China Comm Cons 2008 results

Overview
China Communications Constructions is the largest port construction and design company in China , a leading company in road, bridge construction and design, the largest dredging company in China and the 3rd largest in the world. It is also the world's largest container crane manufacturer. Its principally engaged in the construction and design of transportation infrastructure, dredging, port machinery manufacturing and railway construction business. It has business mainly in China, and expanding in Asia, Africa and around the world.

2008 results (vs 2007)
1. Total reveune up 18.8% to RMB 178.9B
- Order backlog up 40.3% to RMB 334.3B, and it will continue to rise in 2009
- New contract up 22.4% to RMB 277.1B, significantly catch up in 2H08;
- Revenue growth by segment as follow:

• Infrastructure Construction up 20.1% to RMB 122.1B, will continue to rise due to RMB 4T sitmulus economic plan which highly focus on construction;
• Infrastructure Design up 15.8% to RMB 7.7B, this is just a by product/service with the 1st one;
• Dredging up 30.5% to RMB 19.0B;
• Port Machinery Manufacturing up 10.7% to RMB 26.3B, I think it has already reached its bottom during 2q08 & 3q08;
• Others up 16.7% to RMB 8.3B, that is railway construction, a new business segment for CCC, will continue to rise due to RMB 4T sitmulus economic plan which highly focus on construction;

2. Reported EPS RMB 0.41, same as 2007. 2H08 EPS up 73.3% to RMB 0.26 from 1H08
- Cost of raw material increase significantly in 1H08 and fall back in 2H08, the whole year looks consistent with revenue increase

- Gross margin down slightly from 10.3% to 10.0%, the highest compare to the peers, by segment as follow:

• Infrastructure Construction up from 7.2% to 7.3%
• Infrastructure Design up from 27.1% to 27.2%
• Dredging down from 17.7% to 14.3%, fall significantly, I guess it is due to oil price up;
• Port Machinery Manufacturing down from 14.1% to 12.8%, I think it has already reached its bottom during 2q08 & 3q08;
• Others up from 7.8% to 9.9%, nice to see improvement in gross margin in railway business

3. Balance Sheet
- Total equity down 3.3% to RMB 52.2B mainly due to other reserves down by 27%, looks like it won't drop further in 2009;
- Long term & short term borrowing up 21.6% & 73.5% to RMB 24.1B & RMB 37.9B. As interest rate down, it will reduce CCC's borrowing cost. But debt to equity looks high to me;
- Cash flow from operation down 34.6% while interest paid & tax paid up 44.1% & 59.5%. It is not a good sight.

Risk:

• Result highly driven by cost of raw material, potential commodity price increase will have significant negative impact to gross margin and net income;
• Competition with China Railway Group (0390) and China Railway Construction (1186);
• Weak global economy and international trade will have negative impact on CC's Dredging and Port Machinery Manufacturing business;
• Highly influenced by govenment's construction policy
• High debt to equity ratio

Bilibala with China Comm Cons
CCC will participate in the project of Kong Chu Oh bridge. I will ride on it once the project is completed.

Comments:
Buy, with fair value of HKG $12.6 (no change).