The Group is a leading transportation infrastructure group in the PRC and are principally engaged in the infrastructure construction, infrastructure design, dredging businesses.
The Group's profit attributable to shareholders for the 6 months ended 30-06-2019 amounted to RMB 8.76 billion, an increase of 6.1% compared with previous corresponding period. Basic earnings per share was RMB 0.4807. No dividend declared. Turnover amounted to RMB 239.09 billion, an increase of 15.2% over the same period last year, gross profit margin down 1.7% to 11.7%. (Announcement Date: 30 Aug 2019)
Business Review - For the six months ended June 30, 2019
1. Infrastructure Construction Business
The scope of infrastructure construction business mainly consists of the investment, design, construction, operation and management of port, road and bridge, railway, tunnel, rail transit and other municipal infrastructure at home and abroad. Categorised by project type, it specifically covers port construction, road and bridge, railway construction, municipal and environmental projects, etc., and overseas projects, etc.
In the first half of 2019, the value of new contracts of the Group in infrastructure construction business amounted to RMB440,729 million, representing an increase of 15.5%. Wherein, the value of new contracts from overseas markets amounted to RMB105,742 million (equivalent to approximately USD15,958 million), the confirmed contract value from PPP investment projects amounted to RMB66,356 million, and the value of construction and installation contracts to be undertaken by the Group was estimated to be RMB67,225 million. As at 30 June 2019, the backlog amounted to RMB1,732,947 million.
Categorised by project type and location, the value of new contracts in terms of port construction, road and bridge, railway construction, municipal and environmental projects, etc., and overseas projects amounted to RMB12,155 million, RMB138,303 million, RMB2,879 million, RMB181,650 million and RMB105,742 million, representing 3%, 31%, 1%, 41% and 24% of the total value of new infrastructure construction contracts, respectively.
(1) Port Construction
As the largest port construction enterprise in China, the Group has undertaken a majority of medium and large-scale coastal port terminals since the founding of China. With compelling competitive edges, the Group encountered relatively limited substantive competitors.
In the first half of 2019, the value of new contracts of the Group for port construction projects in Mainland China amounted to RMB12,155 million, representing a decrease of 14.2% and accounting for 3% of that of the infrastructure construction business. Wherein, the confirmed value of contracts from PPP investment projects was RMB407 million. The decrease in the value of new contracts was mainly attributable to the reduction of participation in construction in relation to regional ports under PPP model.
In the first half of 2019, according to the data published by the Ministry of Transport, the fixed-assets investment in coastal and inland transportation construction amounted to approximately RMB53,196 million, representing an increase of 4.0%. The fixed-assets investment in the coastal transportation construction recovered and the investment in inland transportation construction kept stable development. The Company captured the opportunities and successfully entered into the contracts in relation to the Yangtze River Estuary Nancao Waterway Treatment Phase I Engineering, Breakwater Engineering Project of Hujiashan Operation Area in Dongjiakou Port Area of Qingdao Port, etc.
(2) Road and Bridge Construction
As one of the largest road and bridge construction enterprises in China, the Group enjoys remarkable technical and scale advantages in construction of expressways, high-grade highways as well as river-crossing and sea-crossing bridges. Major competitors of the Group are some large-scale central enterprises and local state-owned infrastructure enterprises.
In the first half of 2019, the value of new contracts of the Group for road and bridge construction projects in Mainland China reached RMB138,303 million, representing a decrease of 11.4%, and accounting for 31% of that of the infrastructure construction business. Wherein, the confirmed contract value from PPP investment projects amounted to RMB29,287 million. The decrease in the value of new contracts was mainly attributable to the higher base arising from the rapid development of the projects in 2017 and 2018.
In the first half of 2019, according to the data published by the Ministry of Transport, the fixed assets investment in road transport construction amounted to approximately RMB950,000 million, representing an increase of 4.8%. Affected by leverage reduction and control of financial risks, the construction of and investment in the road project were relatively stable.
The Company thoroughly explored traditional markets to ensure the core competitiveness, and successfully signed the contracts for important sections of expressways including Xintian – Gaofeng Section in Chongqing of Enshi – Guangyuan National Expressway, Dezhou (Shandong and Hebei Conjunction) – Qihe Section of Beijing – Taipei Expressway. Meanwhile, according to the latest policy changes, the Company proactively adjusted its operating concepts, created innovative financing modes, and sought to increase the market demand through national strategic planning including “China Western Development”, “Fully Revitalization of Northeast China” and “City Group Economy”, thus successfully obtaining large projects such as the Project of Baiyinchagan Anye Section of Inter-province Channel in Inner Mongolia, and the New Reconstruction Project of the Lhasa-Xigaze Airport Highway of the National Highway 318 in Tibet.
(3) Railway Construction
As one of the largest railway construction enterprises in China, the Group has developed into the main force of China’s railway construction by virtue of its outstanding construction level and excellent management capability, but a large gap still exists between the Company and the two traditional railway infrastructure enterprises – China Railway Group Limited and China Railway Construction Limited in terms of market shares in China. However, as to the overseas market, it has been estimated that the railway contract value of the Company has accounted for more than half of the overseas railway contract value of Chinese enterprises, and showed vital market influence.
In the first half of 2019, the value of new contracts of the Group for railway construction projects in Mainland China reached RMB2,879 million, representing a decrease of 51.5%, and accounting for 1% of that of the infrastructure construction business.
According to the plan of China State Railway Group Co., Ltd., the fixed-assets investment in railway in 2019 will be RMB800,000 million, and the completed fixed-assets investment in railway in the first half of 2019 amounted to RMB322,000 million, representing an increase of 3.0%, which has a significant meaning to “stabilizing the investment” as an important part of improving weak links in infrastructure. In the second half of 2019, the Company will continue to strengthen the railway construction that Sichuan-Tibet Railway commencement project is expected to enter the tender stage and will benefit the Company.
(4) Municipal and Environmental Projects, etc.
The Group actively participated in urban infrastructure construction for rail transit, urban comprehensive pipe gallery, sponge city, housing construction, etc., extensively, with considerable influence in the market.
In the first half of 2019, the value of new contracts of the Group for municipal and environmental projects, etc. in Mainland China reached RMB181,650 million, representing an increase of 109.1%, and accounting for 41% of that of the infrastructure construction business. Wherein, the confirmed value of contracts from PPP investment projects was RMB36,663 million. The significant increase in the value of new contracts mainly stemmed from emerging sectors including rail transit, municipal construction, ecological and environmental protection and housing construction.
In the first half of 2019, the Company accelerated to capture opportunities and develop layout of emerging business sectors while consolidated the advantageous position of traditional core businesses. Several influential and representative projects in environmental protection, rail transit, and urban comprehensive development have been carried out, and the transformation results became prominent. Various large-scale and high-quality projects, such as Reconstruction EPC Project of Shantytowns in East Zone of Zhonghua South Road in Honghuagang District, Zunyi City, Guizhou Province, Phase I Project of Line 10 of Hangzhou Metro, General Contracting Project for Design and Construction of Navigation Power Junctions in Longxikou, Min River, Sichuan Province, and Comprehensive Development Project of Industrial New Town in Old Industrial Area of Qingshuitang, Zhuzhou City, Hunan Province, were successfully implemented. The industrial layout was gradually improved with a vast potential for future development.
(5) Overseas Projects
The Group’s scope of overseas projects in the infrastructure construction business includes all kinds of large-scale infrastructure projects such as road and bridge, port, railway, airport, subway, housing construction, etc., with remarkable competitive edges in the market.
In the first half of 2019, the value of new contracts of the Group for overseas projects in the infrastructure construction business amounted to RMB105,742 million (equivalent to approximately USD15,958 million), representing a decrease of 10.6%, and accounting for 24% of that of the infrastructure construction business. Wherein, 14 projects were entered into with each new contract value over USD300 million and a total contract value of USD10,156 million, accounting for 60% of total value of all overseas new contracts of the Group.
Categorised by project type, the value of overseas new infrastructure construction contracts for port construction, roads and bridges, municipal, railways, housing and other projects accounted for 39%, 38%, 17%, 2% and 4% of the value of new contracts for overseas projects, respectively.
Categorised by project location, the value of new infrastructure construction contracts for Africa, Oceania, Southeast Asia, Hong Kong/Macau/Taiwan, South America and other countries accounted for 38%, 16%, 13%, 9%, 4% and 20% of the value of new contracts for overseas projects, respectively.
In the first half of 2019, with tough US-China trade friction and increasing competitive pressure in the market, the Company, on the basis of the restart of the ECRL Project in Malaysia, precisely planned and coordinated the national framework project, improved the bidding capacity in spot exchange market and strengthened the exploration of overseas investment market. The Company closely coordinated with the national strategies, implemented the results achieved at the summits and entered into 34 agreements in the second Belt and Road Forum for International Cooperation. The Company also focused on promoting localized construction, consecutively won the bids for multiple projects including the construction of roads and bridges in the Eastern Abqaiq, Saudi Arabia, lot ARC of Runway 3 of Singapore Changi Airport, and phase I of Khalifa Port Station in Abu Dhabi, etc. Lekki Port Project in Nigeria and Laem Chabang Container Terminal Phase III Project in Thailand achieved substantial progress, and formed synergy with the operating platform of foreign ports.
In the second half of 2019, the Company will advance deep the “Belt and Road” initiative, and build more “Wealth Road”, “Love-Connection Bridge”, “Development Port”, and “Happiness City” in line with value improvement and risk control. Under the general mission of serving national economic diplomacy, the Company will deeply participate in multilateral international activities and assist the implementation of significant projects; within the framework of “One Body and Two Wings” and on the premise of and “Going Global”, the Company will continue to authorize and empower relevant subsidiaries and stimulate the marketing vitality of various entities; for potential overseas risks, the Company will make systematic analysis, formulate a systematic, targeted and operational working plan system, and dynamically adjust and consolidate the fortress for overseas risk prevention according to the changes in the situation.
2. Infrastructure Design Business
The scope of infrastructure design business mainly includes consulting and planning service, feasibility study, survey and design, engineering consultancy, engineering measurement and technical research, project management, project supervision, general project contracting, compilation of industry standards and codes, etc.
As the largest port design enterprise in China, as well as the world’s leading highway, bridge and tunnel design enterprise, the Group enjoys remarkable competitive edges in related business fields. As compared with the Group, other entities in the market have relatively weak competitiveness. However, more and more competitors are flooding into the medium and low-end markets, leading to the intensification of market competition.
In terms of the railway infrastructure design business, the Group has entered the market during the “Eleventh Five-Year Plan” period. Currently, the Company is enhancing its influence in the market continuously, and is mainly undergoing the market cultivation period.
In the first half of 2019, the value of new contracts of the Group in infrastructure design business reached RMB19,328 million, representing a decrease of 18.3%. Wherein, the value of new contracts from overseas markets amounted to RMB4,224 million (equivalent to approximately USD637 million), accounting for 22% of the infrastructure design business, which were mainly survey and design projects contributed by a preliminarily acquired Brazil design company. As at 30 June 2019, the backlog amounted to RMB83,279 million.
Categorised by project type, the value of new contracts for survey and design, project supervision, EPC general contracting and other projects (including PPP projects) amounted to RMB8,093 million, RMB431 million, RMB10,475 million and RMB329 million, representing 42%, 2%, 54% and 2% of the value of new contracts for infrastructure design business, respectively, as compared with 18%, 3%, 31% and 48%, respectively recorded for the corresponding period of 2018.
In the first half of 2019, the value of new contracts for domestic survey and design projects obtained by the Company was basically on a par with last year. The Company undertook the survey and design works of Bangda Military Depot – Linzhi Section of G4218 Line in Tibet and the two sessions of Nanjing Yangtze River Fifth Bridge as well as the design works of PPP investment projects for various expressways.
3. Dredging Business
The scope of dredging business mainly includes infrastructure dredging, maintenance dredging, environmental dredging, and reclamation, as well as supporting projects related to dredging and land reclamation.
As the largest dredging enterprise in China and even in the world, the Group enjoys absolute influence in China’s coastal dredging market.
In the first half of 2019, the value of new contracts of the Group in dredging business reached RMB30,854 million, representing an increase of 54.2%. Wherein, the value of new contracts from overseas markets amounted to RMB1,048 million (equivalent to approximately USD158 million), the confirmed contract value from PPP investment projects amounted to RMB858 million, and the value of construction and installation contracts to be undertaken by the Group was estimated to be RMB830 million. As at 30 June 2019, the backlog amounted to RMB94,552 million.
In the first half of 2019, according to the vessel purchase plan, two trailing suction hopper dredgers were purchased to serve in the Group’s dredger fleets. As of 30 June 2019, the Group’s dredging capacity amounted to approximately 790 million cubic meters under standard conditions.
In the first half of 2019, the Company gave full play to its unique advantages, actively expanded environmental businesses and achieved good performance. 12.5m Deepwater Navigation Channel Phase II Engineering below Yangtze River in Nanjing and Pingquan Sewage Treatment Engineering in Jianyang of Chengdu have been completed and accepted. Ecological Island Flood Control and Landscape Road Project in Chongming of Shanghai, Project of Infrastructure Construction of Qiandao Central Commercial Complex of Zhoushan in Zhejiang Province and other large-scale EPC projects have been implemented. Sewage Treatment Project of Taixing Economic Development Zone in Jiangsu Province and Comprehensive Treatment Project of Huama Lake in Ezhou of Hubei Province have consecutively won the bidding. The transformation of business was in progress. However, we also noticed that affected by the approval for using the sea and ocean environmental protection policies issued by the state, traditional land reclamation market was still sluggish, the implementation of large channel dredging projects has not been improved and several sea-related engineering construction projects were suspended.
Business Outlook - For the six months ended June 30, 2019
In the first half of 2019, according to statistics, the value of new contracts entered into by the Group amounted to RMB496,728 million, accomplishing 52% of our goal, which was in line with the Group’s forecast. Revenue of the Group amounted to RMB239,087 million, accomplishing 44% of our goal, which was in line with the Group’s forecast.
In the second half of 2019, domestic infrastructure construction will present opportunities as well as challenges. The potential economic growth rate in China decreased, China’s economic development has entered a new normal status, investment in infrastructure construction slowed down and market competition intensified. However, the new power driven by the development of “Beijing-Tianjin-Hebei Region”, “Yangtze River Economic Belt”, and “Guangdong-Hong Kong-Macau Greater Bay Area”, as well as the implementation of regional strategies including urbanization construction, China western development, fully revitalization of northeast China and rise of central China will bring opportunities to the development in infrastructure industry.
Internationally, potential key areas and projects covered in the national strategy of “six corridors and six channels serving multiple countries and ports” will provide more opportunities to the Company in the integration of interconnection and international industrial cooperation in a more comprehensive, deep and systematic manner.
Source: China Comm Cons (01800) Interim Results Announcement