Good News on Listing | Frost & Sullivan Assists Rongzhi Group in Successful US Listing (NASDAQ:SUGP)

SU Group Holdings Ltd (hereinafter referred to as 'Rongzhi Group') successfully listed on January 24, 2024. The company issued 1,250,000 shares at an issue price of $4.00 per share, raising approximately $5 million in net proceeds.

During the process of listing in the US, Frost & Sullivan mainly undertook the following tasks: helping the issuer accurately and objectively understand its positioning in the target market, uncovering, supporting, and highlighting the issuer's competitive advantages through objective market data analysis, assisting the issuer, investment banks, and other intermediaries in completing the writing of relevant parts of the prospectus (such as the overview, competitive advantages and strategy, industry overview, business, and other important sections), helping the issuer communicate with the SEC and investors, assisting investors in quickly understanding the market ecosystem and competitive landscape, and assisting the issuer in completing various SEC feedbacks on industry-related issues.

The company is a comprehensive security service provider with outstanding performance;

The company provides comprehensive security-related engineering services through its extensive customer network;

Based on its complementary relationship with suppliers, the company holds exclusive distribution rights and a comprehensive range of security systems;

The company boasts an experienced and visionary management team, dedicated to providing quality, safe, and environmentally responsible services through a high-quality workforce.

Hong Kong's private security-related engineering services include security-related engineering services provided for commercial or residential buildings, educational institutions, and other properties held by private companies. The market for private security-related engineering services has grown, increasing from HK$4.0616 billion in 2017 to HK$4.934 billion in 2022, with a compound annual growth rate of 4.0%. It is expected that the security-related engineering services provided for private enterprises will continue to grow, from HK$5.2107 billion in 2023 to HK$6.4367 billion in 2027, with a compound annual growth rate of 5.4%. The overall growth of the security-related engineering services market is mainly attributed to increased building development, public awareness of facility safety, and Hong Kong's trend of using other advanced technologies such as the Internet of Things, cloud computing, and big data to strengthen building safety and security services.

In Hong Kong, security-related engineering services are mainly provided by private enterprises. The provision of security-related engineering services for the public sector has increased, rising from HK$2.4718 billion in 2017 to HK$3.1870 billion in 2022, with a compound annual growth rate of 5.2%. Supported by increased public housing supply and investments in bridges, ports, and railways, the market for security-related engineering services provided to the public sector is expected to grow at a compound annual rate of 5.2%, from HK$3.3624 billion in 2023 to HK$4.1144 billion in 2027. With the development of e-commerce, the demand for cross-border logistics continues to increase, and it is expected that the demand for security engineering services related to threat detection systems will be supported in the future.

Source: Frost & Sullivan report

In the Hong Kong security-related engineering service market, Rongzhi Group is one of the few suppliers authorized to distribute more than a dozen brands of security systems, including Chubb Hong Kong Limited, G4S Security Systems (Hong Kong) Limited, ADT Hong Kong Limited, Yihew Engineering Co., Ltd., and New Idea Super Electronic Technology Services Co., Ltd.

Video surveillance and security systems accounted for the largest share (44.8%) in the overall supply of low-voltage power solutions in 2022. Driven by the use of artificial intelligence video surveillance such as face recognition cameras, as well as the increasing demand for building safety, the market size of low-voltage power solutions increased from HK$5.5334 billion in 2017 to HK$71.730 billion in 2022, with a compound annual growth rate of 5.3%.

The integration of cloud security solutions will continue to drive the growth of low-voltage power solutions, with the market size of low-voltage power solutions expected to reach HK$9.7265 trillion in 2027, a compound annual growth rate of about 6.3% from 2023 to 2027.

Source: Frost & Sullivan report

The development of e-commerce has reshaped the entire supply chain pattern and created a surge in demand for cross-border logistics and delivery services, especially air delivery and transshipment services. As a result, Hong Kong's air cargo throughput increased from 4.937 million tons in 2017 to 5.026 million tons in 2021, with a compound annual growth rate of about 0.4%. The growing e-commerce industry is a market driver supporting the growth of security-related engineering services related to threat detection systems. According to the Hong Kong Budget 2021-22, the Airport Authority plans to develop cargo handling facilities to strengthen transportation out of Hong Kong International Airport to the world. With the expansion of existing air freight stations and the opening of new high-quality logistics centers and a triple-haul system, the annual cargo handling volume at Hong Kong International Airport is expected to increase from 7.4 million tons in 2021 to 9 million tons in 2024. Therefore, the demand for security-related engineering services related to threat detection systems is expected to continue to be driven by the growing e-commerce industry.

In recent years, Hong Kong has been formulating smart city policies with the aim of improving the quality of life for citizens, enhancing public service efficiency, and promoting sustainable development. The government has identified several key areas for smart city development, including transportation, healthcare, education, and environmental sustainability. One of the main initiatives of Hong Kong's smart city policy is to develop sensor networks and data analysis tools across the city to monitor and manage transportation and logistics. This includes installing intelligent traffic lights, real-time traffic monitoring systems, and developing new integrated transportation information systems. Smart city development activities mainly involve the development of buildings, government areas, industrial zones, highways, and airports. With the increasing use of advanced technologies such as the Internet of Things (IoT), cloud computing, and big data to improve management, the concept of smart city has emerged. It refers to the coordinated use of physical devices, software systems, and analytical technologies by urban authorities to provide better services and infrastructure for citizens. The physical devices, software systems, and analytical technologies in smart cities use a large amount of data collected from the public domain. They also generate a wealth of information useful to government agencies and urban authorities. Therefore, government support policies have promoted the demand for security services related to smart city development, namely the protection of specific components of data and smart city infrastructure. Investment and development in smart cities continue to increase, mainly driven by the upgrading of security and safety needs, which has boosted the growth of security-related engineering services in Hong Kong.

In 2019, public security awareness and issues triggered by social movements in Hong Kong have become increasingly prominent, leading to an increased willingness to invest in security systems. Enterprises in Hong Kong are investing in security technology to enhance safety, protect personnel and assets, and solve security problems. More and more facility management companies in Hong Kong are emphasizing surveillance technology and video analysis to ensure the high availability and reliability of systems, as well as to facilitate manpower deployment to improve the quality of ELV services and operational efficiency. Security-related engineering service providers assist in monitoring, recording, and storing potential evidence by establishing high-definition, strategically deployed, 24-hour surveillance systems.

The market size of security and guarding services increased from HK$212 billion in 2017 to HK$263 billion in 2022, with a compound annual growth rate of 4.4%. In view of the social movements and crises that occurred in Hong Kong in 2019, there was an increase in the recruitment demand for event and crisis management security personnel. At the beginning of 2022, Hong Kong was severely affected by the fifth wave of the non-transmissible Omicron variant outbreak, with more than 20,000 cases recorded daily in March 2022. The Hong Kong Special Administrative Region Government has implemented strict epidemic prevention measures, including the temporary suspension of public services and the mandatory closure of various entertainment and catering facilities. In the long run, the market size of security and guarding services is expected to reach HK$366 billion by 2027, with a compound annual growth rate of 6.5% from 2023 to 2027. This is mainly due to the continuous growth of the real estate market and the increasing demand for security and guarding services.

Driven by the International Civil Aviation Organization's launch of new policies in September 2016 and the 'Passenger Self-service Entry-Exit Inspection and Clearance System' (RACSF) introduced by Civil Aviation in October 2018, the market size calculated based on security service revenue also recorded a 9.1% increase, from HK$176.7 million in 2017 to HK$272.8 million in 2022. Looking ahead, with the global economic recovery and the continuous implementation of the 'Air Cargo Convention', it is expected that air cargo throughput will grow steadily. The market size calculated based on security service revenue is expected to reach HK$364.2 million by 2027, with a compound annual growth rate of 5.3% from 2023 to 2027.

The market scale of related vocational training service revenue was supported by labor inflows and increased demand for retraining existing labor. It increased significantly from HK$51 million in 2017 to HK$104.7 million in 2022, with a compound annual growth rate of 15.5%. The outbreak of COVID-19 not only suppressed tourism consumption but also local consumption, leading to business closures, layoffs, and/or unpaid leave for workers. Some laid-off workers joined the security service industry. This led to a surge in demand for related vocational training services, with an increase in the number of students registering for the QASRS Basic Security Service Certificate exam in 2020. Therefore, considering the reduced labor force entering the security industry and the slight growth in vocational training services related to the construction industry, the market revenue scale of related vocational training services decreased from HK$1.082 billion in 2020 to HK$0.997 billion in 2021. Against the backdrop of the fifth wave of COVID-19 outbreaks, service providers in the vocational training service industry, including RACSF course providers, temporarily stopped or limited enrollment for each course. At the same time, due to limited business hours for enterprises, the enrollment process was further extended. Therefore, the market scale of related vocational training services slightly declined in 2022, to approximately HK$1.047 billion. It is expected that with the normalization of economic activities, the market scale will resume growth momentum, reaching HK$1.41 billion by 2027, with a compound annual growth rate of about 6.3% from 2023 to 2027.

Source: Frost & Sullivan report

The demand for security services in Hong Kong is closely related to the development of the real estate market. The Chief Executive of Hong Kong expects that between 2020 and 2030, Hong Kong will supply the market with more than 300,000 public housing units, of which one-third (i.e., over 100,000 units) will be delivered within the first five years from 2021 to 2025. In terms of private housing, the 2021-22 budget estimates for Hong Kong's finance show that the average annual housing construction volume will be about 18,000 units over the next five years from 2021 to 2025, an increase of about 5% compared with the average annual construction volume of the past five years from 2016-2020. In addition, the Chief Executive launched the "North District Development Strategy" in 2021, aiming to develop about 300 square kilometers of land into areas highly concentrated with residential, working population, and enterprises. With the completion of residential, commercial, office, industrial, institutional buildings, and surrounding supporting infrastructure (such as public transportation systems), it is expected that demand for facility management, cleaning, and security services in the area will be stimulated. With the acceleration of urban development and increased housing supply, the construction of surrounding social facilities and amenities such as hospitals, public transportation, educational facilities, and government buildings will also be promoted. As housing supply increases and cities are continuously rebuilt, security services will also grow accordingly.

More and more building complexes have interconnected or related structures, with offices, commercial spaces, and pollution-free industrial uses mixed together. This has increased the complexity, requirements, and demands for facility management, cleaning, and security services. The scope of services has further expanded from operations, management, and cleaning to interdisciplinary monitoring, control system management, and facility maintenance. The demand for customized and integrated service solutions is increasing for the reconstruction of buildings, which will bring business opportunities to the industry.

Due to the heightened awareness of threat detection and prevention in both the public and private sectors, the demand for security inspection services and related products is rapidly expanding. To improve security inspection services, continuous system upgrades and the adoption of the latest technologies are needed. In addition, the scope of application of security inspection services is also expanding, including strengthening building safety and revising airport regulations. The development of Hong Kong's air freight stations and logistics centers has driven the growth of the security inspection service market in Hong Kong. The Hong Kong Airport Authority is collaborating with business partners to expand air express freight stations to enhance Hong Kong's capacity to handle outbound express parcels and small packages. Security inspection services will be widely applied in cargo logistics and warehouses, and the demand for threat detection systems and security officers will also increase accordingly.

According to the information from the Education Bureau of the Hong Kong Special Administrative Region Government, Level 2 courses in the competency framework provide basic facts or operational knowledge in selected areas within work or study scopes. Generally, Level 2 courses in the competency framework offer practical skill certificate programs related to various industries. Level 2 competency courses are divided into part-time and full-time options, usually short-term programs with study hours ranging from 6 to 302 hours. According to the competency framework, in the security services industry, Level 2 plans of the competency framework include 35 competency units for experienced practitioners within the industry to study. These courses provide practical vocational training for low-skilled and less educated practitioners to enhance their skill levels and master basic work techniques. For example, Level 2 courses in the competency framework offer the Basic Certificate in Telecommunications and Security Alarm Systems, as well as the Basic Certificate in Professional Security Services Training. Security officers with rich experience are increasingly taking on senior responsibilities and supervisory roles, and they often need supplementary retraining, such as Level 2 courses in the security-related competency framework. Therefore, during the period from 2017 to 2022, the market size of security-related Level 2 courses increased from HK$8.9 million to HK$12.4 million, with a compound annual growth rate of about 6.9%. It is expected to reach HK$17 million in 2027, with a compound annual growth rate of about 6.6% from 2023 to 2027.

The competition in the Hong Kong security and guarding service market is fierce. As of February 28, 2023, there were approximately 749 providers, which is also the number of licensed security companies engaged in the first category of security work (providing security and guarding services). On the other hand, by 2022, there were less than 100 providers in the Hong Kong security inspection service market. The main providers in the Hong Kong security and guarding, as well as security inspection markets are international companies, with providers based in Hong Kong also contributing significantly to the market revenue.

In 2022, Rongzhi Group's revenue from providing security services and security checks was HK$55.4 million, accounting for 0.2% of the market share. The security services market in Hong Kong is relatively fragmented, with the top five market participants collectively occupying about 11.6% of the market share in 2022.

In 2022, Rongzhi Group recorded an income of HK$3.8 million from providing relevant vocational training services, accounting for 3.6% of the market share. The competition for relevant vocational training services is fierce, and some market participants can expand their market share by offering more training courses.