Firm to power growth under the 'Go-West' policy

Chongqing Machinery & Electric Co Ltd - a Chinese joint venture partner of Swiss engineering group ABB Ltd - said it plans to buy assets at home and overseas to power growth under favorable policies from Beijing to support development in western China.

State-owned Chongqing Machinery would need new capital to finance fast growth this year and would consider different financial instruments for raising funds, Chairman Xie Huajun told Reuters in an interview on Friday.

Based in Chongqing, the company makes heavy-duty diesel engines, gear boxes, gear-producing machines and other machinery. It enjoys a preferential tax rate of 15 percent under China's "Go-West" policy until 2020.

Some analysts said shares in Chongqing Machinery had been undervalued because the diversity of its businesses made it difficult for investors to understand. The stock ended up 4.6 percent at HK$2.95 ($0.38) on Friday. It has climbed more than 11 percent this week after the company reported a 16 percent rise in 2010 net profit.

"Mergers and acquisitions are an effective method of expansion," Xie said. "This is a very hot topic in China now. For us, going out is a very bold but very rational move."

Chongqing Machinery is looking at two to three projects in each of its four manufacturing sectors of commercial vehicle parts and components, power equipments, general machinery and computer numerical control machine tools.

The acquisitions should provide new technology, new markets or help the company upgrade its brand, Xie said.

"The next 10 years will be a phase of high growth for the company."

Chongqing Machinery paid 20 million pounds sterling ($32.3 million) in 2010 to buy Precision Technologies Group's Holroyd and heavy machine tools businesses in Britain, its first acquisition.

Its parent - Chongqing Machinery & Electronics Holdings Corp - participated unsuccessfully in bidding for 3i Group Plc's Dutch pump maker Hyva last year.

"Because of limited preparation time, we decided to let the parent company go for it," said Xie, who is also chairman of the parent.

Chongqing Machinery expects fast profit growth this year in its commercial vehicle parts and components, and computer numerical control machine tools segments.

The company's 23 percent-owned joint venture - ABB Chongqing Transformer Co Ltd, which provided transformers to China's Three Gorges Dam hydropower project - will start exporting transformers to Southeast Asia this year.

Xie said Chongqing Machinery - listed in Hong Kong for three years - would be able to list yuan-denominated A-shares on the mainland.

"Listing A-shares could raise more funds to accelerate development of the company," he said, adding that the company was still deciding the best timing for such a move.

Capital expenditure this year would be higher than last year's 506 million yuan ($77.3 million) - the development of a large precise computer numerical control machine tools production base alone would require 750 million yuan this year, Xie added.

Reuters

(HK Edition 04/09/2011 page3)