Rylin Construction (09639) is a significant Hong Kong contractor engaged in civil and electrical cable engineering as well as solar photovoltaic system engineering.

Offer period: September 27th to October 4th.

Listing date: October 9th.

Sole sponsor: Tamren Financing.

Receiving bank: Bank of Communications (Hong Kong).

Offering 0.25 billion shares, approximately 90% for placement and about 10% for public offering, with an additional 15% for over-allotment option.

If the public offering subscription is at least 15 times but less than 50 times, the public offering ratio will increase from 10% to 30%. If it is at least 50 times but less than 100 times, it will increase to 40%, and if it is subscribed for 100 times or more, it will be scaled back to 50%. However, if the placement is undersubscribed but the public offering is oversubscribed, or both are fully subscribed but the public offering subscription is less than 15 times, the public offering ratio can increase to a maximum of 20%, but it must be priced at the lower limit.

The offering price per share is between 0.57 Hong Kong dollars and 0.73 Hong Kong dollars, raising up to 0.1825 billion Hong Kong dollars, accounting for approximately 25% of the total market capitalization, with listing expenses of around 32 million Hong Kong dollars.

Based on 5,000 shares per board lot, the entrance fee is 3,686.82 Hong Kong dollars.

Based on the upper limit price of 0.73 Hong Kong dollars, the market cap is about 1.73 billion Hong Kong dollars (calculated with an adjusted net profit of about 81.78 million Hong Kong dollars for the year 2024, with a P/E ratio of approximately 8.9 times).

As of the end of March 2024, the average net asset value is about 0.155 billion Hong Kong dollars.

The public offering is divided into Group A (applicants of 5 million or below) and Group B (applicants of over 5 million).

Business:

Revenues for the years 2022 to 2024 (up to the end of March) were 0.52 billion Hong Kong dollars, 0.36 billion Hong Kong dollars, and 0.526 billion Hong Kong dollars respectively.

From 2022 to 2024 (up to the end of March), the gross profit was 93.61 million Hong Kong dollars, 75.53 million Hong Kong dollars, and 0.121 billion Hong Kong dollars respectively.

From 2022 to 2024 (up to the end of March), the net profit was 59.05 million Hong Kong dollars, 40.56 million Hong Kong dollars, and 76.9 million Hong Kong dollars respectively.

From 2022 to 2024 (up to the end of March), the adjusted net profit was 59.05 million Hong Kong dollars, 40.56 million Hong Kong dollars, and 81.78 million Hong Kong dollars (excluding listing expenses).

The company's civil engineering focuses on land leveling projects, road and drainage engineering, while the cable engineering specializes in cable excavation, laying, and connecting projects. As for solar photovoltaic system engineering, the company focuses on the design, installation, and maintenance of solar photovoltaic systems. Additionally, during the reporting period, the company may temporarily lease machinery and purchase building materials from contractors and subcontractors for some projects in which it is involved.

The company's land leveling engineering typically includes earthworks, excavation engineering, and steel structure installation. The company's road and canal engineering mainly involves the construction and renovation of roads, lanes, and sidewalks, the construction of covered pedestrian walkways, the renovation of tunnels and pedestrian overpasses, the provision of smooth traffic facilities for pedestrian overpasses, elevated pedestrian paths, and tunnels, the construction of drainage systems, sand wells, cable trenches, and the installation of water mains and sewage pipes.

The company's cable engineering typically involves cable excavation, laying, and connecting, as well as excavation, repair, miscellaneous construction works, traffic impact assessments, and emergency and cable fault repairs. According to industry reports, the company is the largest cable and civil pipe installation subcontractor in Hong Kong in 2023. Based on the revenue for the 23/24 fiscal year, its market share is approximately 13.6%.

During the reporting period, the Third Runway project has been a major driver of the business and financial performance. For example, in the 21/22, 22/23, and 23/24 fiscal years, the Third Runway project contributed service revenue accounting for approximately 48.9%, 25.7%, and 45.9% of total revenue, respectively. While it is reported that the Hong Kong International Airport's Third Runway project is scheduled to be completed in 2024, the company's involvement in the project extends beyond just the runway itself, including terminal buildings, airport aprons, underground engineering such as the cable duct system, firewater mains, sewage, oil separation, seawater cooling discharge systems, requiring the company to carry out foundation and steel structural engineering, which are still under construction. The Third Runway project is currently expected to be completed in 2025.

The company's clients mainly include China Light & Power Group (a company that supplies electricity to over 80% of Hong Kong's population) and its main contractors, building contractors in Hong Kong, joint ventures established by Chinese state-owned enterprises through their subsidiaries, and several government departments.

Approximately 45% of the funds raised will be used to acquire more electrical machinery and equipment, including electric excavators, portable charging and swapping stations, heavy-duty dump trucks, electric mixers, and electric crawler cranes required for site leveling projects, road and canal works, and cable projects; about 35% will be used to cover upfront costs of new projects; about 5% will be allocated for new employee recruitment; about 5% will be allocated for purchasing the Safety, Smart, Swift, and Savings (4S) system and Enterprise Resource Planning (ERP) system; about 10% will be retained as general operating funds.

Cornerstone investors:

Introducing three cornerstone investors to collectively subscribe to 35 million Hong Kong dollars worth of shares, with Sany International (00631) subscribing to 15 million Hong Kong dollars, Ka Shing Group (01283) subscribing to 10 million Hong Kong dollars, and Mr. Cao Hui subscribing to 10 million Hong Kong dollars. Based on the mid-price, this represents approximately 21.5% of the issued shares, with a lock-up period of 6 months.

Major shareholder structure after listing:

Mr. Yao Hongli, Mr. Yao Honglong, and Mr. Chen Lumin hold a 75% stake.

Public shareholders hold 25%.

Brief Commentary:

Wing Lee Construction is a Hong Kong-based contractor engaged in civil and cable engineering as well as solar photovoltaic system projects of scale.

Based on the maximum price limit of 0.73 Hong Kong dollars, the market cap is approximately 0.73 billion Hong Kong dollars, calculated at an adjusted net profit of approximately 81.78 million Hong Kong dollars for the fiscal year 2024, with a P/E ratio of around 8.9 times.

The company raised a maximum of around 0.18 billion Hong Kong dollars, with an initial market cap of only about 0.7 billion Hong Kong dollars, making it a new stock with a relatively small market cap, thus the stock price is expected to fluctuate.

This article is contributed by "CSC Securities", written by CSC Securities analyst Chen Bohao; edited by Zhixingtong Finance, Xu Wenqiang.