Summary of the report
Company overview
The company is a leading manufacturer and supplier of down-the-hole drilling tools in Hong Kong, with a market share of 59.2% in 2015 in terms of revenue. The company also sells pile drivers and drilling rigs and rock drilling equipment purchased from outside suppliers. The company provides rock drilling technology solutions for customers with all kinds of drilling needs, design, manufacture and sell down-hole drilling tools for building foundations, site piling, mining and quarrying, drilling wells, utility pipelines, micro-tunnels and drilling various depths of overburden under different geological structures. Most of the equipment and equipment supplied by the company to customers are down-the-hole drilling tools designed and manufactured by ourselves, and the rest are purchased from third parties according to the drilling needs of customers.
The company manufactures self-designed down-the-hole drilling tools at its factory in Shunde District, China. The main raw materials are alloy steel and tungsten carbide, and the five major suppliers are located in China. The company also procures third-party pile drivers and drilling rigs and rock drilling equipment from overseas suppliers and manufacturers and provides them to customers as rock drilling technology solutions. The company's main revenue comes from direct sales of products in Hong Kong and Macau. Exclusive distribution arrangements have been signed in Finland, Japan and India.
The company earned 171.7MHKD in fiscal year 2015, net profit of 27.0 MHKD and net interest rate of 19%.
The company's 16-year revenue CAGR was-3.0% and net profit CAGR was 19.5%.
Revenue fell 9 per cent to 27.8 MHKD in the first quarter of 2016 compared with the same period last year, while net profit was a loss of 3.0MHKD, mainly due to the recognition of 9.6 MHKD listing expenses during the period, which increased by 5.7 per cent year-on-year.
Industry status and prospects
The scale of the down-the-hole drilling industry in Hong Kong has increased from 99.9 MHKD in 2010 to 11.5% in 2015 due to the planning and implementation of major infrastructure projects such as the Hong Kong-Zhuhai-Macao Bridge and railway extension projects from 2011 to 2013.
Frost Sullivan predicts that the market will maintain its growth momentum, reaching about 278.5MHKD by 2020, but the CAGR will be 10.1% due to delays in planning the financing process for infrastructure projects.
Advantages and opportunities
The company is the market leader of down-the-hole drilling tools in Hong Kong and has a loyal customer base.
Provide customers with one-stop technical solutions and support
Our production and delivery time is relatively short.
Weakness and risk
Most of the customers are located in Hong Kong, where the demand of down-the-hole drilling industry is relatively volatile.
Fluctuations in raw material prices and rising labor costs in China.
Valuation
The IPO price corresponds to 14.1-16.9 times the fully diluted price-to-earnings ratio for fiscal year 16 in 2015, and the company did not give a 2016 profit forecast in its prospectus. Based on the company's preliminary estimate of full-year adjusted earnings (excluding listing fees) for the first quarter of 2016, we estimate that the price-to-earnings ratio for 2016 is 12.8-15.4 times, which is higher than that of Hong Kong-listed construction companies. We believe that the company has a small market capitalization and has the value of shell resources. We give IPO a dedicated rating of "5".