Company profile:
Gao Sheng Group Holdings is an active electrical and mechanical engineering service provider in Hong Kong, mainly supplying, installing and maintaining (1) mechanical ventilation and air conditioning systems; (2) electrical systems; and (3) swimming pool, fountain and drainage systems. Since 2017, the company has provided services as a first-tier or sub-tier subcontractor and mainly provided services for private residential property development projects in Hong Kong, including related projects under a number of well-known property developers, undertaking a total of 84 electrical and mechanical engineering projects. the total amount of the original contract is about 1.8 billion yuan, of which 41 projects have been completed. The company has entered into agreements with four cornerstone investors to subscribe for a total of HK $45 million, accounting for about 36 per cent of the total offer shares.
Sino-Thai point of view:
The demand of the mechanical and electrical engineering industry in Hong Kong is increasing: according to the Ipsos report, the total output value of the mechanical and electrical engineering industry in Hong Kong has increased from HK $25.5 billion in 2013 to HK $39.7 billion in 2018, representing a compound annual growth rate of about 9.3%. It is expected that the gross industrial output value will be driven by the government's land supply policy and measures to increase the supply of residential and commercial buildings at a compound annual growth rate of 5.5 per cent to HK $48.6 billion in 2020. The total output value of mechanical ventilation and air conditioning and electrical engineering is expected to increase at a compound annual growth rate of 5.4 per cent and 5.6 per cent, respectively.
In terms of operating results: from 2017 to 2019, Gaosheng Group Holdings achieved a steady increase in operating income of HK $190 million, HK $210 million and HK $310 million, respectively. 90% of the company's income came from mechanical ventilation and air conditioning projects. The gross profit margin was 23.3%, 27.2% and 25.9% respectively. The decrease in gross profit margin was mainly due to project delays and recognition of one-time income of about HK $6.0 million in fiscal year 2018, while there was no related income in fiscal year 19. The net profit margin was 16.7%, 17.1% and 14.5% respectively, and the year-on-year decline in net profit margin in 2019 was due to listing expenses. The winning rate ranges from about 32.7% to about 36.4%. In addition, the company's top five customers accounted for 87.8%, 70.0% and 61.1%, while the largest customers accounted for 27.4%, 27.2% and 18.7%. Customer concentration is extremely high, if major customers fail to pay in time, it will have a negative impact on the company's cash flow.
Valuation: based on the 800 million shares after the global public offering, the company's market capitalization is HK $500 million to HK $600 million. Compared with their counterparts in Hong Kong stocks, they are in the middle position. The company's price-to-earnings ratio is about 11-13.2 times earnings, which is lower than the industry average. In terms of profitability, ROE and ROA in 2019 were 42.8% and 30.2% respectively, higher than the industry average. Combining the company's industry status, performance and valuation, it was given a score of 61, with a rating of "neutral".
Risk hints: (1) market competition risk, (2) the influence of project bid winning rate