China rail venture puts Sapphire on growth track

Ranken is well positioned to tap into China's transport infrastructure demand, said Sapphire's chief executive Teh Wing Kwan.
Ranken is well positioned to tap into China's transport infrastructure demand, said Sapphire's chief executive Teh Wing Kwan.

New acquisition Ranken has three major contracts on the books worth $200m

The recent move by mining services firm Sapphire Corporation into the infrastructure business is starting to bear fruit, with three major railway contracts in China already on the books.

The firm's newly acquired engineering unit Ranken Infrastructure has secured the deals, worth a total of 916 million yuan (S$200 million), it was announced yesterday.

They involve Ranken building urban metro lines in Guiyang and Qingdao and carrying out tunnelling works for the cross-country Menghua Railway.

Ranken expects to complete the projects in 24 to 35 months.

The new projects mark a milestone for mainboard-listed Sapphire, which acquired Ranken for 360 million yuan only in October in a bid to shift its focus away from the struggling mining business.

Sapphire also disposed of its loss-making steel business in December last year, leaving only mining services company Mancala Australia in its mining portfolio.

These strategic moves have put Sapphire back on the growth track by allowing it to tap into China's transport infrastructure boom, chief executive Teh Wing Kwan told The Straits Times yesterday.

"The Chinese government had allocated some 2.8 trillion yuan for railway development between 2010 and 2015, but the actual spending was actually 25 per cent higher than that. In the recent five-year plan meeting the same budget was again allocated for 2016 to 2020."

Ranken is well poised to tap into that demand, being the second-largest private operator in China's rail transport infrastructure sector and the only private operator with the full certification for design, construction and project consultation work, Mr Teh noted.

"In addition to the three announced contracts, Ranken is in talks to bid for 2.5 billion to 3 billion yuan worth of railway projects. The company has a production capacity for close to 1 billion yuan worth of projects in a financial year."

Ranken, which has a gross profit margin of 18 to 26 per cent, reported 19 million yuan in profit for the six months ended June 30, 2014, when contract revenue was at a low base.

Sapphire, which reported only $1.55 million in net profit for the three months to Sept 30, expects Ranken to be its biggest revenue contributor, potentially with an 80 to 90 per cent share.

"Hopefully our investors will see that value this quarter, when Sapphire starts to recognise Ranken's revenue. I believe it will be quite encouraging for them," Mr Teh said.

Investors seem to share Mr Teh's confidence. Sapphire shares surged 1.4 cents or 13.59 per cent to 11.7 cents yesterday following the contract announcement.

Meanwhile, Sapphire is not yet ready to cut all its ties to mining, although it will stop all investments into the segment as the industry adjusts to a prolonged commodity crunch.

Sapphire's Mancala Australia, which supplies services to mining companies, is operating one of Vietnam's largest nickel mines.

Mr Teh said: "We are not looking to sell Mancala for now, but we will be allocating more resources to our infrastructure business going forward.

"Meanwhile, we want to stabilise our mining business, through cost control and streamlining of operations."

A version of this article appeared in the print edition of The Straits Times on December 10, 2015, with the headline 'China rail venture puts Sapphire on growth track'. Print Edition | Subscribe