion yuan as of June, up 6% from the end of December. That growth trailed that for the entire infrastructure segment by 3.5 percentage points.

"The fall [in new contract sales] was in a normal range," Zhang Zongyan, president of China Railway Group, told reporters on Tuesday. The company blamed the decline on various big-ticket contracts signed last year, including a $1.5 billion railway project in Egypt.

Belt and Road bump

Zhang emphasized that Beijing's Belt and Road Initiative was set to provide immense opportunities for the group. It had thus far prompted projects such as the China-Myanmar Railway linking the country's southwestern Yunnan Province with Yangon, a high-speed underground in Indonesia, as well as other infrastructure construction in Malaysia and Brazil.

"Don't forget that our domestic projects were also growing," said Zhang, suggesting the huge volume of infrastructure projects at home due to urbanization and cityscape enhancement would likely dwarf the size of ventures abroad.

But he dismissed the alleged complications for overseas projects, noting they are "in an operational phase," and would take up to 10 years to yield more visible impacts on the company's books.

Last September, the company won out in bidding for three sections of a China-Laos railway, with the contracts worth a total of 8.13 billion yuan. Including another contract won the previous year, valued at 2.28 billion yuan, China Railway was involved in four out of six sections of the 414km express link connecting China with Laos' capital Vientiane.

Beijing hopes the track will form part of a larger transportation system, dubbed the Pan-Asian Railway, which one day may carry passengers and goods between China and Singapore.

But the China-Laos project, estimated to cost as much as half of Laos' gross domestic product of $13.7 billion in 2016, was reportedly running up against financing troubles due to its potential burden on the government budget of Laos.

"The progress of the China-Laos railway [project] is very smooth, even though there might be controversies over which part to begin with first," said Zhang. "But such issues exist for domestic [projects,] not to mention those abroad."

Other projects on track

Zhang also said a $3.1 billion railway project in Bangladesh and other unspecified projects in Pakistan were progressing "normally," if not "better than expected."

He said the company would have no problem reaching its target of closing some 1.2 trillion yuan in new deals by the end of this year, though the more stringent requirements for public-private partnership projects unveiled lately as part of Beijing's plan to curb local government debt might create some short-term headwinds.

The company had met 46.8% of its target in the first half, of which 84% was concentrated in the infrastructure segment, followed by manufacturing, property development and design, respectively.

It recorded a net profit of 7.7 billion yuan attributable to shareholders for the first half, up 41.1% on the year. Municipal projects, which chalked up the highest gross profit margin within the infrastructure segment, at 9.8%, were the key growth engine.

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