China Communication Construction Taunts Barred U.S. Investors With 136% First-Half Profits, 130% YTD Stock Gains

By Mike Caggeso
Staff Writer

China Communication Construction Co. released striking first-half numbers that parallel the country's massive trade explosion.

Profits rose 136%, revenue rose 24% and earnings per share leaped 90% during the first half, CCCC reported in its first half-year earnings statement since its December 2006 IPO in Hong Kong. Infrastructure construction, which accounts for more than 66% of its business, increased 36%.

The gains fueled the advance in the company's shares, which have soared 130% this year alone.

CCCC is the world's largest port builder but its operations also include road, bridge and railway (rural and urban) and overseas construction. Bloomberg reported that CCCC, which is 70% government-owned, builds 90% of China's sea terminals and controls 80% of China's dredging market.

Future projects include building a $1 billion bridge to connect the Malaysia mainland with its island of Penang.

Waves of Profits Across the Pacific

The company provides a concrete illustration of how much China stands to grow and what companies are scoring windfall profits from it.

"The central and local governments are investing a lot in transportation infrastructure, so expenditures in this area are on the rise," Jack Xu, an analyst at SinoPac Securities in Shanghai, told Bloomberg News. "Ports are a major part of the company's business, so the effect is huge."

Yet, like so many bustling companies in China, CCCC is an Asia-based investment goldmine unavailable to U.S. retail investors. Another is Hon Hai Precision Industries, a Taiwan-based electronics manufacturer that assembles every Sony Playstation 3, Nintendo Wii and Microsoft 360 on its line. And that's in addition to iPhones and Hewlett-Packard PCs. Hon Hai is such a hot stock right now that BusinessWeekcalled it an "earnings machine."

Our own Martin Hutchinson outlines this issue in depth. Asia's vast growth potential is a profit machine — its global market share is projected to double in just over two decades, making it twice the size of the U.S. economy.

But a SEC regulation (the infamous Sarbanes-Oxley Act of 2002) bars individual U.S. investors from tapping into foreign companies that aren't registered with the SEC. In all fairness to the companies, SEC registration is a tedious and costly process.

Reaching Around the Rule

Until our politicians pave a direct investment channel to foreign companies, there are several ways to profit from Asia's boom. 

Investors can first look for foreign companies that trade as American Depository Receipts (ADRs), which enable U.S. investors to trade shares of foreign companies just like those of American companies, and in U.S. dollars.

The Bank of New York's China ADR Index is one of hundreds of ETFs investors can use to tap specific overseas markets and industries.

iShares also offers the FTSE/Xinhua China 25 Index Fund, an ETF that seeks tracks 25 of the largest and most liquid Chinese companies, one of them being CCCC.

There are some ways to go around Sarb-Ox, but the fact is that those options exist because the SEC doesn't provide a direct route to profits. And until then, many individual investors can only watch China's growth from the sidelines.