Chi Kan Holdings Limited Announces Details of Proposed Listing on the Main Board of SEHK
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Offering Details
Chi Kan Holdings plans to offer a total of 250,000,000 Shares, among which, 90% or 225,000,000 Shares will be for Placing (subject to reallocation and the Offer Size Adjustment Option), while 10% or 25,000,000 Shares will be for the Public Offer (subject to reallocation) at an indicative Offer Price ranging from HK$0.52 and HK$0.64 per Offer Share
The Public Offer will commence on 9:00 a.m. 30 July 2020 (Thursday) and end at 12:00 noon on 4 August 2020 (Tuesday). The final Offer Price and results of allocation will be announced on 13 August 2020 (Thursday). Trading of Chi Kan Holdings’ shares will commence on the SEHK on 14 August 2020 (Friday) under the stock code 9913. Shares will be traded in board lots of 4,000 Shares each.
Ample Capital Limited is the Sole Sponsor. Alpha Financial Group and Forwin Securities Group are the Joint Global Coordinators.
Investment Highlights
A leading formwork contractor with a track record of more than 20 years in Hong Kong, maintaining a stable business relationship with customers
The Group is a formwork contractor ranked second with a market share of approximately 11.0% in Hong Kong’s formwork services market1 in terms of revenue for FY2020. Chi Kan Holdings is mainly engaged in the provision of formwork services, comprising: (i) conventional formworks built on-site mainly using timber and plywood; and (ii) prefabricated formworks built out of prefabricated modules mainly using aluminum and steel. With a track record of more than 20 years in the formwork industry, the Group has developed its reputation as well as cultivated and maintained stable and long-term business relationships with its major customers. These customers are principally main contractors, a majority of which are Hong Kong-listed companies or their subsidiaries. In particular, the Group has established business relationships with its largest customer for 18 years. In light of its established market reputation of timely completion of formwork projects and capability to carry out technically complicated and/or sizable projects in accordance with customers’ requirements, the Group has been often informed by its customers of upcoming projects in the market and invited to submit quotations. By consistently providing quality formwork services and maintaining close and stable relationship with customers, the Group has earned its customers’ confidence which would, in turn, provide stable revenue.
Maintained good quality of formwork services through quality control and stable relationships with major material suppliers, subcontractors and formwork workers
The Group’s suppliers mainly included material suppliers and subcontractors. Material suppliers provide formwork and other construction materials used in the projects, while subcontractors such as carpenters and metal formwork erectors, carry out the implementation of its formworks and other construction works. The Group has established and maintained a stable working relationship with a network of suppliers, and established business relationship with some of its major suppliers for over 10 years. The Group’s internal approved list includes more than 40 material suppliers and subcontractors meeting its requirements, which not only enables flexibility in its pricing and selection, but also reduces the risk of shortages or delays in delivery of materials or services so as to avoid causing material disruptions to the works. Moreover, the Group also has adequate direct labour force, having recruited about 700 formwork workers in order to meet the continuous work demand from its customers. By forming a project team with a mix of the direct labour force and selected subcontractor, the Group is able to maintain the quality control of its formwork services and ensure sufficient manpower to complete the formwork projects in a timely manner. This model can alleviate the need for the Group to retain a large number of permanent staff, as well as preserving its bargaining power on subcontracting charges over selected subcontractors at the same time.
Dedicated management team with extensive industry experience
The management team of Chi Kan Holdings has extensive industry and operational experience in the construction field and the formwork industry in Hong Kong. Mr. Lo Hon Kwong, the founder, Chairman of the Board and Executive Director has over 30 years of comprehensive experience in the formwork industry and has established close working relationships with a number of major main contractors in Hong Kong. In addition, each of the Group’s project managers has nearly 20 years of experience in the construction field. The broad know-how and industry knowledge acquired and accumulated over the years by the management team has helped the Group to earn word-of-mouth recommendations, and expand its types of service as well as market presence.
Business Strategies
Strengthening the financial position to undertake more sizeable formwork projects
The key working capital items for formwork contractors included preparation tasks such as purchase of materials, fees payable to subcontractors and recruitment of direct labour. Since substantial working capital investment is often required for making prepayment or deposits to suppliers and subcontractors, the Group may experience net cash outflows at the initial stage of a project after commencement. The cash flow requirement at the initial stage of a project after commencement constrains the number and size of projects which the Group can undertake at the same time due to limited resources. Hence, the Group will strengthen its cash position and available financial resources to satisfy the requirements for the upfront costs of its projects in the future, so as to undertake more sizeable formwork projects with larger contract sums in Hong Kong.
Strengthening manpower to drive business development
The success of the Group depends in part on the team of skilled workers given that formwork services are labour-intensive. In view of that, the Group intends to expand its in-house team of staff in order to undertake more sizeable formwork projects, including adding project managers and site managers who supervise the subcontractors at the project sites. Moreover, the Group will enhance staff training especially for Building Information Modelling (BIM). BIM generates three-dimensional, digital representation of building data, which can help reducing material wastage by allowing better construction sequence planning, or industrialised construction processes off-site. Providing relevant training will help the staff become more familiar with the information generated applying BIM technology, and be able to communicate accordingly in order to enhance the Group’s work efficiency and competitiveness.
The Group has also set up subsidiaries in China in order to explore business opportunities in the PRC formwork services market.
Use of Proceeds
Assuming an Offer Price of HK$0.58 per share (being the mid-point of the indicative offer price range), net proceeds from the Share Offer (after deducting underwriting commissions, professional fees and anticipated expenses payable in connection with the Share Offer) are estimated to be approximately HK$107 million and will be applied as follows:
Item / Percentage (%)
Financing the upfront funding needs for projects
(To finance the upfront costs of newly awarded projects and tendered projects): 85.0%
Expanding workforce: 5.0%
General working capital: 10.0%
Total: 100%
About Chi Kan Holdings Limited
Chi Kan ranked second in the formwork services market in Hong Kong in FY2020. The Group mainly engaged in the provision of formwork services, comprising of conventional formwork and prefabricated formwork. During the course of the provision of formwork services, the Group also provides other construction works to its customers on an ancillary basis. Its major customers are principally main contractors, a majority of which are Hong Kong listed companies or their subsidiaries with persistently strong project pipelines in various types of building and civil engineering projects under public and private sectors.
For more information about Chi Kan Holdings, please visit the Group website: www.chikanck.com.
Media Enquiries:
Strategic Financial Relations Limited
Vicky Lee Tel: (852) 2864 4834 Email: vicky.lee@sprg.com.hk
Angela Wong Tel: (852) 2114 4953 Email: angela.wong@sprg.com.hk
Cara Lau Tel: (852) 2864 4890 Email: cara.lau@sprg.com.hk
Website:www.sprg.com.hk
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