Company overview
Founded in 1986, the company is a provider of motion control, industrial computing and other professional engineering solutions, headquartered in Singapore and listed on the main board of Singapore Stock Exchange in 2005. As of September 30, 2016, the company has set up 66 subsidiaries and 65 sales offices in China, Malaysia, Thailand and other countries and regions. China is the company's main market, and during the past record period, nearly 70% of the company's revenue came from the Chinese market. In addition, the company also has an industrial base with a floor area of more than 40,000 square meters in Suzhou, mainly producing products for engineering solutions.
The company has never lost money since it went public in 2005, and its performance is relatively stable. From 2013 to 2015, the operating income CAGR was about 17.8%, and the profit attributable to shareholders CAGR was about 35.4%. Affected by increased market competition, the company recorded revenue of S $120.5 in the first half of 2016, a year-on-year growth rate of 1.0%. The company's gross profit margin has shown an overall downward trend in recent years, with gross profit margins of 30.1%, 26.8% and 27.9% respectively from 2013 to 2015, falling to 25.8% in the first half of 2016. The company said this was mainly due to increased competition and the devaluation of the RMB and the reluctance of mainland customers to accept product price increases.
Motion control solutions have been the company's main source of revenue, accounting for more than 70% of revenue over the past three years. According to Frost Sullivan, the company ranked first (10.0%) and fourth (5.1%) in the market share of motion control solutions in Singapore and China in 2015.
Industry status and prospects
According to Frost Sullivan, the market size of integrated engineering solutions in China and Malaysia and Singapore in the past five years is about 5.4 per cent and 5.9 per cent, respectively. At present, the development of intelligent manufacturing has become a national strategy in China, and a series of supporting policies have been introduced (for example, made in China 2025). It is estimated that by 2020, the size of the Chinese market will reach S $35.5 billion, with a CAGR of 7.6%. The markets in Malaysia and Singapore have maintained steady development and are expected to grow to S $1.12 billion and CAGR about 5.1% by 2020.
Previously, in the Chinese market, many foreign enterprises have gained a large market share by virtue of their rich experience and advanced technology, while most local suppliers can only provide some basic services and their competitiveness is limited. However, as more and more products are available and local enterprises are supported by policies to improve their technological strength, the company will face more competitive pressure from local enterprises in the future.
Advantages and opportunities
As an one-stop solution provider, the company can provide customers with a variety of solution products to meet customer engineering needs.
The company has set up a number of subsidiaries in China and established a strong customer relationship network.
Weakness and risk
The company's ability to pass on the cost of sales to its customers has a significant impact on its profitability.
The company itself does not carry out cutting-edge product research and development, and there is a risk of losing its relative technological advantage.
Valuation
The IPO is priced at a price-to-earnings ratio of 9.46 times for fiscal year 2015, which is lower than that of comparable peers (Dongying Holdings 13.24; Construction Group Holdings 12.03). The market capitalization of the company's outstanding shares in Hong Kong is relatively low, so there should be a discount in valuation. We give IPO a dedicated rating of "5".