We are a construction group based in Tianjin which offers comprehensive construction services. According to the Frost & Sullivan Report, there were 2,547 construction enterprises in Tianjin in 2022, which our Group accounted for a market share of 0.1% in the overall construction market in terms of construction revenue in Tianjin in 2022. We ranked fourth among the private companies engaged in municipal public construction in Tianjin in terms of revenue generated from municipal public construction works in 2022, representing a market share of approximately 0.2%. During the Track Record Period, we primarily engaged in construction business and strove to provide high quality construction services to our customers.
According to the Frost & Sullivan Report, among the 2,547 construction enterprises in Tianjin in 2022, there were only three construction companies which possessed qualifications in both petrochemical engineering works and highway construction works at the same time, out of which we were the only construction company which is a private company. In addition to qualifications in petrochemical engineering works and highway construction works, we also possessed qualifications in municipal public construction works and building construction works, enabling us to participate in a wider range of projects compared to construction companies possessing fewer qualifications. As of the Latest Practicable Date, we possessed 24 qualifications related to our construction business, which included two first-grade construction qualifications: (i) first-grade qualification in petrochemical engineering construction general contracting* (石油化工工程施工總承包壹級 資質); and (ii) first-grade qualification in foundation construction professional contracting* (地基基礎工程專業承包一級資質).
During the Track Record Period, we primarily focused on construction business, comprising (i) municipal public construction works, which mainly included road construction and traffic facilities construction; (ii) foundation works, which mainly included foundation construction and earthworks; (iii) building construction related works; and (iv) petrochemical engineering worksNote (we mainly undertook filling station upgrading and renovation, pipe installation and oil tank overhaul projects during the Track Record Period).
During the Track Record Period, we mainly operated in Tianjin, where our reputation was built in the construction industry with an operating history of more than a decade, and by leveraging our brand and industry experience, we aim to capture more market share in the construction industry in Tianjin.
Due to the nature of our industry, our business is project-based which is not recurring in nature. During the Track Record Period, we obtained a large majority of our projects through tendering, accounting for more than 95% of our total revenue generated from construction projects. For the remaining projects, we obtained them through negotiation with our customers (which involves price inquiry and price comparison by our customers). For each of the three years ended December 31, 2020, 2021 and 2022 and the six months ended June 30, 2023, we submitted 125, 243, 124 and 39 tenders, respectively, with tender success rates of approximately 24.8%, 25.1%, 25.0% and 23.1%, respectively. During the Track Record Period, we completed 119 construction projects with a total contract amount of RMB525.7 million.
Since late 2020, in order to capture the business opportunities arising from the substantial investment in infrastructure projects of larger size by the local government in Tianjin, we adjusted our business focus from small-to-mid size construction projects to large scale construction projects (i.e. projects with original contract value (not including VAT) of more than RMB10.0 million) to expand our business and enhance our market position in the construction industry in Tianjin. During the Track Record Period, we recognized revenue of RMB45.6 million, RMB203.2 million, RMB241.6 million and RMB75.3 million, from 6, 11, 19 and 12 large scale projects, respectively, accounting for 49.4%, 73.9%, 83.9% and 71.2% of our total revenue of the same year/period, respectively. As of September 30, 2023, we had 15 ongoing large scale projects with a backlog value of RMB142.7 million, accounting for 84.6% of the total backlog value.
Since 2021, our Group has enhanced its resources allocation for marketing activities and increased its tendering activities. Our Group has also identified suppliers with strong capabilities that matched with our projects requirements and hired more project managers to cope with our business scale. The above measures enabled our Group to cope with our business expansion since 2021. In 2021, we undertook several large scale municipal public construction projects such as the Hengsheng Flood Control Bulk Yard Project (盛防汛散 貨堆場項目), Hangu East Expansion Project (漢沽東擴區項目) and Tianjin Nangang LNG Emergency Reserve Project (天津南港LNG應急儲備項目), which generated RMB49.2 million, RMB18.7 million and RMB16.1 million, representing 17.9%, 6.8% and 5.9% of our total revenue for the year ended December 31, 2021, respectively. Meanwhile, we also undertook some large scale foundation construction projects in 2021 such as Tianjin Nangang Foundation Pre-treatment Project (天津南港地基預處理項目), which generated a revenue of RMB47.8 million, representing 17.4% of our total revenue for the year ended December 31, 2021. In 2022, we undertook 10 out of 11 of the Tianjiang Apartment Projects (天江公寓項目). Those 10 projects had an aggregate contract amount (exclude variation orders) of approximately RMB135.2 million.
Despite we adjusted our business focus since late 2020 from small-to-mid size construction projects to large scale construction projects, particularly municipal public construction projects, there was no material change in our profitability during the Track Record Period, and our gross profit margin maintained relatively stable at 28.4%, 26.1%, 25.2% and 25.1% respectively during the Track Record Period. On the other hand, the gross profit margin of our municipal public construction projects also remained relatively stable at 22.3%, 29.1%, 24.6% and 26.6% respectively during the Track Record Period. In terms of our liquidity, our undertaking of more large scale construction projects could lead to a larger fluctuation in the balance of our cash and cash equivalents since our progress of construction work varied among the projects at different point of time. We may experience significant amount of cash outflow at a specific point of time when the large scale projects are at the initial stage which make us incur significant amount of upfront cost, which may lead to a decrease in the amount of cash and cash equivalents at the relevant point of time. For details of our measures for managing our liquidity position, please refer to the section headed ‘‘Financial Information — Liquidity and capital resources’’ in this document. On the other hand, given a majority of our customers of the large scale projects we undertook during the Track Record Period were government authorities or state-owned enterprises, which usually have more internal procedures for certification and settlement, our undertaking of more large scale projects could lead to the slower conversion of contract assets to trade receivables and longer settlement time for the trade receivables. We have adopted internal control policies on monitoring the certification and settlement procedures of our contract assets and the settlement of our trade and bills receivables.
Source: TJCD (02515) Prospectus (IPO Date : 2024/04/15) |