Company profile:
Pipeline Engineering is a general contractor that has been operating in Singapore for over 26 years and specializes in infrastructure pipeline construction and related engineering services. The service targets are mainly in the gas, water, telecommunications and power supply industries. According to the Frost & Sullivan Report, in terms of revenue, the company ranked third in the overall infrastructure pipeline engineering market and second in the gas pipeline engineering market in Singapore for the year ended March 31, 2018.
Views of China and Thailand:
The pipeline engineering market is growing steadily, and the industry prospects are good: Benefiting from favorable policies and rising demand in the overall civil engineering market, the total size of the pipeline engineering market in Singapore has been growing steadily, from about 889 million in 2013 to about 1,285 million in 2017, with a compound annual growth rate of 9.6%.
In terms of water pipelines, the authorities continue to improve Singapore's water supply system; in terms of gas pipelines, it is expected to maintain steady growth in the future as the government strives to build new gas pipelines to meet increasing residential, industrial and commercial demand.
In terms of operating performance: For the three years ended March 31, 2018 and the six months ended September 30, 2018, the pipeline project achieved revenue of 29.5 million, 28.4 million, 23.41 million and 14.14 million respectively. The decrease in revenue was due to the combined impact of an increase in revenue from water pipeline projects but a decline in revenue from gas and cable installation projects. Gross margins were 23.8%, 20.1%, 31.6%, and 25.7%, respectively; among them, the decline in gross margin in 2017 was due to a decrease in gross margin for gas pipeline projects, mainly due to potential liquidation confirmation damages for the project. Then, gross margin increased sharply in 2018. Due to the contract scope of work for the water pipeline project, fewer raw materials were purchased and the transportation costs involved were lower. About 80% of the company's revenue comes from customers in the private utility category, while the rest comes from Singapore government agencies. The winning bid rates of private voting for the three years ended March 31, 2018 and the six months ended September 30, 2018 were 30.8%, 42.9%, 29.4%, and 50.0%, respectively.
In terms of valuation: Based on the calculation of 920 million shares after the global public sale, the market value of the corresponding company is HK$506-598 million, which is lower than that of its Hong Kong stock peers; the corresponding price-earnings ratio of the company is about 19.6-23.1 times, higher than the industry average; and the net market ratio is about 2.74 to 2.90 times higher than the industry average. In terms of profitability, ROE and ROA in 2018 were 27.7% and 15.4% respectively, which is higher than the industry average. Based on the company's industry position, performance, and valuation level, we gave it 61 points, and the rating was “neutral.”
Risk warning: (1) Market competition risk (2) Raw material price fluctuation risk