E Tightening Impact

*The Red Rooster stopped crowing today as Guangshen Railway fell modestly after steadily rising. GSH serves the old Chinese Pearl River Basin export powerhouse. It reported H1 results today under IFRS. It said that “marcoeconomic adjustments” in the domestic and world economy led to “decelerated domestic economic growth” which, along with competition from other modes of transport, like road and river, led to a slowdown in demand.

Sales revenue came in at RMB 7.168 bn ($116.5 mn), up ~7%, with rail network use income down mainly because of lower short-haul passenger business, but offset by a 33% rise in freight receipts and a 39% rise in other income, mainly from providing operational services to highspeed intercity trains. Passenger revnues for through trains rose over 10% to RMB 3.5 bn, just under half the total. However the figures were distorted by a new value added tax which boosted receipts in 2014 vs 2013.

However, GSH would have had lower (unstated) profits to compete by offering new stations, and heavy mainenance and repair spending. The press release said nothing about earnings and but I am prepared to bet they were below the 44 cents booked in H1 2013. Because of seasonal factors, GSH makes more money in H2 almost every year, which is not an excuse for not telling us the number for H1.

For H2 GSH plans to face “the challenging operating environment” by offering intercity express and special holiday trains in its prime area while boosting its long-distance lines using new stations. It also plans to offer round trip and multi-stop options on long-distance trains plus shipment of luggage ahead to lure in more passengers. This is still a tiny part of GSH's business.

GSH also plans to diversify from its high-frequency Guangzhou-Shenzhen express train business to other areas. It is considering consolidated land development in the Pearl River region to boost competitiveness by making rail access easier. It yields 3% and its p/e ratio at the start of this year was 17. The stock has barely moved today despite the release because nobody knows the profit levels.

*Compugen will buy back the Baize Investments (Israel) participation rights for its product pipeline by an issue of 1.6 mn CGEN shares and cancelled warrants for another half million shares at $7.50/sh.Baize will retain the right to 5% of the cash generated from third parties for candidate drugs formerly financed by Baize until the end of 2015 vs 10% earlier running till 2030.

Baize bought the monoclonal antibody oncology and immunology pipeline rights for $13 mn late in 2011. Baize, a private medical innovation investor, also provided CGEN with research support earlier. CGEN is up modestly on the news.

*Novartis licensed its experimental tropical disease drugs exclusively to the non-profit Global Alliance for TB Drug Development which works with Johns Hopkins U, including finds from NVSs Institutes for Tropical Diseases. The most important is an indocarboxame drug that work against multi-resistant TB strains by blocking a protein the TB bacteria needs to survive, NITF304. NVS is a new Swiss pick.

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