Group Overview
The Group is a Hong Kong supplier of mechanical and electrical engineering services, mainly providing electrical and ultra-low voltage system engineering to private and public institutions. The group undertakes electrical and ultra-low voltage system engineering, including supply, installation, testing, operation and maintenance of electrical and ultra-low voltage systems. The Group acts separately as a subcontractor and chief contractor for installation and maintenance works. In addition, the group also undertakes ventilation and air conditioning system projects. In addition to direct labor with specific skills in electrical engineering to perform on-site work, the Group also appoints subcontractors for the expertise of the projects involved.
According to Ipsos reports, the group's market share in the Hong Kong electricity and ultra-low voltage market was 2.7% to 3.6% based on 2016 earnings. Kanghe Electric, a subsidiary company of the group, focuses on tendering projects for public institutions, while another subsidiary company, Kanghe Electric, focuses on tendering projects for private institutions. The Group generally obtains projects through tenders, and its main clients are chief contractors and chief mechanical and electrical contractors in the Hong Kong construction industry.
Industry Overview
According to reports from the Hong Kong SAR Construction Industry Council and Ipsos, the total value of the mechanical and electrical engineering services industry in Hong Kong increased from an estimated HK$17.7 billion in 2011 to HK$35.5 billion in 2016, with a compound annual growth rate of 14.9%. The estimated output value of the Electrical and Ultra Low Voltage Division in 2016 accounted for 15% to 20% of total mechanical and electrical engineering revenue, or HK$5.3 billion to HK$7.1 billion; it is anticipated that the total output value of the mechanical and electrical engineering services industry in Hong Kong will rise from HK$39 billion in 2017 to HK$44.9 billion in 2020, with a compound annual growth rate of 4.8%.
risk
The group's business relies on successfully winning targets to determine whether to obtain a contract for mechanical and electrical engineering services, and is of an unusual nature. The Group's future growth depends on its ability to continue to win bids and obtain contracts. Also, as of July 25, 2017, the Group has not signed any long-term discussions or general service agreements with customers, so the Group is still required to participate in the tender process for each new project. Furthermore, the group estimates the cost of the project at the time of bidding, and erroneous estimation of the cost required to execute the project and delays in the completion of any project may lead to cost overruns or even damage to the project.
valuations
According to the prospectus, assuming that as of January 31, 2017, on the basis of the 540 million shares expected to be issued after the completion of the stock offering was completed, the net value of the consolidated tangible assets that shareholders should have unchecked and adjusted for notes was 125 million to HK$139 million, equivalent to HK$125 million to HK$139 million per share of tangible assets adjusted for unaudited notes.