Guangshen Railway Company (GSH) announced strong growth in revenue and assets for 2007 due to the acquisition of railway transportation assets from the Guangping Line. However, the company's first quarter profits declined due to higher costs and lower revenue, resulting from abnormal weather.
Although the company is well-positioned to leverage the railway growth opportunity in China, especially in Guangdong province, the government's price regulation for railway transportation would negatively affect the company's earnings when its costs increase. Overall, we are maintaining Hold rating on the stock.
The company is the sole railway service provider on the Guangzhou-Shenzhen corridor; therefore it does not face any direct competition from other railway service providers within its service territory. Guangshen Railway is the first wholly-fenced, high-speed railway with four parallel lines in China that allows the high-speed passenger trains and regular speed passenger and freight trains to run on separate lines. This substantially improved the company's transportation capacity.
However, the railway tariff is regulated by the Chinese government, which will negatively affect the company's earnings when its costs increase. With respect to passenger transportation, the company faces competition from bus services, whose fares are lower. Furthermore, buses can offer added convenience to passengers by departing from or arriving at locations outside their central terminals, such as hotels. Finally, with respect to freight transportation, the company faces increasing competition from truck transportation in the medium- and short-distance freight transportation market as the expressway and highway networks in the service region and neighboring areas have increasingly improved.
Read the full analyst report on GSH
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