SHANGHAI: Shares in China's biggest trainmakers China CNR and CSR Corp jumped after the two firms confirmed that they would merge.
CNR was open up 44% and CSR up 33% in early trading in Hong Kong.
The merger will create a US$26bil company that Beijing hopes will be able to compete with the likes of Germany's Siemens and Canada's Bombardier for global rail deals
FROM NOW ONWARDS , THERE WILL BE NO MORE PROBLEM OF FIGHTING OF CONTRACTS FROM CNR AND CSR . ALL NEW ORDERS WILL COME FROM A SINGLE ENTITY AND FLOW INTO MIDAS
The two firms control the market for high-speed rail in China, each producing trains capable of traveling up to 380kph, Xinhua news agency said. Together they also account for 80 percent of goods trains and the majority of subway trains.
China’s high-speed rail network is the largest in the world with more than 11,000km of track in service last year, with the total expected to reach 16,000km by 2020, official media said.
After China’s two largest train makers announced an all-share merger, analyst reports have been gushing in and upgrading the stocks ; re-iterating their positive views on China’s railway sector.
Among them, Goldman Sachs added China CNR Corp.‘s A-Share stock (6199.HK) to its conviction list and upgraded CSR Corp.‘s (1766.HK) A-Share from Hold to Buy saying it has one of the highest upsides among their A-share machinery and infrastructure construction coverage.
The investment bank identified two key growth drivers. First, Chinese are increasingly using high-speed rails, which means there will be robust demand for bullet trains. Second, China is aggressively pushing to build railroads overseas.
On New Year Eve, the day the merger was announced and the two stocks resumed trading, CNR jumped 45.2% and CSR rallied 32.3%. Apart from the merger deal, both stocks are playing catch-up. China’s infrastructure construction stocks rose on average 50% since the two halted trading in October.
There are pros & cons, Bullseye, to the merger. The big giant controls almost the entire train market now in China. One big customer for Midas, who now is more of a price taker. Take it or leave it, says the giant.
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