Good News on Listing | Frost & Sullivan Assists Zhi Xin Group Holdings Limited to Successfully List on the Hong Kong Stock Exchange (2187.HK)

Zhixin Group Holdings Limited (hereinafter referred to as 'Zhixin') successfully listed on March 26, 2021, with an issue of 187 million shares at an issue price of HK$1.5 per share, raising approximately HK$280 million. Frost & Sullivan (Frost & Sullivan, hereinafter referred to as 'Frost & Sullivan') provided exclusive industry advisory services for Zhixin'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 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.

Raw material suppliers include miners, manufacturers, distributors, and traders. The raw material industry is highly fragmented, and there are no dominant industry participants in the market, thus attracting different market players such as state-owned enterprises, listed and private companies, and even individual industrial and commercial households.

The midstream mixing plant and prefabricated concrete component manufacturer plays an important role in the value chain due to its capital, technology, production, storage, and logistics capabilities, which meet the high requirements of downstream industries and ensure the provision of safe, durable, environmentally friendly, and cost-effective concrete-related products.

Concrete is a widely used composite building material, generally made by mixing cement, aggregates (including sand and gravel or crushed stone), water, and admixtures to form a gel. Before it is cured and hardened into a stone-like material over time, it can be poured into any desired shape. Hardened concrete has high compressive strength, durability, wind resistance, water resistance, and is non-combustible, making it widely used in buildings, bridges, highways, retaining walls, dams, canals, docks, and other structures. Commercial ready-mixed concrete (also known as ready-mixed concrete) refers to concrete mixed at a central mixing plant and transported to construction sites.

The output of ready-mixed concrete in Fujian Province has maintained a steady growth over the past five years, increasing from about 60,600,000 cubic meters in 2015 to about 81,100,000 cubic meters in 2019, with a compound annual growth rate of about 7.6%. According to data from the Ministry of Civil Affairs of China, Xiamen is the sub-provincial city with the highest population density in Fujian Province, and its output of ready-mixed concrete has exceeded that of the province, increasing from about 10,500,000 cubic meters in 2015 to about 14,300,000 cubic meters in 2019, with a compound annual growth rate of about 8.0%. It is expected that the output of ready-mixed concrete in Fujian Province and Xiamen City will continue to grow, reaching 105,600,000 cubic meters and 20,000,000 cubic meters respectively by 2024.

The sales value of the ready-mixed concrete industry in Fujian Province and Xiamen City has continued to grow over the past few years, reaching RMB 366 billion and RMB 7.5 billion in 2019 respectively. The rapid growth is due to rising raw material prices, which have led to an increase in the prices of ready-mixed concrete in Fujian Province and Xiamen City. In addition, the sales value of the ready-mixed concrete industry in Fujian Province and Xiamen City is expected to maintain sustainable growth and reach RMB 562 billion and RMB 136 billion in 2024 respectively, with compound annual growth rates of about 9.0% and 12.7%.

The ready-mixed concrete market in China is highly fragmented, with the top five manufacturers accounting for approximately 9.1% of the market share in terms of output in 2019. In 2019, the Group accounted for approximately 0.04% of the ready-mixed concrete market in China with an output of about 1,034,000 cubic meters.

In 2019, in terms of the production of ready-mixed concrete for commercial use, the market scale of ready-mixed concrete for commercial use in Fujian Province and Xiamen City accounted for approximately 3.2% and 0.6% of the total Chinese market respectively.

The ready-mixed concrete market in Xiamen is relatively concentrated, with the top five manufacturers accounting for about 26.6% of the market share by output in 2019. In 2019, our group was the largest ready-mixed concrete manufacturer in Xiamen by output, producing approximately 1,034,000 cubic meters, accounting for about 7.2% of the market share that year.

Prefabricated concrete components are factory-made building products used in modern prefabricated buildings, which can be assembled on-site. Prefabricated buildings are a comprehensive demonstration of building industrialization and can be divided into three main categories based on the type of main structural components, including prefabricated concrete buildings, prefabricated steel structure buildings, and prefabricated timber buildings. Prefabricated concrete buildings are the main model of prefabricated construction in China, with advantages such as low cost and wide applicability, and are expected to maintain a leading position among prefabricated building structural options.

Prefabricated buildings reflect the specialization, standardization, and industrialization required for the modernization of the construction industry. Compared with traditional construction methods, prefabricated building methods significantly improve construction efficiency and quality, while also reducing labor costs and environmental pollution.

As a key focus of the development of building industrialization, prefabricated buildings in China have seized the opportunity for explosive growth. Under the guidance of development plans and incentive policies implemented by the central government, prefabricated buildings in many provinces and cities, including Fujian Province and Xiamen City, have begun to grow explosively.

In 2016, the State Council issued the 'Guiding Opinions of the General Office of the State Council on Vigorously Developing Prefabricated Buildings', setting clear goals and aiming to make prefabricated buildings account for 30% of all new construction area in China within 10 years. After the issuance of these opinions, many provincial and municipal governments subsequently formulated their own prefabricated building development plans. For example, the 'Implementation Opinions of the General Office of the Fujian Provincial People's Government on Vigorously Developing Prefabricated Buildings' were introduced in 2020 with the development goal of increasing the new prefabricated building area to more than 20% of the total new construction area in Fujian Province. According to the '13th Five-Year Development Plan for the Construction Industry in Fujian Province', Xiamen's target for 2020 is 25%.

From 2015 to 2019, the new construction area of prefabricated buildings in Fujian Province increased from about 900,000 square meters to 13,400,000 square meters, with a compound annual growth rate of about 96.4%. With the support of favorable government policies and plans, it is expected to reach 46,000,000 square meters by 2024. The penetration rate of prefabricated buildings in Fujian Province increased from about 1.0% in 2015 to 15.0% in 2019, and is expected to reach about 33.0% by 2024.

The total output of prefabricated concrete components in Fujian Province increased from about 22,400 cubic meters in 2015 to about 548,000 cubic meters in 2019, with a compound annual growth rate of about 122.4%. Meanwhile, the total output of prefabricated concrete components in Xiamen City increased from about 4,500 cubic meters in 2015 to about 95,000 cubic meters in 2019, with a compound annual growth rate of about 114.4%.

With the support of multiple government policies issued by the central and provincial governments of China, the prefabricated concrete component industry in Fujian Province and Xiamen City will experience further growth. By 2024, the total production volume will reach approximately 4,166,200 cubic meters and about 530,000 cubic meters respectively.

In 2019, in terms of the sales value of prefabricated concrete components, the market scale of prefabricated concrete components in Fujian Province and Xiamen City accounted for about 3.6% and 0.5% of the total Chinese market respectively.

The sales value of prefabricated concrete components in Fujian Province and Xiamen City increased rapidly to RMB 114.39 million and RMB 1.669 billion in 2019 respectively. The compound annual growth rates from 2015 to 2019 were about 131.2% and 126.0% respectively. The General Office of the People's Government of Fujian Province has set a goal that by 2025, the total area of prefabricated buildings in Fujian Province will account for more than 35% of the total new construction area. It is expected that the sales value of prefabricated concrete components in Fujian Province and Xiamen City will further increase to RMB 118.126 billion and RMB 14 billion by 2024 respectively.

The deviation between the compound annual growth rates of production and sales value from 2019 to 2024 was mainly due to the increase in the unit price of prefabricated concrete components, resulting in a higher growth rate in sales value compared to production.

In 2019, in terms of the production volume of prefabricated concrete components, the market sizes of prefabricated concrete components in Fujian Province and Xiamen City accounted for about 3.0% and 0.5% of the total Chinese market respectively.

The prefabricated concrete component market in Fujian Province is relatively concentrated, with the top five manufacturers accounting for about 40.6% of the market share in terms of production in 2019. The prefabricated concrete component manufacturers in Fujian Province mainly operate in major cities such as Fuzhou, Xiamen, Zhangzhou, and Quanzhou. In 2019, the Group became the largest prefabricated concrete component manufacturer in Fujian Province with an output of about 84,400 cubic meters and revenue of RMB1.44 billion, accounting for about 15.4% and 12.6% of the market share respectively for that year.

The prefabricated concrete component market in Xiamen is highly concentrated, with the three major manufacturers accounting for 100.0% of the market share in terms of output in 2019. In terms of output and revenue, the group is the largest manufacturer of prefabricated concrete components in Xiamen. As of 2019, the group's output and revenue reached 84,400 cubic meters and RMB 1.44 billion respectively, accounting for approximately 88.8% and 86.3% of the market share.

Frost & Sullivan has rich research experience in the construction materials industry, assisting well-known enterprises in successfully accessing the capital market. Successful listing cases include Guanglian Engineering (1413.HK), Raffles Interior (1376.HK), New Wei Engineering (8616.HK), Yinglan Group (1162.HK), Jianzhong Construction (0589.HK), Tailinke Construction (6193.HK), Yuanda Residential Construction (2163.HK), Aobang Construction (1615.HK), Aoneng Construction (1183.HK), Hebei Construction (1727.HK), Yikang Tai (8445.HK), Progressive Development (1667.HK), ECI Technology (8013.HK), Lee's Enterprise (2266.HK), Aidev Construction (6189.HK), Yuyan Development (8423.HK), and others.