China Communications reveals global plans as profit surges

Fu Junyuan, the chief financial officer of China Communications Construction (CCCC), has told reporters that the company aims to generate half its income from overseas work in the future, although he did not give a deadline for meeting that target.

Fu was speaking at a press conference to announce the company’s full year results to December 2015, which revealed sharp rises in sales, profit and overseas work.

CCCC, the fourth largest contractor in the world by turnover, specialises in transport infrastructure, dredging and the manufacture of heavy machinery.

CCCC is our top pick, with the cheapest valuation, lower exposure to mining or commodity trading and best risk management for overseas projects– Phyllis Wang, Deutsche Bank analyst

It said its turnover had risen 10% to 404bn yuan ($63bn) and profit was 13% higher at 16bn yuan ($2.5bn). It attributed the strong performance to a 20% increase in overseas revenue, compared with an 8% rise in domestic sales.   

The results were above analysts’ expectations given the slowdown in China’s home market and the knock-on effect this has had on foreign economies, particularly those in Africa and South America that rely on Chinese demand for their commodities.

The highlights of CCCCs’ 2015 include the successful takeover of Australian contractor John Holland for A$1.1bn ($890m), its first significant overseas acquisition. Last month the contractor told the Australian press that it had established a development and investments group with a CCCC-funded budget of more than A$1bn ($771m), and intended to take a development role in future schemes.

John Holland reported a A$98m net profit for 2015. The previous year it reported a A$179m ($138m) loss, owing to the sale process, writedowns in the value of its assets and provisions against non-performing contracts.

Fu said the company had performed particularly strongly in Kenya in 2016, signing three projects in the first quarter worth a total of $832m.

CCCC is already deeply involved in Kenya’s physical development. In December 2015 it signed a framework agreement with the government to build two sections of the Mombasa-Malaba standard gauge railway, and in March it won a contract worth $1.5bn to extend the Mombasa-Nairobi line by 120km to Naivasha.

The company’s subsidiary, China Road and Bridge Corp, is also building a $3.8bn railway connecting Mombasa with Nairobi, which is scheduled for completion next year.

Another significant development was the renewal of work on the $1.4bn Port City project in the Sri Lankan capital of Colombo (pictured). The project, which includes apartments, hotels and a golf course, was suspended after a change in government in Sri Lanka last year.

Phyllis Wang, an analyst with Deutsche Bank, said in a note on 29 March: "CCCC is our top pick, with the cheapest valuation, lower exposure to mining or commodity trading and best risk management for overseas projects."

The is state-controlled but lists some shares on the Hong Kong stock exchange. It employs 112,000 people in 130 countries and is the 12th largest state-owned enterprise in China.

Photograph: An artist’s image of Port City, Sri Lanka (Wikimedia Commons)

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