The listing broke out immediately, and it seems to have become the “main theme” of the April IPO. Among these few IPOs, Tianjin C&D (02515) also saw the biggest decline.

The Zhitong Finance App noticed that on April 23, Tianjin C&D successfully landed on the Hong Kong Stock Exchange. On the same day, the company opened HK$1.88, then the trend fluctuated downward. It closed at HK$1.52 on the first day of trading, down nearly 40% from the issue price of HK$2.5, and the market value fell to only HK$328 million. Over the next two days, although the company's stock price rebounded, the trend declined again. On April 29, the company's stock price once fell to a new low of HK$1.42.

It is worth noting that Tianjin C&D actually passed the Hong Kong Stock Exchange main board listing hearing as early as December 21, 2023, but the listing plan was postponed due to failure to determine the sale price within the specified time.

Judging from the company's current trend, the delay in listing does not seem to have brought the surprise expected to the company. Why was Tianjin C&D, which was about to go public, abandoned by the market?

Revenue is improving, profit fluctuates

As a private construction group in Tianjin, Tianjin C&D was founded in 2010 and mainly focuses on municipal public works in Tianjin. According to Frost & Sullivan, based on revenue generated by municipal public works in 2022, Tianjin C&D ranked fourth among municipal public works private companies in Tianjin.

Judging from performance performance, in 2021, 2022 and 2023, Tianjin C&D's revenue continued to grow, with revenue of 275 million yuan (RMB, same below), 288 million yuan, and 319 million yuan respectively, with a compound annual growth rate of 7.7%.

By business, municipal utilities, foundation engineering, and construction projects are the main sources of revenue for Tianjin C&D. It is important to note that the revenue share of the company's various businesses fluctuates quite a bit.

During the reporting period, Tianjin Construction's municipal public works business revenue was 145 million yuan, 86.469 million yuan, and 186 million yuan respectively, accounting for 52.6%, 30%, and 58.3% of revenue; the company's revenue from foundation infrastructure engineering business was 89.153 million yuan, 20.476 million yuan, and 83.265 million yuan, respectively, accounting for 32.4%, 7.1%, and 26.1%; in the same period, the revenue contributed by the construction engineering business was 19.236 million yuan, 171 million yuan, and 41.155 million yuan respectively, accounting for 7% of the corresponding revenue 59.5%, 12.9%

In addition, the company also owns the petrochemical engineering business and other businesses, but the revenue scale of these two businesses is relatively small, and the combined revenue of these two major businesses accounts for less than 3% in 2023.

The Zhitong Finance App noticed that the continued fluctuation in Tianjin C&D's revenue share may be related to the fact that its business is too concentrated in Tianjin, while the company's business is heavily dependent on the prosperity of the engineering construction industry. Up to now, the company has 25 qualifications related to engineering construction business, including two first-level construction qualifications: the first-level general contracting qualification for petrochemical engineering construction and the first-class qualification for professional foundation engineering contracting. Thanks to this, the company is able to undertake projects of different types and sizes across the country.

At present, it seems that the company has expanded its business to various provinces and cities including Shaanxi, Guizhou, and Jiangxi, but judging from the share of revenue, the company's revenue is still very dependent on Tianjin. In recent years, around 90% of the company's revenue has come from Tianjin. It can be seen that the company relies heavily on the Tianjin single market. Although the company's share of revenue from Shaanxi Province also increased to 6.2% in 2023, compared to Tianjin's high share, it can be seen that the company's business expansion in other provinces and regions is still uncertain.

Furthermore, compared to the continuous increase in revenue performance, the company's profitability is fluctuating and declining. The company's gross margins during the period were 26.1%, 25.2%, and 25.1%. At the same time, the company's net profit also continued to fluctuate. Tianjin C&D's net profit during the reporting period was 41.414 million yuan, 35.09 million yuan, and 410.45 million yuan respectively, with negative year-on-year growth in 2022.

The future prospects are fraught with risks

At the same time, the company also faces the risk of being relied upon by large customers. During the reporting period, the five major customers of Tianjin C&D accounted for 63.5%, 77.0% and 81.6% of total revenue, respectively, and continued to increase.

The Zhitong Finance App learned that among engineering contractors, the “advance payment model” is quite common. In the process of winning the bid for construction, the construction party basically prepaid the money generated by the construction party, and then Party A delivered the relevant payment to the company. Tianjin C&D has stated that it may take more than one year after the relevant project is completed before the company can receive the corresponding payment for the construction project. Therefore, cash flow management and funding sources have always been limiting factors faced by related enterprises.

The company's accounts receivable performance fluctuated under multiple pressures, such as the characteristics of the industry and the company's lack of voice due to dependence on major customers. During the reporting period, the company's trade receivables and notes receivable were $90.7 million, $124 million and $233 million respectively. At the same time, the average turnover of the company's trade receivables also rose sharply. During the reporting period, it was 83.3 days, 141.5 days, and 216.0 days, respectively.

Under the accounts receivable of high enterprises, the cash flow situation of Tianjin C&D is also unstable. In 2023, the company also experienced negative net operating cash flow. In addition, during the reporting period, cash and cash equivalents in the company's hands also showed a downward trend of 11.3 million yuan, 20.2 million yuan, and 6.4 million yuan.

It can be seen that under fluctuating cash flow conditions, Tianjin C&D is facing extreme financial pressure. At the same time, the company's main customers include government agencies or state-owned enterprises. These customers usually have more internal measurement and settlement procedures, or further lengthen the company's settlement time.

Apart from financial pressure, the company's growth prospects are not optimistic.

Although for a long time, the engineering construction industry has played an important role in the country's development as one of China's pillar industries. However, it is expected that the growth rate of related industries will slow down in the future. According to the data, in 2018-2022, the total revenue of the municipal public works industry in Tianjin, which is deeply cultivated by Tianjin C&D, increased from 26.5 billion yuan to 45.9 billion yuan, corresponding to a compound annual growth rate of 14.7%. It is expected that the growth rate will gradually slow to 9.2% from 2022 to 2027.

At the same time, with the high maturity of the industry, a highly fragmented market competitive environment has been formed. In 2022, in terms of municipal public works revenue, the top five and ten municipal private construction companies accounted for 3.0% and 4.0% of the total market share of all municipal public works companies in Tianjin, respectively. However, Tianjin C&D, which ranks fourth in the industry, has a market share of only 0.2%. Against this backdrop, the “ceiling” of the company's performance seems to have come to light.

Taken together, Tianjin C&D not only continues to fluctuate in profit performance, but also faces multiple risks such as dependence on major customers and financial pressure. At the same time, Tianjin C&D, which has a market share of only 0.2%, is still facing the dilemma of slowing down the industry's growth prospects. It can be seen that the company's “going public is broken” is not without reason. Although the successful listing can be an important milestone in the historical development of Tianjin C&D, it seems that Tianjin C&D still has a long way to go on how to gain the attention of the capital market and establish market advantage.