Take a ride on China's railway growth

Although China's infrastructure build out has been far ahead of many other developing nations, such as India, China still has many years of large infrastructure spending ahead of it. This week, the Red Cat Journal takes a look at an infrastructure-related stock: China Railway Group (0390.HK), listed on the Hong Kong stock market. Moving 1.4 billion citizens around isn't going to get easier as urbanization continues and those citizens pick up a taste for travel. As a result, China plans railway investment of RMB1.5 trillion (US$200 billion) over the 2006-2010 timeframe. China Railway Group is well-positioned to capture this spending as:

  • China Railway Group is Asia's largest construction company and was the third largest in the world in 2006. As its name implies, it is the leading railway and metro line contractor in China.
  • The company has a competitive position due to its broad array of railway related services including: survey, design, consulting, construction, machinery R&D, machinery manufacturing and build-operate-transfer (BOT) project capability.
  • Analysts estimate that earnings could grow at a rate exceeding 60% per year over the 2007-2009 time period.

However, there are also the following negatives to take into account:

  • The company is heavily dependent on one customer, China's Ministry of Railways, for business.
  • The company is less profitable and efficient than one of its key competitors, China Communication Construction Company (1800.HK).