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September 30, 2009

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Ministry to spend billions on trains

CHINA'S two top train makers have won Ministry of Railways contracts worth more than 110 billion yuan (US$16.1 billion) as part of an accelerated plan to develop high-speed rail links.

China South Locomotive and Rolling Stock Corp said its subsidiaries had landed two contracts, valued at 72.4 billion yuan, for high-speed trains.

The contracts include an order worth 45 billion yuan to supply an unspecified number of 350-kilometer-per-hour trains to the Wuhan Railway Administration, according to a filing to the Shanghai Stock Exchange yesterday.

The first train will be delivered in the first half of next year, with final deliveries expected by the end of 2011, it said.

China South Locomotive's 50-percent-owned Bombardier Sifang (Qingdao) Transportation Ltd was selected by the ministry's Shanghai Railway Administration to supply 27.4 billion yuan worth of rolling stock, to be delivered between July 2012 and September 2014, it said.

The second deal involves 80 trains comprising 1,120 cars, according to venture partner Bombardier Inc, the Canadian aircraft and train maker.

Rival China CNR Corp also said yesterday that it won contracts worth about 40 billion yuan from the ministry to supply high-speed trains.

China South Locomotive and CNR are seen as two major beneficiaries from China's massive spending on high-speed rail lines, including one between Shanghai and Beijing that is under construction. The government wants a bigger share for the two top domestic players in the train market.

CNR, cleared by regulators last month for an A share listing, had already secured a 39.2-billion-yuan contact from the ministry in March to supply bullet trains.

BOC International analyst Shi Qi said China South Locomotive is expected to enter a period of rapid growth in the next three to five years, though the latest contracts will have no major impact on earnings this year.

The contract value of the two deals won by China South Locomotive is twice the company's 2008 sales and accounts for more than 90 percent of its existing order book, according to Shi.

China South Locomotive shares fell 2.8 percent in Shanghai trading yesterday. The Shanghai Composite Index was down 0.33 percent.


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