Hongxin Construction and Development: Leading leasing service, rapid expansion of equipment scale. The company is a large-scale operating leasing company of Far East Hongxin Holdings. It ranks first in Asia in terms of equipment scale and is among the highest in the world. Hongxin Construction and Development was formed from the integration of Hongxin Equipment and Hongjin Equipment strategies in 2014. It was successfully listed on the Hong Kong Stock Exchange in 2023. The controlling shareholder is Yuandong Hongxin, which holds a total of 77.24% of the company's shares. Currently, it has 419 service outlets around the world, serving more than 190,000 customers, ranking 14th in the global rental company ranking and number one high-altitude vehicle rental company in Asia. The company mainly operates three types of equipment, of which high-altitude parking is the most core business. High-altitude vehicles, new support systems, and new mold frame systems are the company's top three rental equipment. Among them, high-altitude vehicles are the company's core category because they are the most widespread downstream and have the fastest growth rate in terms of ownership. As of mid-2023, the company has 159,900 high-altitude vehicles, with a compound growth rate of 54% in 2020-2022. On the financial side, the company's performance grew rapidly, the cash flow performance was excellent, and the debt ratio improved significantly after the IPO. Revenue and performance increased 43% and 41% in 2018-2022; net increases in cash and cash equivalents continued since 2020, with net increases of $1.7 billion and $200 million respectively in 2022 and 2023H; and the debt ratio for 2023H was 67%.

High-altitude vehicle industry: downstream demand is diverse, supply is constantly concentrated

As a booming racetrack, domestic demand for aerial vehicles has grown rapidly in recent years. High-altitude vehicles are used in various high-altitude work scenarios; due to their two major characteristics, 1) they are safe and efficient; 2) they are widely used. Domestic demand has exploded in recent years. The number of units owned has grown rapidly from 40,000 units in 2016 to 487,400 units in 2022, with a compound annual growth rate of 51.7%. The business model of the industry combines asset-heavy and asset-light, and leasers have an important position in the industrial chain. Renters usually expand their management scale by raising capital to buy cars. This method requires a high level of capital. Furthermore, equipment expansion can be achieved through various asset-light methods such as joint ventures and subleases. The amount of equipment owned by leasers accounts for about 88% of the total size of the industry. Further explore the two major characteristics of aerial vehicles: 1) they are safe and efficient, which can protect the safety of construction personnel and reduce disability compensation for construction workers; 2) they are widely used downstream. Most of the high-altitude vehicles are used in industrial plants, infrastructure and municipal administration, and there are few housing construction fields. Overseas, the North American construction industry has hardly grown in the past ten years, but the space for the aerial vehicle industry has maintained an annual growth rate of 6%. In terms of the supply pattern, the current concentration is high, and the upward trend may continue in the future. Due to the scale of assets in the industry and the high requirements for refined management, the leading moat has obvious advantages. It has continued to actively expand in recent years. Currently, CR3 is about 59.6%, and CR3 is higher in the scale added in 2022, about 66%. Compared to overseas, the industry space lags behind in absolute scale and relative scale, and there is plenty of room for future improvement. The current absolute scale is about 67% of the US in 2021. In terms of relative scale, the unit population/construction industry GDP/total construction output value/manufacturing GDP/total dGDP holdings are about 16%/37%/27%/33%/85% of the US.

Competitive advantage: Large scale+steady operation, showing a leading attitude in all aspects 1) Scale advantage, the company has the largest ownership volume, and the expansion plan is clear. The company has abundant cash flow, laying a solid foundation for future expansion. As of mid-2023, the company had 2,364 billion yuan in cash and equivalent, accounting for 8% of total assets. According to the capacity expansion plan, high-altitude vehicles are expected to purchase 2-3 to 30,000 units in 2023 and 2024, respectively. At the same time, the asset-light model continues to mature, helping the company expand its scale; 2) Service advantages, the company's existing intensive network coverage and convenient service system effectively improve customer acquisition efficiency. Of the 419 outlets in mid-2023, 415 are mainland outlets and 4 are overseas outlets (currently focusing on developing the Southeast Asia region). Combined with convenient online channels, the average delivery mileage is 37 kilometers, the operation team arrives on site in an average of 1.5 hours, and various per capita efficiency indicators are continuously optimized; 3) Business advantages, the company's financial strategy is stable, and it also has a strong shareholder synergy effect. The company's shareholders include the majority shareholder Hongxin Construction and Development, which is a large financial leasing company; small and medium-sized shareholders such as Xugong, Zhonglian, Dingli, Lingong, and Terex, are major suppliers of high-altitude vehicles at home and abroad. In terms of business strategy, the company adopts a relatively conservative 10-year depreciation strategy. At the same time, credit loss measures and balance ratio arrangements are stable. In terms of liquidity, the company's loans and leases account for 90% of total debt. Without support from Far East Hongxin, it is still possible to obtain sufficient credit lines from financial institutions.

The Tao and Art of Cycles: Returning from Total Volume to Industry

Currently, traditional industries are undergoing a transition from a “low α high beta” to a flat model of “high α and low beta”, which means risk tips for traditional industries

1. Risk over the life of equipment; 2. Risk of highly leveraged operations; 3. Risk of declining demand; 4. Asset light progress falls short of expectations.