Portfolio | Merged China train maker shows not all state firms are safe bets
Shares of CRRC, the high-profile combination of CNR and CSR, have fallen 40pc since their debut
Investors looking for safe bets in the market have long been drawn to monopolistic state-owned companies that offer the prospect of steady returns - with that reassuring government backing. But it does not always play out that way.
The high-profile merger of China's two largest train makers, China CNR Corp and CSR Corp, went smoothly enough this year. But shares in the new entity, CRRC Corp, have headed down the wrong track.
Since their debut on June 8 - days before the country's stock market peak - the shares have fallen 40 per cent, about double the drop in the Shanghai benchmark from its June 12 high.
CRRC has 90 per cent of the domestic market for the production of railway locomotives, bullet trains, passenger trains and metro vehicles. The impetus for the merger was the quest for a deeper push into overseas markets.
In a research report, Macquarie equities analyst Patrick Dai said: "Although CRRC enjoys a cost advantage relative to its international peers, the company does not have a strong brand name in the international market, and this may prove a hindrance in terms of winning contracts.
"Overseas markets often have higher product quality standards, and hence the company may incur product liabilities due to defective products."
Revenues from exports accounted for 7 per cent of the overall sales of CSR and CNR last year, and the merged company aims to more than double this to 15 per cent.
