A building of Metallurgical Corp of China Ltd. The State-owned company posted a year-on-year 19.23 percent surge in sales revenue to 106.1 billion yuan. [Photo / China Daily]

SHANGHAI - Metallurgical Corp of China Ltd (MCC), the State-owned metallurgy giant, posted an 11.3 percent year-on-year drop in first-half net profit to 1.97 billion yuan ($309 million), as it continued to reduce its overreliance on the traditional iron and steel metallurgy market.

The shrinking profitability mainly reflected the company-wide transformation and consequent soaring costs, Chairman Jing Tianliang said at a briefing on the results in Shanghai.

The resource-to-property conglomerate witnessed a year-on-year 19.23 percent surge in sales revenue to 106.1 billion yuan, with a gross profit margin of 11.9 percent, down 0.8 percentage point.

Basic earnings per share stood at 0.1 yuan, down from 0.12 yuan. The debt ratio, an indicator of a firm's financial flexibility and operational risks, was 82.6 percent.

Operational costs including sales and management rose from 5.41 billion yuan to 6.48 billion, the report said.

MCC expanded its non-metallurgical operations, including equipment manufacturing, resources exploitation and property development, to overcome some of the negative effects of changes in the steel industry, said Kang Chengye, secretary of the board.

As part of this effort, it has ventured into overseas resource development, local infrastructure projects and public housing, which will optimize its industry composition in the long term, said a research note from Guosen Securities Co Ltd.

New engineering and construction contracts amounted to 127.5 billion yuan, up 2.8 percent. New overseas contracts included one valued at more than 3 billion yuan - construction project for a university town in Kuwait, Kang said.

Further, the Aynak copper mine in Afghanistan is expected to start production by the end of 2014, President Shen Heting said.

A report from China International Capital Corp Ltd cited the significant increase in the efficiency of resources development of polysilicon as a major driver of the resource development sector.

First-half production of polysilicon reached 3,751 tons, double the year-earlier amount, and the gross profit margin reached 16.9 percent, up 11.5 percentage points.

Revenue from real estate operations climbed to 8.6 billion yuan, but the gross profit margin from 23.5 percent to 15.7 percent, largely due to home-purchasing curbs imposed by the government.

Listed in Shanghai and Hong Kong, MCC is one of the largest equipment makers in China.

It is also the only central government-owned enterprise that is authorized to run pulp and paper production businesses in China and overseas.

On Aug 23, MCC raised 3 billion yuan in one-year funding to finance ongoing projects and lower operating costs.

But a note from Citibank Securities Inc said MCC's performance has fallen short of market expectations. The company is still faced with a strained cash flow, and the uncertainties in overseas resources exploitation could cast a shadow on its future development, the note said.

Shanghai-listed shares of MCC fell 0.3 percent to 3.13 yuan on Thursday. The H Shares climbed 0.9 percent to HK$2.23 (29 US cents).