上市捷报丨沙利文助力GC Construction成功赴港上市(1489.HK)

GC Construction Holdings Limited (Stock Code: 1489.HK) successfully listed on the main board of the Hong Kong capital market on October 10, 2022. The group is a muck and grout contractor in Hong Kong, with its main muck and grout projects including paving, tile laying, bricklaying, platform construction, and terrazzo work. Frost & Sullivan (hereinafter referred to as 'Frost & Sullivan') provided exclusive industry advisory services for GC Construction Holdings Limited's listing in Hong Kong, and we hereby extend our warmest congratulations on its successful listing.

GC Construction Holdings Limited (hereinafter referred to as 'GC Construction') was successfully listed on October 10, 2022. The issue price per share was HK$0.50, raising a net amount of approximately HK$92.1 million.

During the process of listing in Hong Kong this time, 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, sponsor, and other professional intermediary institutions in completing the writing of relevant parts of the prospectus (such as overview, competitive advantages and strategy, industry overview, business, and other important chapters), helping the issuer complete communication 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 industry-related issues from the Hong Kong Stock Exchange.

Mud and Water Engineering Definition

Masonry work usually involves the use of dry building materials mixed with water. The scope of masonry work generally includes ceiling, floor and wall tiling, interior and exterior brickwork, stonemasonry, marble work, painting, and other indoor and outdoor renovations, decorations, and repairs to buildings. Masonry contractors can also provide masonry-related supporting services such as cleaning, platform smoothing, caulking, washing of tiles and stones, and on-site logistics services. The demand for masonry work is related to the construction, renovation, maintenance, addition, and alteration of major residential (such as private residential buildings and public housing) and commercial sectors (such as hotels, office buildings, retail stores, and shopping centers), industrial buildings, government buildings, community facilities, transportation, and public infrastructure.

Hong Kong's muck engineering market

The total value of muckwork projects in Hong Kong increased from approximately HK$95.75 million in 2016 to approximately HK$113.352 billion in 2021, with a compound annual growth rate of about 3.4%. The reason is the increase in housing supply, as well as the continuous expansion of the commercial sector (including offices and hotels) and the residential sector. The decline in the total value of muckwork projects in 2020 was mainly due to the economic downturn in Hong Kong caused by the outbreak of COVID-19 and further disruption to the construction industry.

The government has simplified and accelerated the process of changing land uses, which may lead to an increase in Hong Kong's land supply in the short term. New development projects such as the North Kowloon/Fung Ling North New Territories, Hung Hom/Sham Shui Po New Territories, and Yuen Long South New Territories are underway, with more than about 1,200 hectares of land set for release into the Hong Kong market in the future. On the other hand, urban redevelopment (such as hotel renovations) continues to drive growth in the Hong Kong construction market. Therefore, it is expected that the total value of muck work will increase from about HK$121 million in 2022 to about HK$156 million in 2026.

Note: Other refers to industrial and warehousing services.

Source: Frost & Sullivan report

In 2021, the total value of masonry works in the residential building segment accounted for approximately 66.0% of the total masonry works value. Driven by the completion of large-scale residential real estate projects such as Kwun Tong Kai Hui and Admiralty Malibu, the total market value of masonry works in the residential building segment increased from about HK$62.237 million in 2016 to about HK$74.812 million in 2021, with a compound annual growth rate of about 3.7%. With the support of favorable housing development policies, it is expected that the residential segment will grow steadily in the coming years.

As stated in the 2020-21 land sales plan, 15 private residential sites (including Area 24 and 25 of Gudong, Yongye Road, Site 1 and Site 2 of Area 4E of Kip Mei Drive) can provide approximately 7,530 units. According to the "Long-Term Housing Strategy" released in 2020, the forecast total housing supply target for the ten-year period from 2021-22 to 2030-31 is about 430,000 units, with upper and lower limits ranging from 451,000 units to 405,000 units respectively. In particular, the government will maintain a public-private housing ratio of 70:30 for the next decade from 2021-22 to 2030-31.

Therefore, among the total target of 430,000 units of housing supply, the public housing supply target will be 301,000 units, and the private housing supply target will be 129,000 units. As a result, the total value of masonry works in the residential building segment is expected to increase from about HK$80 million in 2022 to about HK$1,027.09 billion in 2026, with a compound annual growth rate of about 6.4%.

On the other hand, the commercial building segment accounted for 27.2% of the total value of muck and water works in 2021, with a compound annual growth rate of 3.6% from 2016 to 2021, increasing from approximately HK$25.852 billion in 2016 to HK$30.832 billion in 2021, mainly due to the development of new central business districts (i.e., Kowloon Development Area, Kwun Tong, and Kowloon Bay Business District). As stated in the 2020-21 land sale plan, six commercial sites will provide approximately 833,700 square meters of floor area. In particular, the prime commercial land located in Central, namely the Central New Harbour No. 3 site, covers an area of approximately 4.8 hectares (equivalent to about 516,322 square feet) and was sold in 2021. The total investment for the project could potentially range from HK$60 billion to HK$65 billion. Therefore, the total value of muck and water works for the commercial building segment is expected to increase from approximately HK$32.92 million in 2022 to HK$43.082 million in 2026, with a compound annual growth rate of about 7.0%.

Source: Frost & Sullivan report

The private sector contributes the vast majority of the total value of muckwork projects in Hong Kong. From 2016 to 2021, mainly due to the establishment of several large-scale real estate properties in Kowloon City and Sai Kung, the total value of muckwork projects in the private sector increased from about HK$59.93 million in 2016 to about HK$69.83 million in 2021, with a compound annual growth rate of about 3.1%. The urban development in Tuen Mun and Kwun Tong also drove market demand for muckwork projects during the same period. Thanks to the increase in the number of actual public housing production units (i.e., the completion of Liancui Village, Haiying Village, Xintian Village, Kwai Kui Village, Yingdong Village and Mandong Village), the total value of muckwork projects in the public sector increased from about HK$35.82 million in 2016 to about HK$43.53 million in 2021, with a compound annual growth rate of about 4.0%.

As stated in 'Hong Kong 2030: Planning the Long-Term Vision and Strategies', the construction of the new Northeast New Territories development area in Kowloon North, Fanling North and Ping Yan is expected to provide more than 50,000 residential units in the public and private sectors. It is expected that several private residential properties will be completed within the next few years at Ho Man Tin and Cheung Sha Wan (the development projects of Ho Man Tin Harbour Station and Westinghouse Street), with the total value of private construction projects continuously increasing, reaching approximately HK$98.651 million in 2026, with a compound annual growth rate of about 7.0% from 2022 to 2026.

The Chief Executive proposed in the 2020 Policy Address that the long-term housing strategy launched in 2020 aims to provide a total of about 301,000 public rental housing units over the ten-year period from 2021-22 to 2030-31. With continuous government investment in infrastructure and an estimated annual expenditure of over HK$100 billion over the coming years, the total value of mud and water works in the public sector is expected to increase from about HK$45.75 million in 2022 to about HK$57.442 million in 2026, with a compound annual growth rate of about 5.9%.

Key factors driving the growth of the Hong Kong mud market

Sustainable supply of residential units

In 2021, the total value of masonry works in the residential building segment accounted for more than 60% of the total masonry works value. From 2016 to 2021, the Housing Authority's actual public housing supply and the completion of private units were registered at 108,199 units and 102,271 units respectively, driving the growth of the Hong Kong masonry works market.

Looking ahead, the government's policies aimed at increasing land supply and housing are expected to bring sustained demand for construction projects in the residential sector. The development of new territories in the northeast of Kowloon North, Fanling North, and Ping Yan is expected to provide more than 50,000 public and private housing units. According to the Long-Term Housing Strategy released in 2020, the total housing supply target for the ten-year period from 2021-22 to 2030-31 is about 430,000 units, with upper and lower limits ranging from 451,000 units to 405,000 units. In particular, the government will maintain a public-private housing ratio of 70:30 for the next decade from 2021-22 to 2030-31.

Therefore, among the total target of 430,000 housing units, the public housing supply target will be 301,000 units, and the private housing supply target will be 129,000 units. In addition, a number of large-scale plans and projects, including the 'Tomorrow's Greater Yu Islands Vision' as well as the redevelopment areas in North Gudong/Pinglin North and Pingyin/Taigu Ling, are expected to provide 310,000 to 450,000 residential units. Furthermore, several private residential properties under construction are expected to be completed in the coming years, such as the development projects located at Ho Man Tin MTR Station and Westing Street. Therefore, the increasing supply of residential units will promote the continuous demand for masonry works between 2022 and 2026.

Expansion of commercial districts and business parks

From 2016 to 2021, the Commercial Building Division has been one of the main contributors to the overall growth of the Hong Kong's construction market. According to the Surveying and Valuing Department of Property, the number of completed private office buildings is expected to increase to 275,300 square meters in 2022, while the number of completed private commercial projects is expected to rise to 173,300 square meters in 2022. The growth is mainly due to the "Launch Kowloon East" plan introduced by the government to develop new central business districts near the Kowloon East region. The plan aims to provide a large amount of office space and community facilities to support the long-term development of Hong Kong's economy. The "Launch Kowloon East" plan also includes the Kai Tak Development Area and Kai Tak Cruise Terminal project, which includes the development of cruise terminals, hotels, residences, commercial developments, as well as entertainment and public facilities, creating a vibrant and diversified community for the Kowloon East Central Business District.

As of October 2020, the existing commercial building supply in Kowloon East has reached approximately 2.9 million square meters, with a potential increase of 4.1 million square meters in the future. The continuous expansion of commercial activities, new business districts, residential and entertainment facilities, as well as the development of public facilities will bring potential business opportunities to muck engineering contractors and support the growth of the muck market. In addition, the government's continuous investment in infrastructure (estimated annual expenditure over the next few years to exceed HK$100 billion according to the Chief Executive's 2020 Policy Address), will increase demand for muck engineering.

Customer requirements and industry standards are increasing

Driven by the improvement in living standards and income levels of Hong Kong residents, customers are more inclined to choose high-quality building materials and construction projects. As a result, the demand for the quality and cost-effectiveness of masonry work has risen to meet the expectations of downstream customers. In addition, with the popularization of the concept of sustainable development in construction projects, property developers and owners usually expect buildings and facilities to be more durable, with as few defects, future maintenance costs, and troubles as possible. This is expected to set higher standards for the material quality, work processes, and craftsmanship of masonry projects. It has become an important trend for homebuyers to hire engineering supervisors to inspect newly purchased apartments. As property developers strive to maintain their industry reputation, the demand for high-quality masonry work has increased to meet indoor design and inspection requirements.

Urban renewal plan

According to the Urban Renewal Authority's data, by 2046, there will be 326,000 private housing units in the whole Hong Kong with a building age of 70 years or more. The dilapidated urban areas urgently need to be revitalized, especially those located in the core areas of dense buildings such as Sham Shui Po and Kowloon City. As stated in the Urban Renewal Authority's 2019-20 annual report, there are more than 10,000 buildings in Hong Kong with a building age of 50 years or more, which are expected to reach 28,000 by 2046. To address the issue of building age, the government has increased its target of 10,000 transitional housing units within the next three years to 15,000 units to alleviate the pressure on families living in uncomfortable living environments.

In addition, as the protection of these old buildings through proper maintenance and repair works under the Comprehensive Support Plan for Building Rehabilitation and the Major Action 2.0 on Building Renewal is increasingly valued, in the long run, there will be an increasing demand for property renovation and masonry works, such as paving and tiling projects. Therefore, the reconstruction works under urban renewal projects are expected to drive demand for masonry works.

Frost & Sullivan has extensive research experience in the construction industry, assisting well-known enterprises in successfully listing on capital markets. Successful listings include: Fengcheng Holdings (2295.HK), Yinghui Holdings (2195.HK), Zhi Xin Group (2187.HK), Guanglian Engineering (1413.HK), Dehe Group (0368.HK), Raffles Interior (1376.HK), New Wei Engineering (8676.HK), Yinglan Group (1162.HK), Jianzhong Construction (0589.HK), Shengxing Holdings (1472.HK), Weny Group (1802.HK), Deyi Holdings (9900.HK), Tailinkejian (6193.HK), Fengcheng Holdings (8216.HK), WMCH Global (8208.HK), Huaji Global (2296.HK), Wan Ya Enterprise Holdings (8173.HK), Home Control (1747.HK), China Tianbao (1427.HK), Beng Soon (1987.HK), Yuanda Residential Construction (2163.HK), Anle Engineering (1977.HK), Kun Group (924.HK), Pujiang International (2060.HK), Lejias Holdings (1867.HK), Weihong Group Holdings (8522.HK), Pipeline Engineering (1865.HK), Hon Corp (8259.HK), Hengyi Holdings (1894.HK), Bao Yan Holdings (8601.HK), Aobang Construction (1615.HK), Renhe Technology (8140.HK), Wanshun Group (1746.HK), Liang Zhitian (2262.HK), Tangji (8305.HK), Rongfeng Group Asia (8526.HK), Deyi Holdings (8522.HK), Aoneng Construction (1183.HK), Yingde Holdings (8535.HK), Hengyu Group (2448.HK), Xianeng Group (1730.HK), WT Group (8422.HK), Jianpeng Holdings (1722.HK), Hebei Construction (1727.HK), Shouyi Holdings (2227.HK), Yinglan Group (8470.HK), Yikangtai (8445.HK), Wantong Garden (8199.HK), Haobo International (8431.HK), Progressive Development (1667.HK), Yonglian Development (8423.HK), ECI Technology (8013.HK), Shanle International (1660.HK), Li's Enterprise Holdings (2266.HK), Zhisheng Group (8370.HK), Aisuo Holdings (8341.HK), Aidewei Construction (6189.HK), Kuangwenji (8023.HK), Fengsheng Electromechanical (0331.HK), Konoved (1206.HK), Red Star · Midea (1528.HK).

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