Summary of the report
Company overview
The company is a well-known comprehensive construction contractor and substation builder in Macao. The company mainly provides 1) steel structure engineering, civil structure engineering and decoration and renovation engineering; 2) high voltage substation construction and system installation engineering; and 3) facility management, renovation and maintenance engineering and services. From January to August 2017, the company's three business revenues accounted for 76%, 14% and 10%, respectively. The company ranks fifth among Australian construction contractors in Macau civil engineering market and second in Macau high voltage substation construction market.
Revenue in 2014-2016 and January-August 2017 was A $450 million, $540 million, A $460 million and A $390 million; profit was A $73 million, $97 million, $68 million and A $40 million. As of December 31, 2017, the company has a total of 49 outstanding contracts, totaling A $626 million, and the company plans to recognize A $495 million, A $106 million and A $25 million respectively from 2018 to 2020.
Industry status and prospects
Macao's economy is mainly driven by the gaming industry, and entertainment city-related construction accounts for most of Macao's construction service market. In 2012, casino-related construction value accounted for about 38% of Macao's total construction value; driven by the construction of new casino resorts and the renovation of old casino resorts, casino-related construction value accounted for about 60% of Macao's total construction value in 2016. According to the 2017 and 2018 policy addresses, the Macao government will continue to develop Macao into a world tourism and leisure center, which will promote the steady development of the tourism and gaming industry, and the total investment in casino-related construction is expected to remain at a considerable level in the future.
According to the report, the size of Macao's civil engineering market rose from A $13.8 billion in 2012 to A $50.7 billion in 2016, a compound annual growth rate of 38 per cent, and is expected to rise to A $126 billion by 2021, a compound annual growth rate of 20 per cent.
As the demand for electricity continues to increase due to the increase in the number of tourists and gamblers, the market size of the high-voltage substation construction services industry has increased from A $160 million in 2012 to A $480 million in 2016 and is expected to rise to A $610 million by 2021, with a compound annual growth rate of 5 per cent.
Advantages and opportunities
It has a large group of directly employed skilled workers, which can reduce the company's dependence on subcontractor labor services.
The company is in a leading position in Macau's construction market, accounting for 39% of Macao's high-voltage substation construction market.
Weakness and risk
All the income of the company comes from Macau, single market risk.
The company's customers are more concentrated, with the top five customers accounting for more than 80% of revenue.
Valuation
The company expects a comprehensive profit of no less than A $55 million and an EPS of no less than A $4 million in 2017. Based on this, it is estimated that the company's 2017E Ppace E is 25.7x-32.2x, with a high valuation. We give IPO a dedicated rating of "4".