EUR 850.00 For Business Accounts Only

Morningstar | Deleverage Means Less Public-Private-Partnership Projects for CRCC Going Forward

China Railway Construction Corporation, or CRCC, and its larger competitor, China Railway Group, make up China's railway infrastructure construction duopoly. Since 2008, CRCC has benefited tremendously from China's massive building boom, doubling its revenue in just two years.Since 2011, CRCC has been in diversification mode. Its infrastructure construction business now accounts for 83% of revenue, down from nearly 90%. Beyond that, CRCC is mainly involved in related services: manufacturing, design, logistics, and material trading. By leveraging its strong balance sheet and access to land, CRCC has made its initial foray into the property development sector. This still accounts for only a small portion of CRCC's revenue, but nonconstruction businesses usually command significantly higher gross margins.CRCC's diversification is well under way, as evidenced by its shrinking exposure to the thin-margin railway infrastructure business. As of 2017, new railway contracts roughly account for 18% of total new contracts, well below the historical high of 65% in 2010. With total railway infrastructure spending to average at CNY 750 billion-CNY 800 billion annually until 2022, we see limited upside growth potential. Less-moatworthy and more-competitive urban works and highways would provide a catalyst for future revenue growth. We also anticipate high-single-digit growth in the high-margin nonconstruction segment, which should help CRCC achieve steady margin expansion over the next five years.