MONTREAL - Emerging markets should provide more growth opportunities for Bombardier Inc. (TSX:BBD.B), analysts say, after the transport giant announced Monday it was awarded a US$4-billion contract to build 80 ultra-fast trains in China.
The new trains will have advanced aerodynamics to use less energy and will be "very stable" when travelling at speeds of up to 380 kilometres per hour, said company spokesman Talal Zouaoui.
Bombardier's rail division was awarded the contract in a joint venture and will build the high-speed trains for China's railway ministry. Its share of the contract is estimated at US$2 billion.
The contract is significant for Bombardier, as sales of regional and corporate jets are hurt by the recession.
Asia, especially China, has become a major growth area for Bombardier's transport division, as the emerging countries spend billions to modernize their transportation infrastructure.
Analyst David Tyerman said Bombardier invested some years ago in China and it's paying off.
"I would expect the same sort of thing to happen in India," said Tyerman of Genuity Capital Markets.
Bombardier's rail division has already won a contract to build subway cars in India, he added.
"All of those things suggest that the emerging markets should definitely provide substantial business to the company. Whether it changes the growth dynamic of the company is a little less clear," he said.
The contract also helps puts Bombardier in a high-speed class with competitors Alstom and Siemens.
"The company has typically not been at the very highest speed level. It has always been a challenge for Bombardier to fill that hole," Tyerman said.
National Bank Financial analyst David Newman said Bombardier Transportation has faster growth in the Asia-Pacific region than in Europe. Newman said China has built as many miles of high-speed passenger rail lines in the last four years as Europe has in two decades.
"We believe that Bombardier's relatively strong transportation fundamentals should provide an offset to the current weakness in its aerospace division, which is witnessing some positive signs," Newman wrote in a research note.
Bombardier said the first train is scheduled for delivery in 2012 and the last one will be completed in 2014.
Bombardier Sifang Transportation Ltd., a Chinese joint venture of the Canadian industrial giant, will manufacture the trains in China. Engineering and project management will be done in China and Europe.
The trains will be based on Bombardier' Zefiro high-speed rail technology and Bombardier Mitrac propulsion and control systems.
Desjardins analyst Benoit Poirier called the contract a "landmark order" for Bombardier's Zefiro trains.
"We believe further orders from China and other countries might follow in the near future," Poirier wrote in a research note.
"We estimate that Bombardier could bid on at least 3,000 cars in Asia over the next three years (worth about US$4.5 billion, assuming US$1.5 million per car). Considering Bombardier is a market-share leader in this region, we would expect the company to win a significant amount of this business."
While Versant Partners analyst Cameron Doerksen said there are still concerns about ongoing challenges in the business jet market, his firm has raised its rating on the stock to neutral from sell.
Doerksen said in a note that Versant Partners' new target for the stock is C$4.90, up from $4.25 previously.
Investors reacted positively to the contract with Bombardier shares rising almost 6.5 per cent, up 29 cents to $4.86, in afternoon trading on the Toronto Stock Exchange.