In recent years, due to the overall downturn of the real estate industry, there are not many companies in the construction industry that submit the prospectus for listing. However, there are still enterprises that go against the trend and want to "fight" for Hong Kong stocks.
On August 1, Wuhu City Construction Group (hereinafter referred to as "Wuhu City Construction"), a construction enterprise, submitted its prospectus to the Hong Kong Stock Exchange and planned to list on the main board of Hong Kong Stock Exchange. According to
public information, Wuhu Urban Construction was founded in 2015 and is a housing construction company with state-owned background. As a local housing construction company in Anhui Province, in the past few years, under the background of the downturn of the real estate market, the scale of urban construction in Wuhu has been able to grow against the trend. From 2020 to 2022, its annual compound growth rate is as high as 107.
However, behind the high growth of revenue, the gross profit rate of urban construction in Wuhu is declining sharply. The company's trade receivables and impairment of trade receivables continue to rise. In today's extremely depressed valuation of construction enterprises, can Wuhu urban construction win the favor of capital and succeed in issuing against the trend?
In 2014, the Wuhu Municipal Administration Department carried out the reform of "separation of management and maintenance", separating the management functions from the Municipal Engineering Administration Department, and the Wuhu Urban Construction was established.
Like other provinces and cities, the competition in the housing construction market in Wuhu City and even Anhui Province is very fierce. According to Frost Sullivan's data, the market share of Wuhu City Construction in the housing construction market in Anhui Province in 2022 is only 0.
Although the company is small in scale and low in market share, it relies on the background of state-owned assets. Wuhu's urban construction is expanding rapidly. The data show that from 2020 to 2022, the urban construction income of Wuhu is 514 million yuan, 1.085 billion yuan and 2.216 billion yuan respectively. The annual compound growth rate is as high as 107.
Frost Sullivan data show that from 2018 to 2022, the scale of construction industry in Anhui Province increased from 460 billion yuan to 600 billion yuan, with a compound annual growth rate of 7%; It is predicted that this scale will increase from 600 billion yuan in 2022 to 790 billion yuan in 2027, with a compound growth rate of 5.
Wuhu urban construction naturally enjoys the dividends brought by the expansion of the industry, especially the explosive growth of industrial housing construction income. In 2020, there was no income from industrial housing construction in Wuhu. 8 by 2022.
In addition, Wuhu City Construction has also undertaken the construction of intelligent automobiles and parts industrial parks in Wuhu Jingkai District. 3.
Unlike the construction companies of central enterprises, Wuhu Urban Construction is a regional enterprise. Data show that 82.3% of the company's revenue in 2022 comes from Wuhu City. In the first four months of 2023, it rose further to 85.
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According to the data disclosed by Wuhu Urban Construction, the outstanding contract amount of the company is declining.". In 2022, the company's outstanding contract amount was 5.745 billion yuan, which had dropped to 54 by the end of April 2023.
In addition, the winning rate of urban construction in Wuhu is also declining. From 2020 to 2022, Wuhu City Construction submitted 101, 269 and 439 tenders respectively, with 27, 39 and 57 winning projects, with the winning rate of 26.7%, 14.5% and 13.0% respectively, and the winning rate of the company dropped to 8
in the first four months of 2023. The growth ceiling of Wuhu urban construction is not high, and it is falling into the embarrassing situation of "increasing income without increasing profits"-although the revenue of Wuhu urban construction has increased substantially, compared with the revenue growth, the company's profit growth is almost negligible. From
2020 to 2022, the company's profits were 129 million yuan, 151 million yuan and 159 million yuan respectively, and the company's profits increased by only 23.0% in the same period in three years. The revenue of Wuhu Urban Construction increased as much as 331.
The data show that from 2020 to 2022, the gross profit rate of urban construction business in Wuhu is 16.1%, 8.5% and 6.6% respectively, showing a significant downward trend year by year. At the end of April 2023, it further declined to 6.
The sharp decline in gross profit margin of engineering construction business also led to a decline in the overall gross profit margin of the company. From 2020 to 2022, the overall gross profit rate of the company was 33%, 18.7% and 9.4% respectively, and further declined to 8. At the end of April 2023, the gross profit rate continued to decline, resulting in the situation that the company did not increase profits.
The gross profit rate was much lower than that of its peers, indicating that the company's core competitiveness was not strong, which was not conducive to the company's future expansion.
2. The risk of bad debts increased, and the provision for impairment was close to the profit
for two years. "Bullet Finance" found that, in addition to the continued decline in gross profit margin, the rapidly expanding trade receivables of Wuhu Urban Construction was also one of the key risks that the Company needed to deal with.
The data show that the net trade receivables and notes receivable of the company are 300 million yuan, 584 million yuan and 774 million yuan respectively. They accounted for 7.3%, 25.9%, 33.
In addition, due to the expansion of trade receivables, the company's provision for bad debts is also increasing. From 2020 to 2022, the loss reserve of Wuhu urban construction trade receivables was 46.8 million yuan, 55.9 million yuan and 55.6 million yuan respectively, accounting for 13.5%, 8.7% and 6% of the trade receivables respectively.
This is undoubtedly a heavy blow to the urban construction of Wuhu, whose profitability is not strong.
From the top five customers of Wuhu City Construction, the company's main customers are Wuhu state-owned enterprises and local government management platforms, and most of the trade receivables come from these units.
3. The valuation is extremely low, and it is difficult for Wuhu to issue urban construction?
Due to the lack of imagination in the construction industry and the consumption of capital in daily operation, the valuation of construction enterprises in both a shares and Hong Kong shares is extremely low.
Taking China Construction, the leading real estate construction industry, as an example, from the financial point of view, the annual turnover of China Construction exceeds 2 trillion yuan, and the company's profit exceeds 50 billion yuan. As of August 9, 2023, the market value of China's construction industry was only 253.2 billion yuan, the static P/E ratio was only about 5 times, the dynamic P/E ratio was less than 5 times, and the P/E ratio was less than 0.
This was due to the 17% rise in China's construction stock price in 2023, and the P/E ratio of China's construction industry was only about 4 times in the previous two years. The P/B ratio is only 0.
In a shares, the rest of the construction enterprises, China Railway and China Railway Construction, are facing a similar situation, with the P/E ratio and P/B ratio at a very low level.
This is because the liquidity of a shares is more abundant than that of Hong Kong shares, and there is a certain liquidity premium. In the Hong Kong stock market, the valuation of construction enterprises is "unsightly".
Taking China Railway Construction as an example, as the leader in the field of domestic infrastructure, China Railway Construction's revenue has maintained an annual growth of about 10%, but it is still not favored by capital in the Hong Kong stock market. As of the close of August 9, 2023, the dynamic P/E ratio of China Railway Construction is only 2.45 times, and the P/E ratio is only 0.
According to the data of Wuhu Urban Construction Prospectus, the company's profit in 2022 is 159 million yuan. Net assets are only 5.
However, from the changes in net assets of Wuhu urban construction in recent years, it is obvious that it is actively preparing for listing. In 2020, the net assets of Wuhu Urban Construction were as high as 818 million yuan, and by the end of April 2023, the company's net assets were only 4.
Wuhu Urban Construction reduced the company's net assets in various ways, probably in preparation for listing. But even so, it is still very difficult for Wuhu Urban Construction to issue in a way higher than its net assets.
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