Company profile:
Kun Group is a Singaporean mechanical and electrical service provider with a 30-year history of operation, specializing in electrical engineering solutions. The Group has carried out 112 electrical engineering projects for various types of new building development, reconstruction, addition and renovation projects, involving residential, commercial and industrial buildings.
The views of China and Thailand:
The Singapore Mechatronics Engineering Services Market is expected to improve: According to the Frost & Sullivan report, due to the impact of Singapore's economic conditions, construction demand declined in the past year, which directly affected the Singapore Mechatronic Services Market. Revenue generated by the mechanical and electrical engineering services market fluctuated from S$1.3 billion in 2013 to S$1.4 billion in 2018, with a compound annual growth rate of only 1.2%. However, with Singapore's favorable government support and promising economic prospects in the future, the overall construction industry will be positively affected. A positive overall economic outlook will allow the government to invest more resources into multiple development projects, benefiting the overall electrical engineering services market. Market revenue is expected to reach S$1.9 billion in 2022, with a compound annual growth rate of 6.6%.
In terms of operating performance: As of June 30, 2016 to 2018, Kun Group achieved operating revenue of HK$220 million, HK$180 million, and HK$190 million respectively. The decline in 2017 was due to a decline in revenue from public housing projects and commercial and industrial projects; gross margin was 12.5%, 17.0%, and 19.3% respectively. The steady increase in gross margin was mainly due to the stable number and scale of residential building projects and participation in more medium-sized commercial and industrial projects with relatively high profit margins; net profit margins were 7.93%, 12.42%, respectively, 10.38%. There was a decline in 2018 due to non-recurring listing expenses; the winning rates for electrical engineering services were 43.2%, 62.2%, and 63.2%, respectively.
In terms of valuation: Based on the global share capital of 1 billion after the public sale, the company's market value is HK$500-600 million, which is lower than that of its Hong Kong stock peers. The price-earnings ratio of the company in 2018 was about 24.9-29.9 times, slightly higher than the industry average; the net market ratio was about 2.78-2.86 times, higher than the industry average. In terms of profitability, ROE and ROA in 2018 were 32.7% and 14.0% respectively, which is higher than the industry average. Based on the company's position in the industry, performance and valuation level, we gave it 55 points, and the rating was “neutral”.
Risk warning: (1) market competition risk, (2) the impact of the project bid rate, (3) most of the revenue comes from contracts awarded by a small number of customers