Company profile
Jiachen Holdings, headquartered in Changzhou City, Jiangsu Province, China, is mainly engaged in manufacturing and selling overhead movable floor products and providing related installation services. The products mainly include (1) all-steel overhead movable floor products, (2) calcium sulfate overhead movable floor products. According to the cautionary report, the company ranked third in China's overhead moving floor manufacturing industry in 2018, with a market share of about 3.6% in terms of revenue. In addition, the company operates two manufacturing facilities in Changzhou, with a total floor area of 240000 square meters and 5056 square meters respectively.
Sino-Thai viewpoint
In the future, the growth of China's overhead movable floor industry is driven by many factors: overhead movable floor products have been widely used in office buildings, industrial office buildings, data centers, classrooms, libraries and other places. According to the cautionary report, the overhead moving floor manufacturing industry is expected to grow at a compound annual growth rate of 6.0 per cent from about 6.34 billion yuan to 8.49 billion yuan from 2018 to 2023. The growth is mainly due to (1) the increasing demand for industrial office buildings in second-tier and above cities in China, (2) the increase in the number of aging office buildings in China, and more and more obsolete overhead flooring product components scrapped, (3) the Chinese government has adopted stricter policies. Thus stimulate the expected growth of the demand for overhead movable floor products, (4) the price of overhead movable floor products increases due to the rising price of raw materials, and (5) the permeability of calcium sulfate overhead movable floor products continues to rise because of its high performance.
In terms of operating performance: in the fiscal year 2016-2018 and as of June 30, 2019, the company's operating income was 160 million yuan, 220 million yuan, 250 million yuan and 120 million yuan respectively. The revenue from the sale of all-steel overhead flooring products accounted for about 87.4%, 85.8%, 82.1% and 87.8%, respectively. The gross profit margin is 23.3%, 24.8%, 24.2% and 24.7% respectively, and the gross profit margin remains relatively stable. Raw materials for production, including steel, cement, aluminum head, etc., account for 77.0%, 75.7%, 77.8% and 77.0% of the total cost of sales respectively. The impairment of contract assets and trade receivables is 400000 yuan, 3.3 million yuan, 2.7 million yuan and 3.2 million yuan respectively. The average turnover days of contractual assets, trade receivables and notes receivable are about 170.9 days, 218.3 days, 283.4 days and 316.2 days, and the net interest rates are 12.1%, 9.5%, 10.0% and 5.7%, respectively. The actual output of all-steel overhead movable floor products is about 1.3 million square meters, 1.1 million square meters, 1.6 million square meters and 800000 square meters respectively, and the average utilization rate is about 81.8%, 71.5%, 94.5% and 99.6% respectively in the same period.
Valuation: based on 1 billion shares after the global public offering, the company has a market capitalization of HK $5.3 billion to HK $600 million, which is lower than the average of its peers in Hong Kong. In 18 years, the price-to-earnings ratio of the company is about 18.8-21.2 times, which is higher than the industry average, and the price-to-book ratio is about 1.89-2.07 times, which is higher than the industry average. In terms of profitability, the 18-year ROE and ROA were 16.5% and 7.8% respectively, higher than the industry average. The fundamentals of the company are not very satisfactory, but our statistics show that the sponsor's performance in the past two years has risen by 8% and fell by 2% on the first day, with an average increase of about 10% on the first day. We think we can apply carefully and give it 60 points with a rating of "purchase".
Risk hints: (1) market competition risk, (2) influence of project bidding rate