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The prospect of new shares - the resurgent construction machinery industry, "distressed" Dafeng equipment

the prospect of new shares - the resurgent construction machinery industry, "distressed" Dafeng equipment 16:42:15, January 17, 2020 Zhitong finance

since the second half of 2016, China's construction machinery industry has begun to continue to recover due to multiple factors such as equipment renewal, artificial substitution, tightening environmental protection and so on

due to the improvement of industry prosperity, the performance of relevant listed companies in the industry has improved significantly. Among them, Zoomlion (01157) recently released a performance forecast, which shows that the net profit attributable to shareholders of Listed Companies in 2019 is expected to be 4.3 billion yuan (the same below) to 4.5 billion yuan, an increase of 112.89% to 122.79% year-on-year

in 2019, Zoomlion achieved an increase of 157.5% in the whole year, and its share price recently reached a new high in recent seven years, "detonating" the investment feast of heavy machinery stocks

in this context, Dafeng equipment Service Co., Ltd., China's second largest tower crane service provider (hereinafter referred to as "Dafeng equipment spray paint treatment; preparation"), wants to enter the door of the Hong Kong Stock Exchange by "stepping on the right pace"

China's second largest tower crane service provider

Zhitong finance app learned that according to the disclosure of the Hong Kong stock exchange, Dafeng equipment submitted a prospectus to the Hong Kong Stock Exchange on January 13, and Fuqiang financial capital was the exclusive sponsor

Dafeng equipment prospectus shows that the company was founded in 2006 and is the first foreign-funded tower crane service provider established in China. Since 2007, the company has become a tower crane service provider, mainly providing one-stop tower crane solution services such as consulting, technical design, commissioning, construction and after-sales services to Chinese super grade and first-class EPC contractors

according to frost Sullivan, it is the second largest tower crane service provider in China in terms of revenue in 2018

Zhitong finance app noted that although Dafeng equipment is the second most expensive in the industry, the market share of the company in 2018 was only about 0.7% based on the revenue of 647 million yuan in 2018

according to frost Sullivan, China's tower crane service market is extremely fragmented. By the end of 2018, there were about 7000 participants, most of them small private companies and personal tower crane service providers with low total lifting capacity (in ton meters) of tower cranes. In terms of revenue in 2018, the five major players in China's tower crane service market account for only about 3.2% of the market share

although the competition in China's tower crane service market has stimulated the "requirements", driven by China's stable economic growth and strong construction demand, the market has achieved rapid development in the past few years. The revenue of China's tower crane service market increased from about 62.4 billion yuan in 2014 to about 93.2 billion yuan in 2018, with a double-digit CAGR of 10.5% from 2014 to 2018. Looking ahead, with the predictable and stable development of the construction industry, the continuous urbanization process and the government's vigorous promotion of prefabricated buildings, it is expected that China's tower crane service market will further develop at a CAGR of about 13.3% in the next few years, with a revenue of about 174.2 billion yuan in 2023

the prosperity of the industry has improved, and the performance has increased steadily.

due to the improvement of the service market scene of China's tower crane, the business scale of Dafeng equipment has been expanding in recent years

the prospectus shows that Dafeng equipment customers are usually Chinese super grade and first-class EPC contractors (mainly including Chinese state-owned enterprises and public companies). EPC projects mainly engaged in infrastructure, energy, commercial and residential industries

during the track record period, the company has successfully completed 716 projects in China, of which more than 80% were awarded by super grade or first-class EPC contractors, including Beijing CITIC Bank information technology research and development base, Hong Kong Zhuhai Macao Bridge Island tunnel project east artificial island project, Shanghai Pudong International Airport Phase III expansion project satellite hall and MRT station steel structure project, Beijing Daxing new airport and Shanxi Niucun Wenchi village Yu county power plant

according to frost Sullivan, by the end of 2018, the company had participated in more than 50% of China's nuclear power projects and about 60% of China's LNG projects

in terms of performance, in the three years ended March 31, 2017, 2018 and 2019 and the six months ended September 30, 2019, the four business segments achieved a total revenue of 491 million yuan, 549 million yuan, 656 million yuan and 385 million yuan; The net profits reached 36 million yuan, 51 million yuan, 68 million yuan and 40 million yuan respectively

it is worth noting that due to the company's increased use of large and medium-sized tower cranes in the project, the average monthly service price of tower cranes per ton of meter has increased in general, and the gross profit margin of Dafeng equipment reached 35.5% in the first half of 2019/2020, an increase of nearly 8 percentage points over 2019

at the same time, Dafeng equipment has maintained a steady net cash inflow from operating activities in recent financial years, which can cover the capital needs of investment activities

heavy asset operation to high debt

however, from the perspective of asset structure, the capital of Dafeng equipment is not abundant

the prospectus shows that as of November 30, 2019, the cash and cash equivalents in the company's current assets were 29 million yuan, which was just enough to repay short-term bank loans. As of November 30, the company still had 212 million yuan of trade accounts and notes payable

from the perspective of asset structure, the cash situation of Dafeng equipment is relatively tight. On the one hand, it is the occupation of the company's funds by downstream customers. As of November 30, 2019, the amount of accounts receivable of the company's trade experiment trip reached 435 million yuan, far exceeding the amount of trade accounts payable and notes payable

on the other hand, from the analysis of business model, the company needs to purchase tower cranes and related parts and accessories according to needs in the business planning stage. This means that the company needs to invest a lot of money to buy equipment. For the three years ended March 31, 2017, 2018 and 2019 and the six months ended September 30, 2019, we purchased 37, 22, 29 and 34 tower cranes respectively

as of September 30, 2019, the amount of property, plant and equipment of the company has reached 1.143 billion yuan, the total value of non current assets has reached 1.323 billion yuan, and non current assets account for more than 64% of total assets

as we all know, companies with heavy assets tend to have relatively high debt ratios. In fact, as of September 30, 2019, the asset liability ratio of Dafeng equipment has reached 61.5%

even with a high debt ratio, Dafeng equipment still said in the prospectus that it would purchase 90 tower cranes less than

every year in the next three years, depending on the situation, especially tower cranes with a lifting capacity of more than 200 ton meters. In addition, we also hope to recruit more professionals and repay debts by raising funds through listing. In the view of Zhitong finance app, in the case of scattered industry competition and rising prosperity, Dafeng equipment has great room for development in the industry, but according to the company's debt situation, the future expansion seems not to be as radical as a deal

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