IPO | “China's leading equipment operation service provider” Hongxin C&D is now offering shares and is expected to go public on May 25

Futu News, May 12, this Friday$HORIZON CD (09930.HK)$ The announcement was announced that it will issue approximately 365 million shares from May 12 to May 18. The company plans to issue approximately 365 million shares, including a public sale of 36.47 million shares (10%) and an international sale of approximately 328 million shares (90%), with an issue price of HK$4.52-4.8 per share, and 1,000 shares per lot. It is expected to be listed on May 25.

Source: Procurement Book

Company Overview

Hongxin C&D is one of the leading equipment operation service providers in China, with a comprehensive equipment portfolio and strong service capabilities. The company's main brands include Hongxin Construction and Development, Hongxin Equipment and Hongjin Equipment. The many awards it has received also reflect its leading market position and brand awareness. As of December 31, 2022, the company's equipment holdings for aerial work platforms, new support systems and new mold frame systems were approximately 131,300 units, 1.576,600 tons, and 622,600 tons, respectively.

According to reports, the company's service portfolio includes: (i) operating leasing services; (ii) engineering technology services; and (iii) platforms and other services. The operating and leasing service portfolio includes different types of equipment and materials, mainly including aerial work platforms, new support systems, new mold frame systems and other equipment. In addition, the engineering services provided by the company are aimed at one-stop solutions tailored to different business or operating scenarios. The platform and other services mainly focus on subleasing equipment materials and selling equipment, materials and spare parts.

According to the Frost & Sullivan report, with its equipment operation service capabilities, it provides comprehensive and multi-functional services covering the entire project cycle. In terms of 2022 revenue, Hongxin C&D is the largest equipment operation service provider in China. Furthermore, the company is one of the leaders in the equipment operation service market for aerial work platforms, new support systems, and new mold frame systems.

Financial Overview

In terms of financial data, Hongxin C&D has achieved outstanding financial performance during the track record period. The company's revenue increased from about RMB 3.664 billion in 2020 to about RMB 7.878 billion in 2022, with a compound annual growth rate of 46.6%; EBITDA (measured by non-Hong Kong Financial Reporting Standards) increased from about RMB 1,885 million in 2020 to about RMB 4,081 million in 2022, with a compound annual growth rate of 47.1%; adjusted net profit (measured by non-Hong Kong Financial Reporting Standards) increased from RMB 504 million in 2020 to RMB 945 million in 2022, with a compound annual growth rate of 36.9 million yuan %.

Source: Procurement Book

Industry Overview

On the industry side, the construction industry is growing steadily, benefiting from the continuous increase in investment in the infrastructure industry and the continuous advancement of urbanization. The total output value of China's construction industry increased from RMB 23.5 trillion in 2018 to RMB 31.2 trillion in 2022, with a compound annual growth rate of 7.3%, and is expected to further increase to RMB 41.1 trillion in 2027, with a compound annual growth rate of 5.6% from 2023 to 2027.

As labor costs are increasing day by day, regulations on construction site safety are becoming more strict, and equipment plays a more important role in replacing manpower. As a result, the professional equipment operation service market has expanded rapidly in the past five years. The market size of equipment operation services in China (in terms of revenue) increased from RMB 607 billion in 2018 to RMB 935.4 billion in 2022, with a CAGR of 11.4%. With the further optimization and integration of market participants, the improvement in service quality and specialization, and the increase in the quantity of equipment, the market size of equipment operation services in China (in terms of revenue) is expected to increase to 1,593.2 billion yuan in 2027, with a CAGR of 10.3% from 2023 to 2027.

The overall equipment operation service market in China is extremely fragmented. In terms of revenue, the top three players in 2022 together accounted for only 1.6% of the total market size, with more than 15,000 small to medium players accounting for the remaining 98.4% of the market share. The company ranked first in 2022, with 0.8% market share. The scale of equipment ownership largely represents the service capability of equipment operation service providers, and the company ranked first in terms of equipment ownership as of December 31, 2022.

Source: Procurement Book

Cornerstone investors

In terms of cornerstone investors, a number of cornerstone investors agreed to subscribe for the number of offered shares available for purchase at the sale price, totaling approximately HK$1,102 billion (assuming the sale price was HK$4.52, which is the median sale price range). Cornerstone investors include Hong Kong Dongbin, Zhonglian Heavy Industries, Zhejiang Dingli, Lingong Heavy Machinery, Putuo Ke Investment, and Jinhuan.

Use of funding

In terms of financing purposes, the net amount of proceeds from the company is approximately $1,555 billion (based on the median issue price of HK$4.66, assuming that the over-allotment rights are not exercised). According to the prospectus, the company plans to use the net proceeds from the sale of shares for the following purposes: approximately 4.0% or HK$62.8 million will be used to strategically expand the network of service outlets to enhance service capabilities; approximately HK$11.0% or HK$171 million will be used to enhance the company's one-stop solution capabilities; approximately 8.0% or HK$125 million will be used to improve operating efficiency through digital upgrades; and approximately HK$10.0% or HK$156 million will be used for operating capital and general purposes.

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