Good News | Frost & Sullivan Assists Tianjin Construction Development Group Co., Ltd. to Successfully List on the Hong Kong Stock Exchange (2515.HK)

Tianjin Construction Development Group Co., Ltd. (hereinafter referred to as 'Tianjin C&D') successfully listed on April 23, 2024. The company issued 5,395.00 million shares, including 5.396 million shares sold in Hong Kong and 4,855.40 million shares sold internationally. There were also 15% over-allotment rights, with an issue price of HK$2.50 per share, raising approximately HK$92.18 million in net proceeds.

During the Hong Kong listing process, Frost & Sullivan mainly undertook the following tasks: helping the issuer accurately and objectively understand its positioning in the target market, using objective market data to discover, support, and highlight the issuer's competitive advantages, assisting the issuer, investment banks, and other intermediaries in completing 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 Hong Kong Stock Exchange and investors, assisting investors in quickly understanding the market ecosystem and competitive landscape, and assisting the issuer in completing feedback on various industry-related issues from the Hong Kong Stock Exchange, etc.

The company is capable of providing comprehensive engineering construction services with outstanding past performance and can seize market opportunities to achieve considerable growth;

The company has implemented strict project cost control throughout the project lifecycle by applying its independently developed JieXiao system.

The company possesses various types of engineering construction qualifications and permits and serves as a comprehensive engineering construction service provider;

The company has established a set of project screening criteria to identify projects with satisfactory profitability;

The company has a quality and safety management system that meets customer requirements;

The company has strong R&D capabilities in the field of engineering construction and has competitive advantages in technological innovation;

The company has an experienced management team and professionals.

According to a report by Frost & Sullivan:

In 2022, there were 2,547 construction enterprises in Tianjin. Calculated based on the construction project revenue in Tianjin, the company's market share in the entire construction project market was 0.1%;

In 2022, in terms of revenue generated from municipal public works, the company ranked fourth among private companies engaged in municipal public works in Tianjin, accounting for about 0.2% of the market share;

As of April 15, 2024, Tianjin Jianfa is the only construction company in Tianjin that uses independently developed project management software for construction projects;

As of April 15, 2024, Tianjin Jianfa is the only private construction company in Tianjin that possesses both petrochemical and highway engineering construction qualifications, as well as municipal public works and construction engineering qualifications;

As of April 15, 2024, the company has 25 qualifications related to the company's engineering construction business (including two first-class construction qualifications: First-class General Contracting Qualification for Petrochemical Engineering Construction and First-class Qualification for Foundation Engineering Professional Contracting).

The construction industry has long been one of China's pillar industries, playing an important role in national development. The construction industry refers to the engineering entities formed through the construction of various buildings, structures, and equipment installations, mainly including design, construction, decoration, and management parts. In particular, central and local government agencies have intensively introduced incentive policies to promote better green development and infrastructure in urban and rural areas, as well as better development models involving high-quality green buildings and green lifestyles.

From 2018 to 2022, the total revenue of China's construction industry increased from RMB 21.2 trillion to RMB 27.3 trillion, with a compound annual growth rate of 6.5%. In 2020, the growth of the construction industry slowed down due to unexpected disruptions caused by the COVID-19 pandemic. However, due to the effective control of COVID-19 by the Chinese government, the total revenue of the construction industry rebounded in 2021. In the future, the total revenue of the construction industry is expected to continue growing and is projected to reach RMB 36.1 trillion by 2027, with a compound annual growth rate of 5.7% from 2022 to 2027.

Municipal public works refer to the infrastructure construction of public transportation facilities, water supply facilities, drainage, gas, urban flood control, environmental sanitation, lighting, etc. Municipal public works are an important foundation for urban development and a basic condition for improving people's living standards. Municipal public works mainly include railway transportation projects, water supply projects (including water treatment plants), drainage projects (including sewage treatment plants), central heating projects (including central heating boiler stations and heat exchange stations), gas construction (including gas stations), road and bridge construction, tunnel construction, subway construction, landscape construction, urban flood control construction, lighting construction, etc.

As a pillar industry of the national economy, the role of the construction engineering industry has become increasingly prominent in recent years, making significant contributions to promoting economic growth. As an important part of the construction engineering industry, the market scale calculated based on fixed asset investment in municipal public works in China refers to the total social investment in urban construction. It has rapidly increased from RMB 2314.9 billion in 2018 to RMB 2660.1 billion in 2022, with a compound annual growth rate of 3.5%.

According to the '14th Five-Year Plan' for the Development of the Construction Industry promulgated by the Ministry of Housing and Urban-Rural Development in January 2022, by 2035, it is expected that industrialization of the construction engineering industry will be fully realized, construction quality will be significantly improved, and the innovation capabilities of enterprises will be greatly enhanced. The government will encourage cooperation among construction enterprises, Internet companies, and research institutes to promote the application of information technology in the construction engineering industry. The '14th Five-Year Plan' period is a critical time for accelerating the transformation and development of the construction industry. With policy support and the development of the construction engineering industry, the market scale of China's municipal public works industry is expected to increase from RMB 2660.1 billion in 2022 to RMB 3776.2 billion in 2027, with a compound annual growth rate of 7.3%.

The municipal public works in Tianjin have developed rapidly in the past few years, with urban functions becoming increasingly enhanced. Although the growth rate of the municipal public works market in Tianjin temporarily declined in 2020 and 2022, the proportion of fixed asset investment in municipal public works in Tianjin to the total fixed asset investment in China's municipal public works has increased from 1.1% in 2018 to 1.7% in 2022. The market value of municipal public works in Tianjin increased from RMB 265 billion in 2018 to RMB 459 billion in 2022, with a compound annual growth rate of 14.7%.

In the future, according to the "14th Five-Year Plan for National Economic and Social Development and the Outline of Long-Range Objectives Through the Year 2035," the Tianjin Municipal Government is actively implementing urban renewal actions to promote high-quality urban transformation, improve the operational quality of municipal infrastructure, focus on creating a green urban area, and plans to complete the renovation of the old urban area built before the end of 2000 by 2025. In addition, the Tianjin Municipal Government is currently promoting the development of the "Binhai New Area" to accelerate the improvement of infrastructure and public services. As a city with well-developed infrastructure and high environmental quality, Tianjin is expected to experience rapid development from 2023 to 2027. It is estimated that by 2027, the market scale of municipal public works in Tianjin will reach RMB 712 billion, with a compound annual growth rate of 9.2% from 2022 to 2027.

In 2022, there were 2,547 construction enterprises in Tianjin. Based on the construction project revenue in Tianjin in 2022, the company's market share in the entire construction project market was 0.1%.

The municipal public utility engineering industry in Tianjin is highly fragmented. In 2022, in terms of municipal public utility engineering revenue, the top five and top ten municipal private construction companies accounted for 3.0% and 4.0% of the total market share of all municipal public utility engineering companies in Tianjin respectively.

In 2022, in terms of municipal public utility project revenue in Tianjin, the company ranked fourth among private municipal public utility engineering companies, accounting for about 0.2% of the market share.

• Sustainable urbanization

According to data from the National Bureau of Statistics of China, the urbanization rate in China reached approximately 65.2% in 2022 and is expected to reach about 72.0% by 2027, with a compound annual growth rate of about 2.0%. Sustained urbanization will drive demand for residential, industrial and commercial construction projects, public works, as well as civil engineering construction, thereby stimulating the development of China's construction industry.

• Increase investment in infrastructure

The construction industry is capital-driven, and its development benefits from the continuous growth of fixed asset investment. During the spread of the COVID-19 pandemic, the Chinese government promoted economic growth by increasing investment in infrastructure projects. In 2022, the total fixed asset investment increased to about 58 trillion yuan, a growth of about 4.8% compared to 2021. The Chinese government has always allocated public expenditure to infrastructure construction as a means to stimulate the macroeconomy and further promote construction industry growth.

• Favorable national policies

In recent years, central and local government agencies have intensively introduced incentive policies to promote the application of industrial and information technologies such as BIM and the development of prefabricated buildings. The '14th Five-Year Plan for National Economic and Social Development' (2021-2025) proposes to accelerate the construction of infrastructure such as transportation, water conservancy, and energy in China, and further improve the level of basic public services at the national level. In addition, the Guangdong Provincial Government has also issued a five-year development plan for the construction industry, which will focus on strengthening the development of infrastructure and other construction fields.

• Increase in raw material and labor costs

The rise in costs is one of the challenges faced by the construction industry. The increase in raw material costs is influenced by various factors, such as global commodity prices, fluctuations in supply and demand, changes in government regulations and policies. In addition, the continuously rising labor costs also pose challenges to the construction industry. The high demand for skilled workers has led to steady wage increases. Therefore, employers must offer more competitive salaries to attract skilled workers, which poses a challenge to construction companies.

• Labor shortage

The shortage of skilled workers further exacerbates the challenges, mainly due to the increased difficulty in finding qualified workers and fierce competition. With long construction periods and complex working conditions, many young people prefer jobs in other industries, leading to a shortage of young workers in the construction labor market. In addition, with the decline in fertility rates, the demographic dividend is gradually diminishing. For labor-intensive construction industries, the shortage of workers further accelerates the aging of the workforce. The labor shortage affects the completion efficiency and quality of projects and may also lead to higher construction costs. Therefore, the labor shortage is one of the challenges faced by the development of construction industry.

• Technology upgrade

The development of green buildings places high demands on the entire construction process, including research and development, design, engineering construction, operation, and maintenance. For example, developing green buildings is one of the future trends in the construction industry, and achieving green building goals requires advanced industrial manufacturing technology, production technology, etc. However, the technology of most companies is still relatively backward, and for the construction industry, strengthening necessary technological transformation in the future has become a challenge.

• capital barriers

The construction industry requires a large amount of capital, including paying large sums in advance, securing guarantees, having net assets, and sufficient cash flow. It is an important barrier for new entrants, as it is crucial for meeting qualification requirements and the smooth operation of projects. Generally speaking, the financial capability of bidders is an important selection criterion for public bidding. New entrants lacking sufficient funds and cash flow find it difficult to undertake construction projects.

• Professional and technical barriers

The industry requires expertise and skills in various fields such as civil engineering, structural engineering, mechanical engineering, and water supply and drainage systems. Contractors are expected to have rich experience and practical abilities to handle technical challenges and complex projects, thus forming a high level of professionalism and technical barriers. To maximize the ability of construction companies to undertake different types of engineering projects, they must possess various professional knowledge and qualifications.

• Good reputation and track record

Brand reputation and past performance play a significant role in the successful operation of contractors in the construction industry. Their good past performance records and reputation are seen as clear endorsements of their construction quality and contractual capabilities, which is attractive to their customers. In addition, with the continuous reform of credit management systems in the construction industry, the importance of reputation and good past performance is expected to further increase. Mature construction companies with a good reputation have an advantage in obtaining projects and attracting customers, making it challenging for new entrants in market competition.

• qualification barriers

Construction contractors must hold relevant licenses or qualifications to prove their professional skills in undertaking construction projects of the relevant type. General contractors must obtain the required qualifications approved by the Ministry of Housing and Urban-Rural Development and local government departments to undertake construction projects in China. In addition, they must obtain a certain level of reputation to ensure their ability to fulfill contractual obligations.