Company profile:
Anle Engineering is a leading Hong Kong mechanical and electrical engineering group, providing cross-disciplinary and comprehensive mechanical and electrical engineering and technical services to various projects and industries in Hong Kong, Macao and mainland China. The company also manufactures and sells lifts and escalators worldwide. According to Frost Sullivan, the company is the largest provider of mechanical and electrical services in Hong Kong, with a market share of about 9.1% by earnings in 2018.
Sino-Thai point of view:
The Hong Kong government has made strong public investment in infrastructure development and labour shortages have led to challenges for contractors: according to the Frost Sullivan report, the overall mechanical and electrical engineering market is expected to grow at a compound annual growth rate of 7.6 per cent over the next five years, reaching HK $80.4 billion by 2023. The Hong Kong Government has been increasing public expenditure on infrastructure for many years, and the market for electrical and mechanical services has been strongly driven by the continuous investment in infrastructure by the Hong Kong Government in recent years. According to the 2018 / 19 Hong Kong Budget, the Capital works Reserve Fund will increase to HK $104 billion and HK $130.8 billion in 2018 and 2021 respectively. The expected labour shortage is one of the most common challenges faced by most mechanical and electrical contractors in Hong Kong. most contractors have been increasing the wages of construction workers to alleviate the shortage of construction workers, adding additional pressure on project costs. annual public expenditure on infrastructure will exceed HK $100 billion in the next few years.
In terms of operating performance: from 2016 to 2018, the operating income of Anle Project was HK $4.4 billion, HK $5 billion and HK $6 billion respectively, of which nearly 70% came from building preparation works. The gross profit margin was 12.5%, 18.6% and 14.9%, respectively. The increase in 2017 was due to the gross profit contribution and the increase in gross profit margin of the Building Services and Division, which decreased by 3.7 percentage points in 2018 due to the higher gross profit margin and gross profit margin of a hotel renovation project in Macau confirmed in fiscal year 2017. The net interest rate was 2.74%, 8.73% and 5.28% respectively, and the decline in 2018 was due to the reduction of the above gross profit margin without the non-recurrent income arising from the dilution of Nanjing Jiaotan's equity.
Valuation: based on 1.6 billion shares after the global public offering, the company has a market capitalization of HK $1.68 billion, which is lower than its Hong Kong counterparts. The price-to-earnings ratio of the company is about 5.3 times earnings, which is lower than the industry average; in terms of profitability, the 18-year ROE and ROA are 20.6% and 9.7% respectively, slightly higher than the industry average. Taking into account the company's industry status, performance and valuation, we give it a score of 65, with a rating of "neutral".
Risk hints: (1) market competition risk (2) the influence of project bid winning rate