Good News on Listing | Frost & Sullivan Assists Dafeng Equipment Service Co., Ltd. to Successfully List on the Hong Kong Stock Exchange (2153.HK)

Dafeng Equipment Service Co., Ltd. (hereinafter referred to as 'Dafeng Equipment') successfully listed on January 13, 2021, with a global issue of 372.72 million shares at an offering price ranging from HK$1.50 to HK$1.96, raising approximately HK$560 million to HK$730 million. Frost & Sullivan (Frost & Sullivan, hereinafter referred to as 'Frost & Sullivan') provided exclusive industry advisory services for the listing of Dafeng Equipment, and hereby warmly congratulate them on their successful listing.

During the Hong Kong listing process, Frost & Sullivan mainly undertook the following tasks: clarifying the company's accurate and objective understanding of 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), helping the company communicate with the Hong Kong Stock Exchange and investors, assisting investors in quickly understanding the market ecosystem and competitive landscape, and assisting the company in completing various feedbacks from the Hong Kong Stock Exchange on industry-related issues.

Tower cranes are a type of construction hoisting equipment widely used in the construction industry and other sectors, mainly for vertical hoisting, moving building materials, and installing building components. Generally, tower cranes require a large working space, and using tower cranes can greatly reduce the labor intensity of construction contractors, improve construction efficiency, and shorten the construction period of building projects.

Tower crane service refers to the one-stop hoisting service provided by tower crane service providers for construction contractors at the construction site of projects. The one-stop hoisting service usually includes the design, installation, operation, maintenance, and dismantling of tower cranes. During the construction process, construction contractors need to use tower cranes to transport a large amount of building materials from the ground to designated heights and locations. Due to inconvenient transportation and high operating and maintenance costs, construction contractors usually sign contracts with tower crane service providers and pay service fees to obtain hoisting services.

The tower crane manufacturing and supply industry is upstream of the tower crane service industry. Generally, tower crane service providers purchase towers from upstream manufacturers or lease towers from tower crane suppliers (including tower crane manufacturers, distributors, and other tower crane service providers). The construction industry is the downstream market for tower crane service providers.

Driven by China's stable economic growth and strong construction demand, China's tower crane service market has developed rapidly in recent years. The revenue of China's tower crane service market increased from approximately 702 billion yuan in 2015 to approximately 1016 billion yuan in 2019, with a compound annual growth rate of 9.7% from 2015 to 2019. Looking ahead, with the continuous and stable development of the construction industry, the acceleration of urbanization, and the government's strong promotion of prefabricated buildings, the revenue of China's tower crane service market is expected to grow at a compound annual rate of approximately 7.9% over the next five years, reaching approximately 1488 billion yuan in revenue by 2024.

In addition, the utilization rate of tower crane service providers is a quantitative indicator used in the tower crane service market to evaluate the usage of tower cranes over a period of time. Generally, the utilization rate equals the total tonnage of tower cranes generating revenue on construction sites divided by the total tonnage of tower crane service providers in operation during that period. In 2019, the average utilization rate of tower cranes in China's tower crane service market was about 64.0%.

● Sustainable development of the construction industry:The market demand for tower crane services is closely related to the development of the construction industry. From 2015 to 2019, with investments in infrastructure and real estate construction projects, China's total construction output value increased from about 1.81 trillion yuan to about 2.48 trillion yuan, with a compound annual growth rate of about 8.2%. According to the '13th Five-Year Plan for the Development of the Construction Industry (2016-2020)', the Chinese government aims to achieve an annual growth rate of 7% for China's total construction output value, indicating the government's determination to maintain stable development of the construction industry. In the next five years starting from 2020, the growth rate of China's total construction output value is expected to maintain a compound annual growth rate of 8%, and it is projected to reach about 3.51 trillion yuan by 2024. Therefore, the development of China's construction industry will continue to drive the development of China's tower crane service market.

● Promotion of prefabricated buildings:Prefabricated buildings refer to structures that are assembled on-site using building components and accessories processed and manufactured in factories, which are then transported to the construction site and connected reliably. In recent years, prefabricated buildings have been widely promoted by the Chinese government. According to the 'Guiding Opinions of the General Office of the State Council on Vigorously Developing Prefabricated Buildings and the '13th Five-Year' Action Plan for Prefabricated Buildings' issued by the General Office of the State Council and the Ministry of Housing and Urban-Rural Development, it is expected that the proportion of prefabricated buildings will exceed 15% and 30% by 2020 and 2026 respectively. The assembly of prefabricated buildings involves handling large and heavy building components, which requires much higher lifting capacity and precision than traditional construction methods. At the same time, this will increase the market demand for large and medium-sized tower cranes with lifting capacity exceeding 200 tons per meter. Therefore, the vigorous promotion of prefabricated buildings is expected to further increase the demand for large and medium-sized tower cranes, thereby driving the development of China's tower crane service market.

● Urbanization process:With the steady growth of the Chinese economy and the continuous advancement of urbanization levels, China's urbanization rate is expected to increase from about 60.6% in 2019 to about 68.1% in 2024, promoting continuous growth in construction demand (especially residential buildings), and thereby increasing the demand for tower crane services.

● Fixed asset investment continues to grow:China's fixed asset investment steadily increased from about 5.62 trillion yuan in 2015 to about 6.79 trillion yuan in 2019, with a compound annual growth rate of about 4.8%. The continuous growth of fixed asset investment in China indicates that the market demand for infrastructure construction and real estate construction is increasing. It is expected that fixed asset investment in China will maintain stable growth in the coming years, with a compound annual growth rate of about 4.5% from 2019 to 2024. Since fixed asset investment is highly correlated with the construction industry, the tower crane service market for the service construction industry may further develop.

● Government-led regional development and investment plans:In recent years, the Chinese central government has launched a series of government-led regional development plans as part of the national development strategy. For example, national-level investment plans such as the Belt and Road Initiative, as well as regional development strategies for the integration of Beijing-Tianjin-Hebei, Yangtze River Delta, and Guangdong-Hong Kong-Macao Greater Bay Area. These development plans are expected to further increase infrastructure investment and construction demand in relevant regions of China, thereby promoting the development of China's tower crane service market.

The service market for tower cranes in China is extremely fragmented, with approximately more than 7,000 participants as of the end of 2019. In terms of revenue in 2019, the top five participants in the Chinese tower crane service market accounted for only about 4.0% of the market share.

The main categories of service providers for tower cranes in China include five types of participants: (i) service providers affiliated with state-owned enterprises or construction companies; (ii) private enterprises; (iii) foreign-funded enterprises; (iv) service providers affiliated with tower crane manufacturing companies; and (v) individual service providers.

Dafeng Equipment is China's second-largest tower crane service provider, achieving revenue of approximately 7.051 billion yuan in 2019, with a market share of about 0.7%.

Frost & Sullivan has extensive research experience in the construction industry and leasing services, assisting well-known enterprises to successfully enter the capital market. Successful listing cases include China State Construction Engineering Corporation (0589.HK), Taylor Morrison Construction Group (6193.HK), Far East Horizon (2163.HK), Anle Engineering (1977.HK), CSSC Leasing (3877.HK), Haitong Hengxin (1905.HK), Pujiang International (2060.HK), Lejias Holdings (1867.HK), Weihong Group Holdings (3321.HK), Hon Corp (8259.HK), Aobang Construction (1615.HK), Baiying Leasing (8525.HK), Wanshun Group (1746.HK), Aon Construction (1183.HK), Hengyu Group (2448.HK), WT Group (8422.HK), Jianpeng Holdings (1722.HK), Hebei Construction (1727.HK), Yikang Tai (8455.HK), Inner Mongolia Energy Engineering Corporation (1649.HK), Progressive Development (1667.HK), Haobai International (8431.HK), Aidewei Construction (6189.HK), Bank of China Leasing (1606.HK), Yabigang Leasing (1496.HK), China Energy Engineering Corporation (3996.HK).