Good News on Listing | Frost & Sullivan Assists Rongli Construction Holdings Limited in Successfully Listing on the Hong Kong Stock Exchange (9639.HK)

Rongli Construction Holdings Limited (hereinafter referred to as 'Rongli Construction') successfully listed on October 9, 2024, issuing 250 million shares at an offer price ranging from HK$0.57 to HK$0.73, raising up to HK$180 million at most. Frost & Sullivan (Frost & Sullivan, hereinafter referred to as 'Frost & Sullivan') provided exclusive industry advisory services for Rongli Construction's listing, and we hereby extend our warmest congratulations on its successful listing.

During the Hong Kong listing process, Frost & Sullivan mainly undertook the following tasks: helping the company accurately and objectively understand its positioning in the target market, using objective market data to discover, support, and highlight the company's competitive advantages, assisting the company, investment banks, and other intermediaries in completing the relevant parts of the prospectus (such as the overview, competitive advantages and strategy, industry overview, business, and other important sections), facilitating communication with the Hong Kong Stock Exchange and investors, helping investors quickly understand the market ecosystem and competitive landscape, and assisting the company in completing feedback on various industry-related issues from the Hong Kong Stock Exchange.

Civil engineering encompasses various projects, including infrastructure design, construction, and maintenance, namely roads, bridges, tunnels, dams, and power plants. According to the Development Bureau, civil engineering can generally be divided into four sub-sectors: (i) Port Engineering; (ii) Roads and Drainage; (iii) Site Preparation; and (iv) Water Resources Engineering. Specifically,

• Road engineering is usually divided into two categories: (i) construction of new roads (such as expressways, arterial roads, main roads, regional roads, and intra-area roads); and (ii) maintenance of existing roads. Drainage and other projects refer to the construction, improvement, and maintenance of sewage treatment facilities, rainwater drainage facilities, as well as sewage management and power plants.

   

• Site leveling projects include excavation work on sloping land, landfilling, landslide prevention work, landslide remediation work, and groundwater drainage work. Such projects require preparing the land by leveling the site to the required orientation, shape, or level for the construction of buildings and facilities, in order to level the site and subsequently construct buildings and other structures.

   

Since the completion of large infrastructure projects such as the Hong Kong-Zhuhai-Macao Bridge and the Guangzhou-Shenzhen-Hong Kong High-Speed Railway (Hong Kong section) in 2018, coupled with social unrest and the outbreak of the COVID-19 pandemic, the construction industry in Hong Kong has temporarily declined since 2019. However, the backlog of construction demand from previous years has been largely released in the past two years. According to data from the Census and Statistics Department, the total value of civil engineering works carried out by Hong Kong's general contractors increased from approximately HK$49.36 billion recorded in 2019 to HK$578.9 billion in 2023, with a compound annual growth rate of about 3.2%. The growth in 2023 was due to the implementation of the second phase of the Meihau Improvement Project and the second phase of infrastructure works at the former Quarry Bay Kaolin Mine, including site leveling and infrastructure works.

In the coming years, projects such as the new development areas north of Kowloon Tong and Fanling North, the Jiaoxizhou Artificial Island under the Vision for Tomorrow's Greater Yau Islands, and the expansion of the Tung Chung New Town will be completed and launched one after another. These will maintain the demand for civil engineering, and it is expected that the total value of civil engineering in Hong Kong will grow at a compound annual rate of 3.5% between 2024 and 2028.

The development of the Northern Metropolitan Region will have a significant impact on Hong Kong's civil engineering and construction industries. In particular, the development of the "Northern Metropolitan Region University Town" requires the construction of new campuses and facilities, for which the government has reserved over 60 hectares of land at Hung Hom Bridge/Sham Shui Kiu, Ngau Tam Mei, and the North New Territories Town of North New Territories. The construction of the Hong Kong-Shenzhen Innovation and Technology Park in the He Tuo District and the adjacent Shenzhen Innovation and Technology Zone will also involve extensive civil engineering to build necessary infrastructure and buildings. In addition, the development of four major areas, namely the high-end professional services and logistics hub, innovation and technology zone, port commerce and industrial zone, and the blue and green leisure tourism ecosystem, will require the construction of various commercial, industrial, and leisure facilities. Finally, planned transportation infrastructure projects such as the Hong Kong-Shenzhen Western Railway (from Hung Hom Bridge to Qianhai), North Metropolitan Highway, and Route 11 will require substantial civil engineering to promote the growth of the industry. According to the Development Bureau's estimates, the total project cost in the Northern Metropolitan Region will exceed HK$224.7 billion. A large portion of this expenditure (HK$121.5 billion) is allocated for land reclamation in four main areas: Kowloon North, Fanling North, Tuen Tin, and Tuen Tin Science Park. Land leveling and infrastructure development account for a significant part of the total cost, about HK$99.3 billion, or 44% of the overall expenditure. In addition, HK$3.1 billion has been reserved for detailed design works, while research accounts for another HK$610 million.

Source: Frost & Sullivan report

•Continuous demand for infrastructure projects:The government's expenditure on infrastructure has been stable, increasing from HK$856 billion in 2018 to HK$887 billion in 2023, with a compound annual growth rate of 0.7%. As stated in the '2024/2025 Budget', the government intends to maintain its commitment to infrastructure investment, with annual capital works expenditure expected to increase to HK$1058 billion in 2024/2025. In addition, according to the latest speech by the Development Bureau in May 2024, the average annual capital works expenditure over the next five years will be about HK$900 billion, an increase of about 17% compared to the average annual capital works expenditure of HK$760 billion over the past five years. Most of the future engineering expenditure will be invested in the development of the northern metropolitan area and the advancement of other land reclamation projects. In the aforementioned policy report, the limits on small engineering expenditure related to public facilities and various infrastructure lands have been increased. The implementation of the long-term housing strategy ensures an uninterrupted supply of housing, coupled with the development of new town expansion plans such as Tseung Kwan O, Kai Tak, Kwun Tong North, Fanling North, Hung Shui Kiu and Yuen Long South, it is expected that the demand for related infrastructure construction in neighboring areas will increase. This includes the expansion of power stations and pumping stations, tunnels, bridges and public transport railway systems. Therefore, it is expected that the rapid implementation of public infrastructure projects and urban development will bring sustained growth to the civil engineering industry in Hong Kong.

• Continuous support from the government:To address the talent shortage and aging workforce faced by the construction industry, the Hong Kong government has increased financial assistance to improve industry standards. The Hong Kong government plans to allocate HK$1 million to the Construction Industry Council in the 2023-2024 Financial Budget to support manpower training. This funding will be used to increase training places and allowances for industries with labor shortages, in order to attract new entrants and retrained workers. In addition, to ensure an adequate workforce, the government has implemented a construction industry labor import plan. As an important branch of the Hong Kong construction industry, the civil engineering sector is expected to benefit from the above government measures, especially those taken by the Construction Industry Council. According to the data of the Construction Industry Council, the labor shortage in the Hong Kong construction industry will reach 40,000 people by 2027. The Hong Kong government launched a supplementary labor plan in 2023 to alleviate the manpower shortage in various industries in Hong Kong. Among them, Hong Kong will introduce about 12,000 workers to alleviate the labor shortage in the construction industry and fill about 30% of the gap by 2027.

• Sustainable development plan for transportation structure and facilities:The transport structure and facilities are crucial for enhancing connectivity within and outside the urban area and also make significant contributions to Hong Kong's long-term competitiveness and the quality of life of its citizens. According to the 'Hong Kong Main Transport Infrastructure Development Blueprint' released in 2023, the blueprint proposes nearly 40 transport infrastructure projects, including 20 railway or smart green mass transit system projects and 18 major arterial roads, with more than 30 projects expected to be completed within the next 15 years. In particular, the MTR has started partial construction in 2023 and 2024, including the extension of the Tuen Mun line, as well as the construction of the North Ring Line, Hung Hom Station, Tseung Kwan O West Station, and Hung Hom South Station. Through carefully planned expansion plans, it is expected that the demand for transport structure and facilities will grow steadily.

• Trend of construction industry adopting electric equipment:Green construction is crucial for mitigating climate change, conserving resources, improving energy efficiency, promoting residents' health, and meeting regulatory requirements. It brings many benefits to the environment, residents, and the economy, making it a basic routine in the future construction industry. To reduce carbon emissions and transition to more sustainable measures, the trend of introducing electric equipment in the Hong Kong construction industry is becoming increasingly evident. Hong Kong Electric Light Company (HKL) launched a new integrated service in April 2021. The service aims to assist construction sites in achieving zero carbon emissions by replacing diesel generators with reliable and reorganized grid power supply. This move can completely eliminate the negative impacts of air and noise pollution caused by diesel generators on site workers and surrounding communities. In addition, the initiative helps to reduce the overall carbon footprint during construction. New Horizon Development Corporation Limited (New Horizon) issued a reminder announcement in February 2024 disclosing its acquisition of nine electric construction equipment. The newly purchased equipment is intended to replace existing diesel-powered equipment. The strategic decision to transition to electric equipment marks an important milestone for New Horizon Development Corporation Limited in advancing sustainable and environmentally friendly construction initiatives. New Horizon's initiative also sets an example that construction industry can follow in pursuing decarbonization and more environmentally friendly operations. Compared to traditional diesel-powered machinery, electric equipment produces less exhaust emissions. This helps to reduce air pollution and improve air quality in Hong Kong.