CR Construction Group to raise a maximum of approximately HK$194.4 million by way of public offer and placing

Highlights

• Established in 1967, one of the leading building contractors in Hong Kong with over 50 years of experience
• Principally act as a main contractor in building construction works and RMAA works projects across public and private sectors in Hong Kong
• According to the CIC Report, the Group ranked the third among all main contractors in Hong Kong in terms of revenue from building construction works for the year ended 31 December 2018 with a market share of approximately 5.2%
• The Group has completed 16 building construction works projects and nine RMAA works projects during the Track Record Period, the aggregate original contract sum of which amounted to approximately HK$8,710.9 million and HK$876.5 million, respectively
• As at the Latest Practicable Date, the Group has nine building construction works projects and eight RMAA works projects which were in progress

Financial Highlights

HONG KONG, CHINA - Media OutReach - 27 September 2019 -  CR Construction Group Holdings Limited ("CR Construction", together with its subsidiaries, the "Group"; stock code: 1582.HK), the third largest main building contractor in Hong Kong in 2018[1], announces the details of its plan to list on the Main Board of The Stock Exchange for Hong Kong Limited ("SEHK") today.

A total of 138,850,000 shares will be offered under the Share Offer, of which 124,965,000 Shares, or 90% (subject to re-allocation), will be offered by way of Placing; while the remaining 10%, or 13,885,000 Shares (subject to re-allocation), will be offered under the Public Offer. The Offer Price per Offer Share is expected to be not less than HK$1.0 and not more than HK$1.4. The Public Offer will commence on 27 September 2019 (Friday) and close at 12:00 noon on 3 October 2019 (Thursday). The allotment result is expected to be announced on 15 October 2019 (Tuesday). Dealings in CR Construction's shares on the Main Board of the SEHK are expected to commence on 16 October 2019 (Wednesday).

Assuming an Offer Price of HK$1.2 per Offer Share (being the midpoint of the Offer Price range), the aggregated net proceeds from the Share Offer, after deducting underwriting fees and estimated expenses payable in connection with the Share Offer, will be approximately HK$123.0 million. CR Construction intends to use these net proceeds for the following purposes: 1) approximately 87.3% will be used for financing the upfront costs for potential new building construction works and RMAA works projects; 2) approximately 8.0% will be used in strengthening manpower; and 3) approximately 4.7% will be used in enhancing information technology.

First Shanghai Capital Limited is the Sole Sponsor, while First Shanghai Securities Limited, Zhongtai International Securities Limited, First Capital Securities Limited, Guotai Junan Securities (Hong Kong) Limited" and Haitong International Securities Company Limited are the Joint Bookrunners and the Joint Lead Managers. Livermore Holdings Limited, CVP Securities Limited and Zinvest Global Limited are the Joint Lead Managers.  

Business Overview

Established in 1967, CR Construction is one of the leading building contractors in Hong Kong with over 50 years of experience. The Group principally act as a main contractor in building construction works and RMAA works projects across public and private sectors in Hong Kong. According to the CIC Report, it ranked the third among all main contractors in Hong Kong in terms of revenue from building construction works for the year ended 31 December 2018 with a market share of approximately 5.2%.

As a main contractor, the Group is responsible for (i) overall management of the projects; (ii) formulating work programmes; (iii) engaging subcontractors and supervising their works; (iv) sourcing construction materials; (v) communication and coordination with customers and their consultant teams; and (vi) safeguarding compliance with safety, environmental and other contractual requirements.

Customers of the Group can be divided into two categories: (a) customers from the public sector including various Government departments such as the Housing Authority and the Education Bureau, educational institutions and NGOs; and (b) customers from the private sector such as private property developers and other listed and private companies.

For each of the three years ended 31 December 2018 and the three months ended 31 March 2019, the Group recorded revenue of approximately HK$2,577.4 million, HK$3,141.4 million, HK$4,813.9 million and HK$1,115.0 million respectively, while profit amounted to approximately HK$45.9 million, HK$58.9 million, HK$63.4 million and HK$17.1 million respectively.

The Group has completed 16 building construction works projects and nine RMAA works projects during the Track Record Period, the aggregate original contract sum of which amounted to approximately HK$8,710.9 million and HK$876.5 million, respectively. After the Track Record Period and up to the Latest Practicable Date, it has completed two building construction works projects, with aggregate original contract sum of approximately HK$254.5 million. It had nine building construction works projects and eight RMAA works projects with an aggregate original contract sum of approximately HK$10,403.1 million and HK$1,488.6 million, respectively, which were in progress as at the Latest Practicable Date. As at the Latest Practicable Date, the Group has been awarded one RMAA works project with an original contract sum of approximately HK$3.2 million, in which it has not commenced on-site works.

Competitive Strengths

1)     Established history and a proven track record in the building construction works and RMAA

Since it is founded in 1967, the Group has built up strong reputation and presence in the Hong Kong building construction works and RMAA works industries. The projects the Group undertook as main contractor include (i) building construction works for the Hong Kong Housing Society, various educational institutions, private property developers and other listed or private companies in Hong Kong; (ii) public housing construction for the Housing Authority; (iii) redevelopment and revitalisation projects for the Urban Renewal Authority; and (iv) RMAA works for various Government departments including the Architectural Services Department and the Education Bureau and private property developers in Hong Kong. In 2012, it completed one RMAA works project which was so far the largest RMAA works project in Hong Kong in terms of contract sum as at the Latest Practicable Date. The Group has also received various awards and recognitions

2)     Well positioned to secure emerging opportunities in public and private building construction

In light of the expected growth in both public and private building construction works industry in Hong Kong, the Directors of the Group consider CR Construction is well positioned to secure these new business opportunities.

In relation to public building construction projects, the Group is on the list of approved and confirmed Group C contractor with WBDB, such that it is eligible to tender for WBDB's public building construction works contracts of any values exceeding HK$300 million. The Group was also granted the probationary status as an approved building contractor for building (new works) (group NW2) by the Housing Authority.

During the Track Record Period, the Group has also been building up portfolio in building construction works and RMAA works for the private sector in Hong Kong. The Directors of the Group believe that, the Group has accumulated considerable experience, knowledge and market presence in tendering for public and private sector projects competitively and that has obtained the necessary registrations and permits to engage in building construction works and RMAA works projects across public and private sectors.

3)     Long-standing and strong relationships with major business partners

The group has built up long-standing and strong relationships with major customers from both public and private sectors. It has maintained over ten years of business relationship with some of its major customers. It has also maintained strong relationships with consultants employed by its customers. The Directors of the Group believe that, the Group's track record of satisfactory project execution has rewarded long-term relationships with its major customers and their consultants.

The Group has also developed and maintained strong relationships with numerous suppliers and subcontractors. Some of its major suppliers and subcontractors have worked with the Group for over five years. The Directors of the Group believe that, such an extensive network and relationship with suppliers and subcontractors allows the Group to (i) select suppliers and subcontractors with flexibility; (ii) minimise risks of delay or shortage of materials or services; and (iii) execute works on schedule.

4)     Stringent quality control and high safety standard and environmental impact control

The Group places emphasis on providing consistently high quality services. It has adopted and implemented a quality control system that complies with international standards. Since 1993 and up to the Latest Practicable Date, it was assessed and certified to have complied with the requirements of ISO 9001: 2015 accreditation for management system.

The Group has set up an occupational health and safety system to promote safe working practices among all employees and to prevent the occurrence of accidents through safety inspections. Further, it has also set up an environmental management system to promote environmental awareness and to prevent pollution of the environment resulting from projects undertaken by the Group. The Group's safety and environmental management systems have been certified to be in compliance with OHSAS 18001: 2007 and ISO 14001: 2004 standards respectively.

5)     Experienced and committed management team and professional staff members

Led by chairman, Mr. Guan Manyu and executive Directors, the Group has an experienced senior management and project management team which are committed to working closely with customers, suppliers and subcontractors and implementing various projects efficiently.

With the industry insights and experiences of the Board and senior management of the Group, it has been able to devise strategic business plans, assess and manage risks thoroughly and securing emerging opportunities.

As at the Latest Practicable Date, most of the staff members of the Group in project department and technical department have over ten years of experience in building construction works industry, respectively and all of them possess relevant professional qualifications. They are equipped with practical knowledge and technical skills in building construction works and RMAA works.

BUSINESS STRATEGIES

1)    Business expansion in building construction works and RMAA works

To sustain business growth, create long-term shareholders' value and increase market share in the building construction works and RMAA works industries, the Group intends to tender for and secures more contracts in both public and private sectors such as public works with various Government departments, public housing projects with the Housing Authority and private residential developments with private property developers. It aims to identify and pursue new business opportunities building on past success and experiences in the construction industry.

Private projects

During the Track Record Period and up to the Latest Practicable Date, the Group has completed seven residential projects, seven commercial projects and three hotel project in Hong Kong. Based on past experience and involvement in similar projects, the Group will actively tender for both building construction works and RMAA works projects in the private sector. As at the Latest Practicable Date, it (i) had 13 ongoing private work projects; (ii) have been awarded one private work project but have not commenced on-site works; and (iii) have submitted 12 tenders which were pending for results.

Public works

Given that CR Construction is an approved and confirmed Group C contractor of WBDB for public works buildings, it is eligible to tender for public building construction works contracts of any values exceeding HK$300 million. The Group will actively tender for public building construction works and RMAA works projects based on past experience and involvement in similar projects such as building construction works for educational institutions and NGOs and RMAA works for various Government departments. As at the Latest Practicable Date, it (i) had four ongoing public work projects; and (ii) have submitted tender for 14 public work projects which were pending for result.

Public housing

The Group was granted a probationary status as an approved contractor for building (new works) (Group NW2) by the Housing Authority in the year 2000 and it can undertake not more than one Housing Authority's Group NW2 direct contract at any one time. During the Track Record Period and up to the Latest Practicable Date, the Group undertook and completed one public housing project which involved building construction works of a community complex under public estate redevelopment,

The Group intends to apply for a confirmed status in around September 2020 (the expected completion date of Project C33, of which the Directors of the Group are confident, after taking into account the size and nature of the project, would fulfil the conditions pertaining to the application), in order to increase involvement in public housing projects.

2)    Further strengthening manpower

It is believed that the Group's success in the construction industry is largely attributable to its experienced management and skilled staff members. In order to secure the emerging business opportunities in the construction industry and drive business expansion, it intends to further strengthen human resources by recruiting more experienced staff for projects department and technical department

The Group deploys building information modelling and aerial technology to simulate project plan and assist construction sites supervision, respectively. Since an effective operation of the building information modelling and aerial technology requires sufficient number of skilled staff, the Group intends to recruit additional staff with relevant knowledge and arrange more training courses for staff on the usage of the technologies.

3)    Further enhancing information technology

In addition to the technologies the Group has employed when executing projects, it also intends to enhance the efficiency of operations by introducing an enterprise resource planning system and expanding and upgrading computer hardwares and softwares. It is  believed that introducing an enterprise resource planning system, which is a system of integrated applications to manage the business and automate various back office functions related to technology, services and human resources, will allow the Group to: (i) increase efficiency of business procedures; (ii) promote operational control in different areas of operation; and (iii) ensure consistency in services offered.

4)    Adhering to prudent financial management to ensure sustainable growth and capital sufficiency

The Group generally fund its project expenditure with cash flows from operations and bank loans as necessary. It has managed its capital and cash position prudently to ensure that  funds are properly and efficiently collected and deployed and to maintain sufficient level of funds to settle liabilities when they fall due. This allowed the group to minimise finance costs.

The Group will continue to monitor liquidity positions by managing key measures such as gearing ratio and cash flows. In the process of identifying and capturing emerging business opportunities, it will continue to cooperate with external parties to develop projects on a selective basis to take advantage of cooperating partners' resources. It will remain disciplined in capital commitments and seek long-term financing opportunities.

About CR Construction Group Holdings Limited

CR Construction Group Holdings Limited, established in 1967, is one of the leading building contractors in Hong Kong with over 50 years of experience. The Group principally acts as a main contractor in building construction works and RMAA works projects across public and private sectors in Hong Kong. According to the CIC Report, it ranked the third among all main contractors in Hong Kong in terms of revenue from building construction works for the year ended 31 December 2018 with a market share of approximately 5.2%.