Good News on Listing | Frost & Sullivan Assists Fengcheng Holdings Limited in Successfully Switching from the Growth Enterprise Market to the Main Board (2295.HK)

Fengcheng Holdings Limited (hereinafter referred to as 'Fengcheng Holdings') successfully listed on the Hong Kong Stock Exchange on December 31, 2021. Frost & Sullivan provided exclusive industry advisory services for the listing of Fengcheng Holdings, and hereby extends its warmest congratulations on its successful listing.

During the process of listing in Hong Kong, 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 and investment banks with the drafting of relevant parts of the prospectus (such as overview, competitive advantages and strategy, industry overview, business, and other important sections), facilitating communication between the company and 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, etc.

According to the Frost & Sullivan report, the value chain of the Hong Kong slope engineering market includes upstream government departments and property developers as slope owners, midstream engineering consulting agencies and contractors, as well as downstream raw material and equipment suppliers. Government departments such as the Civil Engineering Department conduct regular studies on every slope within Hong Kong according to the Long-Term Control Plan for Landslide Prevention and Control ("Control Plan"), and tender to engineering consulting agencies and slope engineering contractors when it is necessary to carry out landslide prevention and control works. On the other hand, the Buildings Department takes enforcement action against private slope owners to maintain the safety of private slopes. Generally, the Civil Engineering Department first appoints engineering consultants with expertise in landslide prevention and control research.

Contractors generally employ subcontractors with specialized licenses or expertise in specific areas (including slope engineering) to carry out site works under their contracts. The criteria for selecting contractors are mainly based on past performance records, business relationships, and capital requirements. Slope engineering subcontractors are responsible for procuring suitable raw materials and equipment from suppliers for their slope projects.

The revenue from slope projects in Hong Kong (public and private combined) increased from approximately HK$22.673 million in 2015 to approximately HK$27.115 million in 2018, with public slope projects being the main source of income. Affected by social unrest that broke out in 2019 and 2020, as well as the 2019 coronavirus disease outbreak, the number and value of government-initiated prevention and control program projects were significantly reduced. Public slope revenue plummeted to approximately HK$20.896 million in 2019 and further decreased to HK$19.154 million in 2020. Since early 2021, the 2019 coronavirus disease outbreak in Hong Kong has remained relatively stable, and the government's various efforts are conducive to effectively controlling the epidemic. In the long run, it is expected that the outbreak of the 2019 coronavirus disease will have limited impact on the demand for the slope engineering industry in Hong Kong due to: (i) The government proposed in its fiscal budget for the 2021-2022 financial year an increase in appropriations for slope safety and civil engineering standards from HK$4.169 million in 2019 to HK$4.417 million in 2021, with a compound annual growth rate of about 2.9%. The plan aims to carry out civil engineering control on private and public development projects, register slopes, implement prevention and control programs, provide emergency services for mudslides, survey severe mudslide situations, establish civil engineering standards, promote public education, and provide slope safety advice to private slope owners. Therefore, the government's efforts in finance and strategy are increasing day by day, and it is expected to drive the slope engineering industry; (ii) The government estimates that the number of new slopes registered in 2021 will reach 450, compared to 440 and 429 in 2019 and 2020 respectively, and the continuous registration of new slopes is expected to help consolidate the development of the slope engineering industry; and (iii) Major construction projects in Hong Kong such as roads, housing estates, shopping malls, and offices that are currently under preparation for construction in the coming years are unlikely to be affected. Coupled with the continuous improvement of safety standards for artificial slopes and natural hillsides, it is expected that future demand for slope engineering will gradually recover. According to forecasts, the estimated revenue from slope projects in Hong Kong will increase from approximately HK$23.068 million in 2020 to approximately HK$28.395 million in 2025, with a compound annual growth rate of 4.2%.

According to the Frost & Sullivan report, the development of the slope engineering industry is closely related to the overall construction industry, and the slope engineering industry is expected to benefit from the following market drivers:

Promotion of the Long-Term Plan to Prevent and Control Landslides (Prevention and Control Plan)

The prevention and control plan launched by the Department of Civil Engineering in 2010 is considered one of the main drivers of the slope engineering market in Hong Kong. The plan regularly monitors the condition of all slopes in Hong Kong to reduce the associated risks of man-made slopes and natural hillsides. Since the launch of the prevention and control plan, the Department of Lands and Works has invested approximately HK$252 billion in research and engineering related to preventing mudslides; more than 6,140 government man-made slopes have been upgraded, over 330 natural slope prevention projects have been implemented, and safety screening studies and assessments have been carried out on more than 6,100 private man-made slopes. With the continuous increase in population and more buildings located beside steep slopes, it is expected that the government will intensify the promotion of the prevention and control plan to ensure the safety of all man-made slopes and natural hillsides. Given the government's continuous investment in slope safety, it is expected that the demand for slope engineering will continue to rise.

Demand for slope engineering in large-scale public infrastructure projects

Given the mountainous terrain and accelerated infrastructure development in Hong Kong, there is a huge demand for slope engineering. In the 2020 Policy Address, the Government recognized that infrastructure investment is beneficial to economic development and should not be reduced during periods of economic downturn. Projects such as the extension of the MTR, new roads, the transformation areas of Kwun Tong, Kowloon Bay and Kai Tak, as well as the South Island South Scheme, all require slope engineering and maintenance research, such as the development of retaining walls and cutting or improving road works, slopes for railway and hillside building development. Research ensures sufficient surface drainage, and the stability of construction is also a key focus for slope safety in new road projects, railways, and new building sites. Therefore, the Government committed in the 2020 Policy Address to spend over HK$100 billion per annum over the next few years, which will be beneficial to the development of the slope engineering industry.

The supply of net floor area for residential buildings and podium conversions continues to rise

The slope stabilization and reinforcement works are commonly applicable to existing and new residential property sites. Therefore, the Hong Kong slope engineering market has always benefited from the continuous supply of public and private housing, which is driven by government initiatives and supporting policies, as well as the active participation of private property developers. According to the Long-Term Housing Strategy as of December 2020, the total housing supply target for the period from 2021 to October 2030 is about 430,000 units, with a public/private ratio of 70:30, including 210,000 public rental housing units and 91,000 subsidized sale units, to meet the growing needs of Hong Kong's low- and middle-income families. As planned in the Chief Executive's 2020 Policy Address, the Long-Term Housing Strategy Annual Progress Report published by the Transport and Housing Bureau has identified 330 hectares of land to provide 316,000 housing supply units, to meet the needs for the next 10 years (i.e., from 2021 to 2030). This large area of land mainly comes from reclaimed land and brownfield development. The Housing Authority has also stated that the net floor area of public buildings may be calculated by using site leveling techniques that involve chiseling away rocks, taking into account the area previously occupied by slopes, which helps to meet the growing demand for slope rehabilitation. For the private sector, the government envisages an average annual housing output of about 19,600 units over the next five years from 2020 to 2025, which is significantly higher than the average output of about 15,600 units in the past five years from 2015 to 2019. Therefore, it is expected that the number of new man-made slopes and slope safety measures (such as retaining walls, reinforced concrete protective nets, and slope stabilization works) will increase due to new housing development projects, thereby stimulating demand for slope engineering.

According to the Housing Department's data, more than 200 contractors are registered on the 'Specialist Contractors' register of the Hong Kong Housing Department for site grading works. The Hong Kong slope engineering market is mainly concentrated among five major participants, accounting for 50.5% of the market's total revenue. According to the Development Bureau's data, as at the latest practicable date, 41 recognized contractors were eligible to participate in bidding for public landslide prevention and repair works involving slopes or retaining walls. The revenue of Fung Cheng Holdings for 2020 was approximately HK$2.76 million, accounting for 12.0% of the Hong Kong slope engineering market's revenue. Fung Cheng Holdings is the third largest participant in the Hong Kong slope engineering market for 2020 (by revenue).

Frost & Sullivan has extensive research experience in the construction industry, assisting well-known enterprises to successfully enter the capital market. Successful listing cases include: 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), Tailinke Construction (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), Far East Group (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), Yungai Development (8423.HK), ECI Technology (8013.HK), Shanle International (1660.HK), Lishi Enterprise Holdings (2266.HK), Zhisheng Group (8370.HK), Aisuo Holdings (8341.HK), Aidewei Construction (6189.HK), Kuangwenji (8023.HK), Fengsheng Electromechanical (0331.HK), Kono Weide (1206.HK), Red Star&Mercer (1528.HK), and others.