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ZPMC inks $2.2b deal with Spanish firm

By Zhou Yan (China Daily)
Updated: 2009-07-21 08:01

Shanghai Zhenhua Heavy Industry (ZPMC), the world's largest manufacturer of heavy-duty equipment, has inked a deal worth $2.2 billion with Spanish marine oil and gas explorer ADHK for supply of offshore engineering products yesterday.

The transaction, including 10 offshore jack-up drilling platforms, seven land drilling rigs, and two float cranes, was the largest sale contract of this kind to date in the country.

It is also the State-owned company's latest move to step up its momentum in the marine engineering business.

"In recent years, we've been aggressively exploring the offshore heavy-duty equipment industry. The contract marks our first step to enter the global marine engineering market," said Zhou Jichang, chairman of ZPMC's parent company China Communications Construction Co, which holds a 28.71-percent stake, at the ceremony held in Shanghai.

The company's A-share is set to resume trading from today after a four-day suspension before the massive contract was clinched.

"It's a significant step for the company's entry into the more profitable marine engineering industry to offset its stagnant traditional business in container cranes," said Zhang Zhongjie, a mechanical analyst from Guojin Securities.

ZPMC's container cranes have a global market share of nearly 78 percent. Over 72 percent of the company's total revenue was generated from this sector during 2008.

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However, the drastic export slips arising from the financial crisis have taken a toll on the port equipment manufacturing giant, which posted 18 percent year-on-year decline in net profit during the first quarter of this year to 450 million yuan ($58.06 million).

Analysts projected the company's growth in its mainstay business to reach its ceiling within two to three years, after a compound annual growth rate of 20 percent in yearly sales from 2004 to 2008.

The market for heavy-duty equipment particularly for offshore oil and gas extraction has been emerging as a new profit engine for the company.

The Shanghai-based firm changed its name from Shanghai Zhenhua Port Machinery to Shanghai Zhenhua Heavy Industry in May as a preliminary step to enter into the offshore engineering equipment industry, the company said.

Just late last month, ZPMC obtained a credit line of $10 billion yuan for five years from China Development Bank to fund its development in the new sector.

The growth of fossil fuel production will mainly lie in the exploration of deepwater oil and gas after 2012, given the vast area of deep ocean water and the exploration saturation of traditional oil and gas resources, said Ye Zhigang, analyst, Haitong Securities.

Zhang estimates that the new order will extend the earnings contribution from the marine engineering sector to 30 percent in 2010 and 2011 from the 20 percent in 2008. Earnings per share this year is expected to cross 0.5 yuan compared with the first quarter's 0.13 yuan.

"The project will not add much credit to ZPMC's 2009 earnings before the order is fully materialized," Zhang said.