Company profile
Weiyuan Holdings is a Singapore-based contractor specializing in civil engineering and utility projects for over 28 years. The company's main business includes the installation of power cables, telecommunication cables and sewerage works. According to the Ipsos report, in terms of revenue, the company ranked third in the Singapore civil engineering utility industry in fiscal year 2018, with a market share of around 5.7%.
Sino-Thai views
Future demand for civil engineering utilities in Singapore is strong: According to the Ipsos report, as the Singapore government plans to increase the total population to 6.5 to 6.9 million people by 2030 and optimize land use, civil engineering utility projects are expected to grow strongly. Furthermore, the development of new townships and infrastructure projects (such as the North-South Corridor) is expected to drive demand for civil engineering. As a result, the civil engineering utilities division is expected to grow at a CAGR of about 4.08% to reach S$1.81 billion in 2023.
In terms of operating performance: In the 2016-2018 fiscal year and ending August 31, 2019, the company's operating revenue was S$53.13 million, $72.78 million, $64.73 million, and S$37.64 million respectively. Of these, revenue from the five major customers accounted for 79.5%, 79.6%, 77.6% and 73.0% of total revenue, respectively, and the customer concentration was high. There was a decline in 2018 due to a decline in civil engineering and utility projects from 14 the previous year; gross margins were 23.9%, 16.6%, 27.8% and 30.0% respectively; the company's raw materials and consumables generally included asphalt premixes, concrete and PVC pipes, and material costs accounted for 17.4%, 13.6%, 18.0% and 18.0% of total sales costs respectively; net interest rates were 10.5%, 6.8%, 14.2% and 9.1% respectively; the number of projects undertaken was 57, 52, 48 and 50, respectively; the project winning rates were different. 59.0%, 33.3%, 32.1%, and 37.7%. Furthermore, as of the end of August 2019, the company recorded negative operating cash flow, with a net outflow of approximately S$8 million due to (1) an increase in net contract asset value of approximately S$7 million, (2) an increase of approximately S$600,000 in deposits, prepayments and other accounts receivable, and (3) a decrease of approximately S$500,000 in trade payables.
In terms of valuation: Based on the global share capital of 1.06 billion after the public sale, the company's market value was HK$51-640 million, which is lower than the Hong Kong stock market average. The price-earnings ratio of the company in 2018 was about 9.7-12.1 times, slightly higher than the industry average; the net price-earnings ratio was about 1.85-2.14 times, higher than the industry average. In terms of profitability, ROE and ROA in 2018 were 30.3% and 15.8% respectively, which is higher than the industry average. When we count sponsor performance in the past year, only two of the six companies grew on the first day. In addition, there are 3 IPOs belonging to the same Singaporean construction type, and only one did not break on the first day. Therefore, we gave it 51 points with a “no subscription” rating.
Risk warning: (1) the impact of project bidding rates, (2) the risk of concentration of large customers