He wrote that he entered the construction industry in 2003 and that the company is a famous contractor in the Hong Kong parking lot floor construction business. According to industry reports, in the 2015 fiscal year, the Group ranked second in the overall parking floor construction industry in Hong Kong, accounting for 7.0% of the market share, and first in the new construction market in the Hong Kong parking floor construction industry, accounting for 33.7% of the market share. The company's history dates back to 2002 and operates in Hong Kong, providing: (i) floor paving services involving painting patented floor paving coating products to provide colour-rich, non-slip, wear-resistant surfaces that are waterproof and resistant to breakage by petrochemical products; and (ii) supporting services, including concrete maintenance and wall painting works. The parking floor projects undertaken by the Group cover parking lots located in different types of properties. In fiscal 2015 and 2016, 98.3% and 96.8% of total revenue were generated from floor paving services provided mostly for residential properties, commercial properties, hospitals and hotel parking lots. In addition, flooring services are also provided for roads and industrial properties, but in smaller quantities.
We recommend speculative purchasing of this stock.
Company advantages
(1) According to industry reports, in the 2015 fiscal year, the company ranked second in the overall parking lot floor construction business in Hong Kong, accounting for 7.0% of the market share, and the first place in the new construction market in the Hong Kong parking floor construction industry, accounting for 33.7% of the market share; (2) Group is a standard-compliant coating company for parking floor coating materials selected by Hong Kong property developers and chief contractors; (3) the Group's directors have executive execution companies for parking floor coating materials selected by Hong Kong property developers and chief contractors; (3) the Group's directors have executive execution for parking floor construction projects. Rich industry knowledge, project management experience and expertise, responsible for leading the company's business. Chairman Chun has over 30 years of experience in the construction industry, while Executive Director Mr. Yip Wai-man has about 10 years of experience in the business; (4) Establishing stable business relationships with major customers and suppliers. The company's business relationships with the five major clients of the 2015 and 2016 fiscal years ranged from 1 to 12 years. Among the five major clients, the company has had business relationships with most of these customers for more than five years. Similarly, the company's business relationships with the five major suppliers in fiscal year 2015 and fiscal year 2016 ranged from 1 to 10 years.
Industry Overview
The total market size of the Hong Kong parking floor installation business increased from about HK$518,600,000 in 2010 to about HK$596,000,000 in 2015, with a compound annual growth rate of 2.8% over the period 2010 to 2015. In the 2015-2020 period, the compound annual growth rate of the number of private cars in Hong Kong is estimated at 5.0%, which will generate more demand for parking spaces. However, the shortage of land supply in Hong Kong often limits new construction projects. As a result, driven by increasing demand for car park refurbishment, the estimated total market size for the 2015-2020 period will increase at a compound annual growth rate of 4.3%.
Due to the limited supply of land in Hong Kong, the market size of the parking lot floor renovation project is already larger than the market size of the new parking lot project, and the compound annual growth rate is also higher. The overall situation of the large-scale parking floor renovation market with a higher compound annual growth rate is likely to continue over the next five years. In 2015, the market size of parking lot floor renovation was five times that of new construction projects because parking lot floor renovation projects accounted for 84.2% of the total market size. The estimated average contract cost for each refurbishment project in Hong Kong increased from about HK$25.5 million in 2012 to about HK$36.4 million in 2015, with a compound annual growth rate of about 12.5%, mainly due to the continued rise in raw material costs and labor costs over the past few years. The estimated average contract cost for each refurbishment project in Hong Kong is expected to increase from approximately HK$37.3 million in 2006 to approximately HK$41.1 million in 2020.
In 2015, the top five companies accounted for 36% of the total market share of the Hong Kong parking floor installation market. The Group is the leading company in the Hong Kong parking lot floor construction market. The company accounted for 33.7% of the new construction project segment in 2015. The Group contributed approximately HK$42,100,000 to the construction and refurbishment markets, accounting for 19.7% of the total market share of the top five companies. Competitor A ranked first among other companies, bringing in an estimated revenue of HK$97,200,000 in 2015, and because it focused on refurbishment, it accounted for 16.3% of the market share of the Hong Kong parking floor paving market.
Profitability and financial figures
Based on historical records for the past two years, the Group's revenue increased from HK$42.8 million in fiscal year 2015 to HK$68.6 million in fiscal year 2016, up 60.3% year on year; net profit increased 51.4% from HK$11.1 million in fiscal year 2015 to HK$16.8 million in fiscal year 2016. At the last feasibility date, the company had 32 contracts on hand. The total value of unpaid contracts was HK$49.5 million. Of these, 11 were construction contracts that had already started, the total value of unpaid contracts was HK$8.6 million, and 21 had not yet commenced, with a total contract amount of HK$40.9 million. Of the 32 contracts at hand, 4 were large contracts, each worth more than HK$5 million. The four contracts involved the provision of parking lot floor construction projects for the following projects: a new construction project for a residential development project on Clear Water Bay Road in Sai Kung, a new project for a commercial and residential development project in Tseung Kwan O, a new project for a commercial and residential development project in Tsuen Wan, and a new residential development project in Yuen Long.
Fundraising purposes
The proceeds from this capital raising of HK$45.2 million (calculated at the mid-sale price of HK$0.45 per share) will be used for the following purposes: approximately 40.7% will be used to expand the company's share of the refurbishment project market and purchase an office; approximately 30.8% will be used to reinforce the Group's leading position in the new construction market by improving overall capacity and project management efficiency; approximately 22.1% will be used to repay bank loans; approximately 6.4% will be used for the Group's general working capital and other general corporate purposes.
valuations
Based on the prospectus price of HK$0.40 to 0.50, the historical price-earnings ratio of Jo Man Kee was about 14.3 to 17.9 times; the market account ratio was about 3.64 to 3.85 times. Listed in Hong Kong and working in the Hong Kong parking lot floor building business is rare, so it is difficult for us to find companies that do the exact same business and compare them directly with those written in Hong Kong. However, if we look at construction engineering stocks that have recently been IPOed, IBI Group (1547.HK), which was listed last day, was priced at a historical price-earnings ratio of 9.9 to 12.7 times and a market account ratio of about 2.50 to 2.65 times, while Easyway Group (3893.HK), which raised capital at the beginning of this month, was a supplier of interior design solutions. The company used a historical price-earnings ratio of about 10.1 to 15.1 times and a market account ratio of about 2.57 to 2.76 times. As can be seen from the above, Lu Wenji's current valuation is not cheap, and the stock is listed on the startup board. If its market value reaches 300 million yuan at the above limit price, its appeal is far lower than that of IBI Group, which was currently offering shares during the same period. Overall, there is an oversupply of construction engineering stocks, and investors must be careful to choose ideal and more stable targets, and we think that the quality of this stock is lower than that of the construction engineering stocks listed in Hong Kong during the same period. Based on the income, we suggest that only speculative purchases of this stock should be made.
Risk Factors
(1) The Group's business is heavily reliant on a number of major suppliers to supply floor coating materials for famous parking lots; (2) future growth depends on the continuous development of Hong Kong's real estate industry; (3) the introduction of new parking floor coating materials with similar characteristics in Hong Kong and gaining market acceptance may adversely affect profit margins; (4) the recession in Hong Kong may delay the refurbishment of old parking lots, and will be detrimental to the cost pressure on bidding, which will be detrimental to the company's plans to expand the company's refurbishment area business Impact; During the track record period, the company's customers were concentrated.
In fiscal year 2015 and fiscal year 2016, the percentage of the company's largest customers due to total revenue for the relevant period was 19.0% and 17.6%, while the total percentage of the company's five major customers due to total revenue was 55.5% and 57.7%; (5) If suppliers were unable to supply the quantity and quality of raw materials required by the company, the company may face material shortages and project delays.
