Company overview
The company is a slope contractor in Hong Kong, mainly undertaking slope works as the principal contractor and carrying out site investigation works as a subcontractor. According to the Ipsos report, the company ranks first in terms of slope engineering revenue in 2016, accounting for about 20.9% of the market share of the slope engineering industry in Hong Kong. The total revenue of the slope engineering industry in Hong Kong accounted for about 2.3% of the total revenue of the civil engineering industry in Hong Kong in 2016.
All of the company's revenue is generated in Hong Kong, more than 90% of it comes from public sector projects, and all contracts are won through competitive bidding. The overall bid winning rates of the company (public sector + private sector) in the past three years were 23.3%, 17.7% and 8.9%, respectively.
The company's financial position has fluctuated over the past three years, with revenues of HK $305 million, HK $391 million and HK $344 million respectively in 2014-2016, while gross profit margins were stable at 13.8 per cent, 15.4 per cent and 14.4 per cent, respectively.
Industry status and prospects
The total output value of the civil engineering sector in Hong Kong rose from about HK $49.4 billion in 2012 to about HK $67.9 billion in 2016, representing a compound annual growth rate of about 8.3 per cent. The total output value of slope works in Hong Kong increased from about HK $1.423 billion in 2012 to about HK $1.576 billion in 2016, representing a compound annual growth rate of about 2.6 per cent.
The increase in the gross output value of slope works in Hong Kong is driven by public expenditure on slope improvement, repair and maintenance. It is estimated that the total output value of slope works in Hong Kong will be driven by the Government's continued commitment to slope safety in Hong Kong between 2017 and 2021, and is expected to rise to HK $1.61 billion by 2021.
Advantages and opportunities
Professional and experienced project management team.
It occupies a favorable position in the selection mechanism of government contractors.
Has a good reputation in the slope engineering industry.
Weakness and risk
If a company loses its bid, it will have an adverse impact on its operating and financial performance.
The company's business development relies heavily on Hong Kong government spending on construction projects.
Valuation
The IPO price (HK $0.34-HK $0.42) corresponds to a price-to-earnings range of 16.4-20.3 times for fiscal year 2016, while the corresponding price-to-book ratio is 3.1-3.5. we believe that this valuation is on the high side compared with the industry. Give IPO a dedicated rating of "4".