China’s CRRC Posts Six-Month Profit After Rail-Gear Makers Merge

CRRC Corp. posted a profit in its first financial report since China combined two train-equipment companies to compete more aggressively for overseas contracts.

Net income was at 4.7 billion yuan ($736 million) in the first six months of the year, CRRC said in a statement Friday. Revenue totaled 93.2 billion yuan.

State-owned CSR Corp. and China CNR Corp. combined in May to form CRRC, which competes with the likes of Germany’s Siemens AG and France’s Alstom SA. The government in March identified rail as one of 10 focus industries in a blueprint to make China an advanced industrialized economy, and is using rail companies to project political influence abroad in addition to winning major orders.

“We will be looking for guidance on the integration of CSR and CNR post-merger,” and any synergies produced by the deal, JP Morgan Chase & Co. analysts led by Karen Li wrote in an Aug. 18 note.

The Beijing-based CRRC fell 0.5 percent to close at HK$9.63 in Hong Kong before the results. The stock has dropped 7.8 percent this year, compared with a decline of 8.4 percent for the city’s Hang Seng Index.

The company generated 88 percent of revenue from its domestic market during the period. Its revenue from mainland China increased 0.9 percent, while sales in overseas markets jumped 61 percent, according to the statement.

Home, Abroad

China has been targeting emerging markets in Africa, Latin America and Southeast Asia -- often with sales pitches from Premier Li Keqiang -- as it seeks to project influence in the developing world. That sometimes has put it in direct competition with Japan, including for a proposed high-speed rail line linking Jakarta and Bandung in Indonesia that will be decided soon.

European and North American competitors also will face stiffer competition as CRRC looks abroad. Last year, CNR won China’s first major rail contract in North America -- a $567 million deal for Boston subway trains -- with a proposal nearly 50 percent cheaper than Bombardier’s bid.

At home, CRRC, with a $49 billion market capitalization, is among companies that would benefit from accelerated high-speed rail construction after the Beijing-Shanghai link turned profitable in 2014, two years ahead of schedule, Bloomberg Intelligence analysts Joseph Jacobelli and Charles Shum wrote in a July 24 note.

In July, China Railway Corp., the national rail operator, announced the first of multiple tenders this year for about 363 train sets, 18 percent more than the first one last year, Yang Song, an analyst at Barclays Plc in Hong Kong, wrote in a July 16 note.

— With assistance by Clement Tan

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