China Trainmakers’ Profits Decline on Lack of New Orders

China’s biggest trainmakers said sales and profit fell in the first half after the nation delayed orders for bullet trains.

CSR Corp. (1766), the country’s biggest trainmaker and a partner of Bombardier Inc. (BBD/B), and China CNR (601299) Corp. said the economic slowdown also damped operations in the period. Shares of both manufacturers declined today.

China CNR expects a “steady growth” in the second half as state-run China Railway Corp. has opened a tender for 91 bullet trains, ending a two-year order hiatus. The purchase comes after Premier Li Keqiang said last month that railroads are key for the nation “to get rich” as he tries to stimulate an economy growing at the slowest pace in more than a decade.

“The trainmakers were adversely affected by the lack of new orders in the first half,” said Xu Minle, a Shanghai-based analyst at Bank of China International Ltd. “Looking ahead, things will be better as the tenders for trains have begun and the government has voiced its support for the rail system.”

CSR, which builds high-speed trains on its own and in a venture with Bombardier, fell 3.5 percent to HK$5.72 in Hong Kong trading. China CNR declined 1.6 percent to 4.21 yuan in Shanghai.

Affected by Slowdown

China Railway’s bullet-train tender announced this month is part of the more than 50 billion yuan ($8.2 billion) that will be spent on new trains by the company. Expansion of the high-speed network, which includes the world’s longest line, has lured passengers from airlines, prompting China Southern Airlines Co. and Air China Ltd. (601111) to offer discounted fares.

China aims to have a high-speed train system comprising four north-to-south and four east-to-west lines covering 90 percent of the population by 2020. The east-west networks are under construction, while Beijing-Guangzhou is one of three north-south lines in service.

“The operation of the company was to a certain extent affected by the slowdown in the economy of China and the delay in the tender invitation of its major customers,” CSR said in a filing to the Hong Kong stock exchange yesterday.

The company’s net income declined 24 percent to 1.46 billion yuan, the Beijing-based trainmaker said. China CNR’s profit fell 5.4 percent.

China’s economic growth slowed for a second straight quarter to 7.5 percent in the three months ended in June, extending the longest streak of expansion below 8 percent in at least two decades.

Bondholders

China split the Ministry of Railways into two in March as the nation’s new leaders sought to pare bureaucracy and eliminate graft in a department that had more than 2 million employees and 2.8 trillion yuan in debt. Some administrative functions went to the Ministry of Transport’ State Railway Administration and China Railway (1186) took over commercial operations.

Premier Li’s endorsement hasn’t profited holders of China Railway’s bonds, which have lost 1.8 percent this quarter as a cash crunch at banks worsened and restructuring distanced the government from the company’s Denmark-sized debt.

China Railway, the nation’s biggest issuer of corporate bonds, has accounted for almost half of all debt sales regulated by the NDRC this month, issuing 40 billion yuan of the 82.1 billion yuan total, according to data compiled by Bloomberg.

China Railway’s total outstanding bonds have risen to 782 billion yuan as of Aug. 23, up from 560 billion yuan two years ago, according to a statement posted on Chinabond’s website. The company has to pay 36 billion yuan of interest per year on the debt, the statement showed.

To contact the reporter on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net

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