New stock research report: Engineering service provider Shanxi Installation (02520) commences initial public offering today, with a net profit of 110 million Chinese yuan in the first six months of the past 23 years.

Shanxi Installation (02520) is an engineering service provider headquartered in Taiyuan, Shanxi Province, China, engaged in professional industrial engineering, professional supporting engineering, other engineering, and non-engineering businesses. Date of IPO: November 10-15 Listing date: November 22 Joint sponsors: Huatai International and Shanxi Securities International Receipt bank: BANKCOMM Approximately 333 million H-shares will be offered, with approximately 90% allocated and approximately 10% offered to the public, with an additional 15% over-allotment option. The offer price per share is between RMB 2.1 and 2.36, raising a maximum of approximately RMB 786 million, accounting for approximately 25% of the total market value, with listing expenses of approximately RMB 68.8 million. Based on a limit price of RMB 2.36, the market value is approximately RMB 3.1467 billion (calculated based on a net profit of approximately RMB 200 million in 2022 and a P/E ratio of approximately 14.3 times). As of the end of June 2023, the average net asset value is approximately RMB 2.27 billion. The public offering is divided into Class A (for applicants with 5 million or less) and Class B (for applicants with more than 5 million). Business: Revenue for 2020-2022 was RMB 10.14 billion, RMB 13.27 billion, and RMB 12.84 billion, respectively, with revenue for the first six months of 2023 at RMB 5.24 billion. Gross profit for 2020-2022 was RMB 1.42 billion, RMB 1.74 billion, and RMB 1.84 billion, respectively, with gross profit for the first six months of 2023 at RMB 785 million. Net profit for 2020-2022 was RMB 282 million, RMB 188 million, and RMB 200 million, respectively, with net profit for the first six months of 2023 at RMB 110 million. During the track record period, the majority of the company's revenue came from Shanxi Province. In 2022, the company was the largest professional industrial engineering contractor in terms of revenue in Shanxi Province, with a market share of 3%. The company provides a wide range of services throughout the entire cycle of the industry chain, including design consulting, investment and construction, construction, and operation and maintenance. The company has 2 special-grade qualifications for general contracting of engineering construction, 4 first-grade qualifications for general contracting of engineering construction, 6 second-grade qualifications for general contracting of engineering construction, 18 first-grade qualifications for professional contracting of engineering, and 3 second-grade qualifications for professional contracting of engineering. The company has a "four-in-one" industrial chain of design consulting, investment and construction, construction, and operation and maintenance. The company acts as a contractor and subcontractor, and is considered a midstream contractor. During the track record period, the company acted as a construction contractor for EPC and PPP projects, with the majority of contracts being EPC projects and only a few being PPP projects. EPC and PPP are the two main contracting models for construction projects. EPC refers to the common contracting model of engineering, procurement, and construction. The contractor is entrusted by the project owner to carry out various project works such as survey, design, procurement, construction, testing, and commissioning, or all of the above; while PPP refers to public-private partnership, which is a cooperative partnership between the government and private organizations to jointly build infrastructure projects or provide certain public products and services based on a framework agreement. The company can trace its history back to 1952 and was one of the earliest companies in China engaged in industrial equipment installation. It is one of the earliest engineering contracting companies in Shanxi Province and one of the first engineering contracting companies in China to obtain quality management system certification. The company is committed to providing customers with professional system services throughout the entire cycle of engineering services. Approximately 50% of the funds raised will be used to support new energy projects, approximately 32% will be used to provide funds for the company's existing and future PPP projects, as well as clean heating, distributed energy, solid waste disposal, water treatment, and other construction projects. Approximately 10% will be used to support new energy upstream and downstream manufacturing projects, and approximately 8% will be used for working capital and general corporate purposes. Cornerstone investor: Ming Yang Smart Energy (601615.SH), a mainland new energy company, will be introduced as a cornerstone investor, subscribing approximately HKD 157 million worth of shares, accounting for approximately 21.1% of the shares offered, with a lock-up period of three years. Major shareholders after listing: Shanxi State-owned Assets Supervision and Administration Commission holds 75% Public holds 25% Commentary: Shanxi Installation (02520) is an engineering service provider headquartered in Taiyuan, Shanxi Province, China, engaged in professional industrial engineering, professional supporting engineering, other engineering, and non-engineering businesses. Based on a limit price of 2.36 yuan, the market value is approximately 3.1467 billion yuan, calculated based on a net profit of approximately 200 million yuan in 2022, with a P/E ratio of approximately 14.3 times. Ming Yang Smart Energy (601615.SH), a mainland new energy company, will be introduced as a cornerstone investor, subscribing approximately HKD 157 million worth of shares, accounting for approximately 21.1% of the shares offered, with a lock-up period of three years. This article is provided by "CITIC Securities" and is written by Chen Bohao, an analyst at CITIC Securities; edited by Yang Wanlin.