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工程行业的先行者,山西安装(02520.HK) 成功上市进入新成长周期

A pioneer in the engineering industry, Shanxi Installation (02520.HK) was successfully listed and entered a new growth cycle

Gelonghui Finance ·  Nov 27, 2023 19:56

The Hong Kong stock market will once again welcome a major new stock.

On November 22, Shanxi Installation Group Co., Ltd. officially entered the Hong Kong capital market and completed its listing.

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After more than 70 years, Shanxi Installation has almost witnessed the whole process of economic development in New China. As one of the earliest entities in China focusing on the installation of industrial equipment, Shanxi Installation has long become a national high-tech enterprise and one of the top 100 competitive enterprises in China's construction industry. Its growth history is also a microcosm of China's industrial engineering.

As a leader in the engineering services industry, the listing of Shanxi Installation at this time is not only expected to bring new waves to the long-dormant Hong Kong IPO market, but also set a new milestone in its own development process.

Whoever has the right time gets the momentum

As the saying goes, move with the times and follow the trend.

Shanxi Installation chose to go public at this time. The author believes that the time is right; it can be viewed from the two levels of capital markets and macroeconomics.

The first is the recovery of the Hong Kong stock market.

Affected by the Fed's interest rate hike, weak global macroeconomic growth, and geopolitical conflicts, the performance of Hong Kong's IPO market this year has been quite weak since the beginning of the year, until it fell to 8th place in the global IPO market in the third quarter. The number of IPOs and total capital raised in the first three quarters fell 65% and 15% respectively from the same period last year, and the average daily turnover of Hong Kong stocks also fell 12% from the same period last year.

There are various signs that Hong Kong stock reform needs to be accelerated. Judging from the Hong Kong Stock Exchange's series of combo punches since this year, it has done exactly this. Hong Kong's appeal as an international financial center is constantly increasing.

The reforms of the Hong Kong Stock Exchange since this year have covered various aspects such as listing rules, trading mechanisms, connectivity, and digitalization, including but not limited to broadening the listing channels for key companies, simplifying the GEM to main board transfer process, introducing the “Hong Kong dollar-RMB double counter model” and the dual counter bookmaker mechanism, lowering stock stamp duty, and launching the IPO settlement platform FINI.

Thanks to the active reform attitude and actions of the Hong Kong Stock Exchange, the pace of Hong Kong stock IPOs has been picking up rapidly in the past two months, and the attitude of institutions towards the Hong Kong stock market has also become positive. KPMG believes that Hong Kong is expected to return to the top five global IPOs by the end of this year.

The Hong Kong IPO market has gradually warmed up, mobilizing the positive sentiment of investors and creating a better atmosphere for IPO and even subsequent listing operations.

However, no matter how good the market atmosphere is, after all, it still requires the IPO itself to be strong. For investors, the company's development expectations are the key to determining their investment decisions.

However, the current main tone of economic recovery has laid a good foundation for the subsequent performance of the Shanxi installation.

Against the backdrop of weak domestic demand and weak exports, steady macroeconomic growth is inseparable from the investment horse-drawn carriage represented by infrastructure. This has brought another wave of help to the acceleration of the engineering industry, and is a growth opportunity for leading enterprises in various industrial chains.

On the one hand, Shanxi Installation is a core subsidiary of Shanxi Construction Investment Group. Its state-owned capital background helps it gain the right to participate in various major construction projects, help the company open up the market, and quickly gain a large number of stable customers for the brand, which is more conducive to its stable acquisition of projects in the current environment.

Up to now, Shanxi Installation has established cooperative relationships with more than 50 customers for more than 5 years, which is beneficial to the steady growth of the company's performance.

On the other hand, relying on rich project management experience, Shanxi Installation is at the forefront of the industry in fierce market competition. As an engineering service provider, Shanxi Installation has implemented a large number of chemical, metallurgical, electricity, municipal projects, etc., and participated in the construction of many high-quality projects such as the Changchun No. 1 Automobile Factory, the Shanghai Maglev Train Demonstration Operation Line, and the Taikoo Heating Project.

In terms of revenue in 2022, Shanxi Installation ranked 5th among more than 10,000 professional industrial engineering contract contractors and ranked 1st in Shanxi Province.

It is worth mentioning that the economy is currently at a critical point in switching between old and new kinetic energy. Apart from the economic recovery power represented by traditional infrastructure, the incremental opportunities represented by new energy should also not be underestimated.

Seize incremental opportunities for new energy

If traditional construction projects have enabled Shanxi installations to achieve leapfrog development from zero to 10 billion dollars in revenue, then emerging construction projects represented by new energy sources will allow Shanxi installations to enter a new upward cycle.

Since the introduction of the double carbon target, all walks of life have used this guideline for transformation and upgrading. Naturally, the three major energy consumers of the engineering industry, industry, and transportation must also actively participate in low-carbon development actions. How core enterprises in the relevant industrial chain can change their original business models to conform to the concept of green and environmentally friendly development is critical.

It is worth mentioning that as China's first pilot province for comprehensive reform of the energy revolution, Shanxi Province is the first province that has taken root in it, and the enterprises that have taken root in it need to accelerate the increase in the proportion of their layout in the direction of the new energy industry.

For these engineering companies, the easiest and most direct is to participate deeply in the construction of the new energy industry, which can not only promote the achievement of the double carbon goal, but also add new momentum to their own development.

In recent years, clean energy industries such as photovoltaic and hydrogen storage have taken the lead, attracting countless enterprises to enter them. The accelerated increase in capital expenditure has led to a rapid rise in the size of the NEV industry engineering market. As a result, a wave of new energy engineering construction has started. According to Frost & Sullivan data, from 2023 to 2027, the market size of China's new energy industry projects will grow from 3.1 trillion yuan to 4.5 trillion yuan, with a compound growth rate of 9.7%.

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(Hebei Xingtang Guowei 100MW Photovoltaic Power Generation Project)

Huge market opportunities provide more development dividends for strategically forward-looking enterprises.

Relying on the deep market resources and good relationship between government and enterprise in the engineering service industry in the past, Shanxi Installation laid out early on in the field of engineering in the new energy industry. Up to now, Shanxi Installation has launched new energy projects in more than 20 provinces across the country.

In 2022, Shanxi installed and undertook 46 wind power and photovoltaic power generation projects, with a total installed capacity of more than 3GW.

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(Bangladesh wind power project)

With rich experience in energy saving and environmental protection engineering projects, Shanxi Installation has created a complete “design consultation, investment and construction, construction, operation and maintenance” business model for the entire industry chain, which can provide new operating ideas in many fields such as clean heating, solid waste disposal, water environment management, and distributed energy.

A more diversified business layout can reduce fluctuations in the subsequent performance of Shanxi's installation through cycle misalignment between different industries, thus enabling the company as a whole to achieve more steady growth.

Professional technology creates core competitiveness

The growth logic has actually been verified in terms of data.

According to the prospectus, from 2019 to 2022, the company's revenue increased from 8.826 billion yuan to 12.84 billion yuan, with a compound growth rate of 13.32%; during the same period, the company's gross profit increased from 1.2 billion yuan to 1,842 billion yuan, with a compound growth rate of 15.35%.

Despite the impact of the pandemic in 2022, the overall upward trend in performance has not changed. Because from the perspective of expectations, for an engineering company, the contract in hand represents a relatively certain performance space in the future, and in this regard, installation in Shanxi continues to grow.

From 2019 to 2022, the amount of outstanding contracts for the installation in Shanxi was RMB 21.01 billion, RMB 22.79 billion, RMB 32.79 billion, RMB 32.28 billion and RMB 38.397 billion respectively. At the same time, the company's gross margin level has remained stable at around 14%, which means that the company can continue to harvest new orders steadily without fighting a price war. This kind of growth certainty is rare in the current environment.

To a certain extent, this is also a side effect of Shanxi's installation position in the industry and market recognition. Essentially, the products and services it provides as an engineering service provider have been fully recognized. Being able to do this is, of course, inseparable from the core competitiveness it has built over many years based on technology research and development.

According to reports, Shanxi has 2 Class A design institutes, 3 research institutes, 3 high-tech enterprise subsidiaries, and 1 provincial technology center

What best reflects the importance it attaches to R&D is undoubtedly the rapid increase in R&D costs. From 2019 to 2022, the company's R&D costs increased from 324 million yuan to 679 million yuan, and the compound growth rate reached 27.97%. This growth rate was even higher than the growth rate of gross profit. It can be seen that Shanxi Installation attached extraordinary importance to technology research and development. It is also thanks to this that Shanxi Installation has rich technical reserves. As of the first half of 2023, it has 4 national construction methods, more than 60 important invention patents, and 700 utility model patents.

More importantly, rich technical reserves can eventually be transformed into application results that can be seen and felt.

According to reports, the installation in Shanxi will recycle and dispose of waste fan blades, and apply glass fiber reinforcement materials to construction materials; it will recycle construction solid waste, industrial solid waste, etc., cascade development, processing and production of recycled concrete, water stabilizing materials, and permeable bricks for sponge cities and reuse green building materials for urban construction, so as to achieve waste recycling, low carbon, environmental protection and efficiency.

Standing at a critical point in economic recovery and energy transformation, the dividends of the times belonging to the engineering industry are bound to belong to only a few forward-looking, high-quality enterprises. Installation in Shanxi, which can recognize this early on, is clearly one of them. A large number of unfinished contracts have added certainty to their future growth.

The successful entry into the Hong Kong stock market at this time will help broaden financing channels, raise brand awareness, and help Shanxi to further expand its domestic influence. Using Hong Kong as an international financial center, it is more likely to expand its business map to overseas markets and open up new growth space.

Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy. Read more
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