New IPO | Jiexin State Control (08629): State-owned testing and inspection service provider moves towards the capital market.

State-owned testing and inspection service provider Jinxi Guokong (08629) from Xinyi City, Maoming, Guangdong Province, started its IPO on August 26th, with a deadline of September 3rd. The total number of shares issued by the company is 10.179 million, with 90% being allocated and 10% available for public offering, with an additional 15% in adjustment rights. The offer price per share is HK$8.6 to HK$10.4, with a minimum lot size of 500 shares. It is expected that the H shares will begin trading on the Hong Kong Stock Exchange on September 6, 2024. Looking at Jinxi Guokong's shareholding structure, the Xinyi City Housing and Urban-Rural Construction Bureau's subsidiary, Xinyi City Construction Engineering Quality and Safety Affairs Center, holds 56% of the shares, while the Xinyi City Finance Bureau holds 14% through Xinyi Xinhui, and the remaining 30% is held by public shareholders. The government-backed shareholders provide the company with solid capital support, ensuring the stability of the company's structure. Since its establishment in 2000, Jinxi Guokong has been focusing on construction engineering testing and inspection services, covering a wide range of services including foundation, infrastructure and public roads, building materials, building structures, as well as slope monitoring. Starting from May 2024, the company also provides food testing services. As of August 2024, the company has obtained approvals for 39 testing service categories from the Guangdong Provincial Market Supervision Administration, covering five major areas including construction engineering, product and material testing, environmental testing, food testing, and agriculture-related testing, with over 2700 testing capabilities, diversifying the qualification and content of testing services. With the strong support of the national "rural revitalization" and Guangdong Province's "hundred, thousand, ten thousand projects" policies, the economic development of third-tier and below cities is showing vigorous vitality, leading to a continuous increase in demand for independent testing and inspection services. In the Pearl River Delta region where Jinxi Guokong is located, the independent testing and inspection services market is mainly composed of localized small and micro enterprises, showing a clear trend of dispersion. The state-owned background of Jinxi Guokong may provide it with certain development advantages in the existing market environment. With government policy support, the company has the opportunity to enhance its business scope through strategic planning and market expansion, including possible merger and acquisition activities. Jinxi Guokong has achieved continuous growth during the previous record period. In 2022, 2023, and the six months ended June 30, 2023 and 2024, the company's revenue was RMB 19.966 million, RMB 41.500 billion, RMB 16.329 million, and RMB 22.830 million, respectively. As for profits, the company's net profit in 2023 was RMB 13.254 million, gross profit margin reached 71.8%, net profit margin was 31.9%, a year-on-year increase of 107.9%; in the first half of 2024, the company's net profit was RMB 7.343 million, with a gross profit margin of 70.8% and a net profit margin of 32.2%, achieving a year-on-year revenue growth of 39.8% during the same period. The company's listing on the Growth Enterprise Market also highlights its dividend policy, which is worth noting. According to the prospectus, the company plans to distribute profits to shareholders every year on the premise of maintaining a healthy level of operating capital, with a proposed distribution rate of no less than 20% of the post-tax profit available for distribution that year, a fixed dividend proportion rarely seen on the Growth Enterprise Market. Assuming the offer price for each share is HK$9.5 (the median of the offer price range), the company expects to receive net proceeds of approximately HK$54.4 million from the issuance of shares. Of this, approximately 37.4% will be used to expand testing services, approximately 27.7% will be used to consolidate and expand the existing market, approximately 27.5% will be used to expand construction engineering testing services, approximately 5.5% will be used to upgrade the ERP system, and the remaining 1.9% will be used for general operating expenses. In summary, Jinxi Guokong's listing is a significant capital injection into the Guangdong-West testing services market. For investors seeking stable returns and long-term growth, Jinxi Guokong is worth close attention.