18 February 2019

CSR jumps on China’s high-speed-rail export drive

This week’s weak export data reflect the grim fact that cheap made-in-China products, which drove the country’s decades-long breakneck expansion in foreign trade, are losing their appeal overseas. No wonder the state’s top leadership is keen to spur export growth by moving up the technology value chain.

President Xi Jinping and Premier Li Keqiang have taken turns to promote the export of indigenously developed high-speed-rail know-how on the international stage. Earlier this month, Xi urged Chinese businesses to take an active role in building a proposed bullet train line linking Malaysia and Singapore. And Li told his Thai counterpart, Yingluck Shinawatra, on Saturday during his state visit to Thailand that Chinese high-speed-train technology is safe and affordable.

The Thai market is particularly important to China’s rail exports. Bangkok plans to spend about US$25.57 billion in the next seven years to erect a national high-speed-rail network. If China wins the bid, it can create great synergies with other China-sponsored railways under construction in Burma and Laos, putting China in a better position to win the Malaysia-Singapore project.

Apart from offering concessionary loans to Bangkok, Beijing also told Thailand that it can pay for some of the deal with rice and other farm produce if Chinese enterprises are awarded the contracts. It seems that Beijing is determined to win. And if that is the case, CSR Corp. Ltd. (01766.HK, 601766.CN) stands to be the major beneficiary because the state-owned bullet train manufacturer already has an assembly plant in Malaysia.

CSR is also riding on the revival of demand in the domestic market too. According to China Railway Corp.’s financial updates, the sole operator of national rail services in the country, the state’s fixed asset investment in railway will rebound to 660 billion yuan (US$107.83 billion) this year, close to the peak before the downfall of former railways minister Liu Zhijun {劉志軍} in 2011.

In the first major tender since a two-year suspension triggered by the deadly high-speed-train crash in Wenzhou, CSR beat out rival China CNR Corp. (601299.CN) to gain the biggest slice of the thick-margin supply order for electric multiple units.

The A shares of mainland-listed CSR jumped about 10 percent Monday. Given that the forward price earnings multiple remains at an affordable level of about 14 times, the rally could herald a sustained strong run. CSR’s Hong Kong-listed H shares will likely follow a similar pattern, although they usually trade at a moderate premium.

– Contact the writer at [email protected]



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