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One Recent IPO That You May Have Overlooked

With a flurry of IPOs being listed in the past 2 months, one small growing company seems to have been overshadowed by its larger counterparts like iFast Corporation Ltd (SGX:AIY) and Keppel DC Reit (SGX:AJBU). This company is none other than Huationg Global (SGX: 41B).

Listed on 9th December 2014, Huationg is a civil engineering firm with over 30 years of experience handling mainly public sector projects such as the Downtown Line, Circle Line, Marina Coastal Expressway and more.

Just like a burger requires many different ingredients, the whole construction sphere requires various types of services including design, excavation, piling works and more. Huationg stands out by being a specialised excavating firm, clearing the earth for other contractors to perform their other roles.

That said, its revenue does not only come its civil engineering division although it contributes the lion share of revenue — 73.4%. With an arsenal of more than 500 trucks and construction equipment, Huationg also leases them out for recurring income, which accounts for about 22% of the company’s revenue. The remaining of 4.6% stems from the sale of construction materials such as recycled concrete aggregates and liquefied soil stabilizer.

Looking at the Strengths of Huationg

  1. Strong Financials

huationg financial summary

Sourced from the IPO Prospectus

As seen from the chart above, revenue has been growing at a healthy clip from FY2011 to FY2013. The dip in net profits during FY2012 can be attributed to a higher percentage jump in costs of sales and services compared to the increase in revenue.

Nevertheless, unaudited HY2014 results shows that the company is still performing well, with revenue and net profits up 27.97% and 50% respectively compared to that of HY2013.

  1. Growing the “Sale of Construction Materials” segment

CEO Mr. Patrick Ng believes there is room for more growth in the “sale of materials” business, especially Liquefied soil stabilizer (LSS). The material’s highly fluid nature and ability to strengthen building structures after it dries can help to reduce construction time and is customizable to different project’s needs. It intends to promote and increase the use of LSS in their upcoming projects in Singapore and enter into strategic alliances with established players in Malaysia to market the use of LSS.

  1. Increased demand for Civil Engineering services

According to the prospectus, Singapore’s civil engineering demand is projected to reach S$9.6 bilion for years 2015 and 2016 on the back of expansion of MRT network, road developments and underground works. Naturally, the company will benefit from the increased demand of civil works.

Nevertheless, the company also wishes to up its ante by attaining the A1 grading, allowing it to submit tenders of any value as compared to a limit of S$90 million currently. Lastly, the firm will focus mainly on public sector projects which are typically larger in scale and maximize the utilization of their resources.

Foolish Takeaway

All in all, while there are several positive things going for Huationg, one should not forget that there are other construction & engineering players in the same sector, including Hock Lian Seng Holdings Limited (SGX: J2T) and Keong Hong Holdings Limited (SGX: 5TT). A slowdown in Singapore’s residential market might bring about fewer projects on the plate for everybody, and may lead to fiercer competition going forward. Thus, one may probably need to understand the construction industry well in order to sieve out the good companies from the fair ones.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.