China Communications Shuns Profitless Domestic Rail for Africa - Businessweek

China Communications Construction Co. (1800)’s rail-building unit plans to focus more on overseas lines after failing to profit from 180 billion yuan ($28 billion) of projects in its home market.

The company will only bid for domestic rail projects that it can make money on instead of placing low offers to win market share, Chairman Zhou Jichang said yesterday in an interview in Hong Kong. The Beijing-based builder, China’s second-biggest by market value, has traditionally focused on ports and roads.

“Our expansion into the domestic rail business was a bit blind,” Zhou said. “We aimed at market share over profitability, but now we’ve learned our lesson.”

The company has already won about $6 billion of rail contracts this year in Ethiopia, Tanzania and Kenya through its overseas push and talks about a line for mine on the continent are under way, Zhou said. The builder is also considering investments in miners and making acquisitions in Europe to pare its reliance on China’s slowing construction market.

“We have to be well prepared,” Zhou said. “It would be too late to seek a new source of revenue if the market started shrinking.” He declined to elaborate further on the potential deals.

The builder, which also operates China’s largest fleet of dredgers, reported a 14 percent drop in first-half earnings this week because of the domestic slowdown. China Railway Group Ltd. (390) and China Railway Construction Corp., the nation’s two biggest rail builders, both reported lower profits late yesterday.

China’s fixed asset investment in transportation, storage and postal facilities dropped 2 percent in the first half from a year earlier, according to the nation’s statistics bureau.

China Communications fell 6 percent yesterday in Hong Kong trading to close at HK$6.23. It’s declined 22 percent in the past six months, compared with an 8.6 percent drop for China Railway Group and a 5.7 percent fall for China Railway Construction.

The company won $6.94 billion of overseas infrastructure contracts in the first half, a 63 percent increase from a year earlier. Its foreign projects include developing a port and building a stadium in Qatar for the 2022 soccer World Cup.

To contact the reporter on this story: Jasmine Wang in Hong Kong at Jwang513@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net