Company overview
The company has been engaged in construction business in Hong Kong for more than 40 years since 1976, mainly engaged in the construction of buildings and RMAA projects in Hong Kong. The company is one of the six largest construction companies in the building construction and RMAA industry in Hong Kong, accounting for 1.5 per cent of the market in terms of 2015 revenue.
The clients of the company's building services include the Government, the Housing Authority, the Hospital Authority, schools and other public clients as well as private property developers in Hong Kong. The RMAA project clients include the Architectural Services Department and the Education Bureau. Customer concentration is relatively high.
At the end of March 2016, the company's revenue and net profit were HK $2.5 billion and HK $200 million, respectively. Revenue for the 2014-16 fiscal year CAGR-3.8%, net profit CAGR 86.1%. Revenue for the four months at the end of July 2016 decreased by 52.7% year-on-year to 540 million, while net profit decreased by 34.9% to HK $30.86 million. The fluctuation in income is mainly due to the end of some large-scale projects in the previous period. Staff costs and management expenses are expected to increase by HK $30 million in the fiscal year to the end of March 17, including listing expenses of HK $13.3 million.
Industry status and prospects
The total value of building construction and RMAA in Hong Kong has increased from about HK $120.1 billion in 2011 to about 172.5 billion in 2015. CAGR9.5%, is expected to reach 194.6 billion in 2020 and CAGR is about 3.1 per cent.
Hong Kong's building construction and RMAA industries are highly competitive and fragmented, with the top five players accounting for 21.2 per cent of the market in terms of 2015 revenues, while the fifth largest accounted for only 1.5 per cent.
There are 709 registered general building contractors in Hong Kong. A number of factors affecting the competitiveness of contractors include reputation, financial capability, project management skills and project price competitiveness.
Advantages and opportunities
Long history and good track record in building construction and RMAA industry
Long-term relationships with a number of major customers
Experienced management and professional project management team.
Weakness and risk
From time to time, there are many kinds of engineering disputes and lawsuits in the industry.
The subcontractor's performance in assisting in the completion of the construction project will have an impact on the company.
When determining the tender price, the project takes time and the cost estimate is incorrect or inaccurate.
Valuation
The IPO price corresponds to a fully diluted price-to-earnings ratio of 8.9-10.9 times for fiscal year 2015-16, and the company does not give a profit forecast for fiscal year 2016-17 in its prospectus. If the preliminary estimate is based on the first four months, and taking into account the impact of staff costs / management expenses and listing expenses, 2016-17 pro forma P / E ratio is about 20 times, the valuation is relatively high, we give IPO a special rating of "5".