The Honghong Group mainly works in Hong Kong for foundation service services, undertaking six projects under construction and two projects that have not yet started. It is estimated that the total value of the contract as of December 31, 2015 is HK $2.360 million. Projects under construction and projects not yet under construction scheduled for 31 December 2015 are expected to be completed between January 2016 and April 2017. According to the Ipsos report, revenue for the year ended March 31, 2015 accounted for 1.8 per cent of the total income of the foundation industry in Hong Kong in 2014. The collection service is generally carried out by the major supporting company, that is, the Hong Kong Foundation (as the foundation contractor in Hong Kong).
We suggest a small note to confirm the stock market.
The company is in charge of
(1) for established foundation contractors; (2) experienced management staff and professional project management staff; (3) provide foundation design, advice and ability to make appropriate adjustments; (4) form a wide network with major suppliers and subcontractors; (5) qualified quantity control and commitment to high health and safety standards and environmental management.
Overview of the industry
The estimated gross domestic product of foundation industry and related foundation projects in Hong Kong increased from about HK $99 billion in 2010 to about HK $19.4 billion in 2014, with a complex annual growth rate of 18.3%. The ten major infrastructure projects completed in 2007 were the main driving force behind the revenue growth of the foundation industry in Hong Kong during the period. As the foundation works of some of these infrastructure projects, such as the Hong Kong section of the Shenzhen-Hong Kong Expressway, were completed in early 2013, the revenue of the foundation industry decreased slightly in 2013. However, with the commencement of new infrastructure projects, revenue resumed in 2014.
As foundation works are carried out immediately after the commencement of the construction project, the growth of the foundation industry reflects the growth of the construction industry. From 2010 to 2014, the revenue growth of the foundation industry was mainly driven by the public sector (that is, the implementation of 10 major infrastructure projects and public housing development plans). Revenue from the foundation industry is expected to increase from about HK $24.5 billion in 2015 to about HK $51.8 billion in 2019, with a compound annual growth rate of 20.6%. The expected increase in residential and commercial demand is expected. The supply of affordable housing is expected to increase as a result of property investment and continued activity in the housing market driven by continuous population growth. Therefore, it is expected that the demand for foundation works will remain high. According to the 2015 Policy report, it is estimated that the private sector will produce about 14600 units annually in the last five years, compared with 11400 units in each of the past five years. As the number of new companies in Hong Kong continues to grow from about 139530 in 2010 to about 167280 in 2014, business demand is expected to remain high. This means that there is a continuing demand for public space and foundation works.
Profit ability and duty number
Based on the historical records of the past three years, the revenue of the collection company has increased from HK $174.7 million in 2013 to HK $357.3 in 2015, with a compound annual growth rate of 43.0%. The annual growth rate has increased from HK $116 million in 2013 to HK $4.66 million in 2015, with a compound annual growth rate of 100.4%. The increase in income in the previous period was mainly due to the large number of items in the prior period.
Collection purpose
HK $692,000 million (based on HK $0.875 per share in the sale) of this collection will be used for the following purposes: about 40% will be used for future projects, such as projects 18 and 19 that are expected to start in April 2016 and September 2016 respectively, and about 20% will be used to hire 15 additional workers (including project managers and experienced engineers) by the year ended March 31, 2019. About 30% will be used for training institutions and equipment in the next five to six years, and about 10% will be used for general financial assistance for collection.
Valuation
According to the IPO price ratio of HK$0.80 to 0.95, the historical price-to-earnings ratio of Hongji is 6.9-8.2 times, and the price-to-market ratio is about 1.95-2.11 times. In the same way, the price-to-earnings ratio and price-to-earnings ratio of 3822.HK, 2221.HK and 1718.HK are 3.1x and 1.5x, 17.4x and 6.8x, 9.7x and 2.8x respectively. It seems that the new shares of construction projects in recent years have mostly collected less capital to attract retail investors. If the market conditions were not too bad, they would generally be caught up in speculation soon after listing because of the high multiple. In addition, calculated on the basis of the IPO ceiling, the market capitalization is only 380 million, and the market capitalization is still low. Therefore, we suggest making small bets on this stock.
Negative factor
(1) the past income and profit rate from foundation projects may not be an indicator of future income and profit rate; (2) incorrect or incorrect estimates of the duration and cost of the project may lead to significant losses; and (3) there are generally many legal and arbitration procedures in the industry. The performance of the collection may be adversely affected by such legal and arbitration procedures; (4) there is no guarantee that customers will be able to provide new services to the collection or that new customers will be able to find new customers based on the income of non-routine foundation projects.