Wednesday, November 11, 2009

Berkshire bid for BNSF boosts Chinese rail stocks

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Plans by Omaha, Neb.-based Berkshire Hathaway, Inc. to purchase BNSF Corp. in its entirety have spurred a rally among Chinese rail-related stocks, including transportation and construction firms. A number of companies have benefited from the rally, including  Daqin Railway Co., China Railway Tielong Container Logistics, Guangshen Railway, and Good Hand Railway. Railway construction companies such as China Railway Construction Corp. (CRCC), China Railway Group, and China Railway Erju Co. also have seen their stock prices rise.

Revenue at these railway construction firms has been growing steadily thanks to the massive stimulus allocated to the infrastructure sector by the government. CRCC's orders surged by 80% in the third quarter and its revenue has been forecast to grow by 21.5% this year, according to a research note by Guosen Securities.

U.S. firms hope to capitalize on the vote of confidence, as well. Earlier this week, Sunnyvale, Calif.-based Trimble Navigation, Ltd. and the China Railway Eryuan Engineering Group Co. (CREEC) announced a definitive agreement to form a 50-50 joint venture in China. The joint venture will be based in Chengdu, China, where CREEC is headquartered. The deal still requires regulatory approval from the Chinese government.

Despite the encouraging signs, industry analysts said that the fundamentals did not fully justify a rally. Said Qiu Bo, an industry analyst at Guosen Securities, "The next two years will only see mild growth in railway construction."