Bond Strategic is a professional contractor engaged in RMAA (alteration and addition) and civil engineering in Hong Kong. RMAA generally includes new structural works, decoration works, change of facility configuration, new expansion of existing buildings, etc. Civil engineering generally includes site formation works and foundation works. The company has more than 20 years of operating history, has a foothold in Hong Kong's civil engineering and RMAA industry as well as the overall construction industry, currently has six customers with a total of nine projects and a total contract value of about HK $624 million.
Sino-Thai point of view:
The RMAA industry is experiencing bottlenecks: Hong Kong's construction industry has achieved steady growth over the past few years, mainly due to growing demand for commercial and residential buildings and public infrastructure, and the public sector is supported by a number of large-scale public infrastructure projects. According to the Ipsos report, the total output value of the RMAA industry grew at a compound annual growth rate of about 7.8 per cent, from about HK $46.1 billion in 2013 to about HK $62.2 billion in 2017. It is expected that the total output value of the RMAA industry will grow at a compound annual growth rate of about 0.5% from 2018 to 2022. It increased from about HK $68.2 billion in 2018 to about HK $69.7 billion in 2022.
In terms of operating results: from 2016 to 2018 and for the seven months ended October 31, 2018, the operating income of Bond Strategic was HK $140 million, HK $272 million, HK $234 million and HK $189 million respectively, and the bid winning rates were 26.7%, 27.3%, 21.4% and 28.6%, respectively. The company's revenue mainly obtains new business through bidding, which mainly comes from non-recurrent contracts rather than long-term contracts signed with customers, so it is impossible to guarantee a fixed number of contracts between customers and the company; the company's gross profit margin was 27.0%, 24.7%, 22.3% and 19.7% respectively, mainly due to labor costs and rising prices of raw material steel and building stone. At the same time, according to Ipsos's prediction, in order to retain existing skilled workers and attract more new and young entrants, contractors will pay higher wages to workers in the future.
Valuation: based on 620 million shares after the global public offering, the company's market capitalization is HK $521-657 million, which is lower than that of its Hong Kong counterparts; the company's corresponding price-to-earnings ratio is about 10.4-13.1 times, which is lower than the industry average; and the price-to-book ratio is about 2.21-2.41 times, which is lower than the industry average. In terms of profitability, the 18-year ROE and ROA were 44.4% and 26.5% respectively, higher than the industry average. Taking into account the company's industry status, performance and valuation, we give it a score of 54, with a rating of "neutral".
Risk tips: (1) market competition risk (2) increase in labor costs