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Huationg Global’s Strategic Game Plan For Growth
Corporate Digest | 23 January 2015
Related stocks:
41B
By: Tan Jia Hui
Articles (82) Profile

Having a better understanding of how Huationg Global stands out from the typical construction company listed on SGX, we embark to explore the company’s plan to drive its business going forward and the merits of having more than 30 years of experience in the industry.

Differentiation From Smaller Competitors
In the civil engineering segment, Huationg Global specialises in the area of earthworks and recognises itself as one of the major player in this area.

The group’s portfolio of works consists of notable projects like the Downtown Line MRT, Circle Line MRT, Marina Coastal Expressway and the Kallang-Paya Lebar Expressway.

While there seems to be no single competitor who operates in all of the same three segments, there are still plenty of competitions from firms of various sizes in each of the individual segment.

Currently, Huationg Global possesses Building and Construction Authority (BCA) A2 Grade licence (CW02) for civil engineering projects, which allows it to tender for projects in public sector of value worth up to $90 million.

Group chief executive officer Patrick Ng noted that “While there are constantly new entrants coming into the industry, our focus would be to target larger value projects that require higher quality and technical knowledge, rather than compete at a lower price point for smaller projects.”

Apart from improving its efficiency to mitigate competition, the company intends to obtain a BCA A1 Grade licence that will allow it to tender for public civil engineering contracts without any tendering limits.

The move will allow the group to bid for more projects as well as pave the way for collaborations with foreign contractors for some of the larger projects tendered. Award of tenders for larger projects typically commands a higher price and margins as well as higher technical specifications which smaller firms may not be able to meet.

Additionally, if Huationg Global manages to secure an A1 licence, it has the advantage of being a local firm specialising in a niche area of earthworks.

This is due to the fact that certain equipment used by foreign contractors is not transferrable for use in Singapore (such as left-hand drive heavy vehicles) and the usual alternative is to subcontract these jobs.

The group aims to upgrade to an A1 licence for civil engineering and has already fulfilled part of the necessary requirements.

Huationg Global's focus would be to target larger value projects that require higher quality and technical knowledge, rather than compete at a lower price point for smaller projects.

Targeted Expansion Plans
A significant portion of net proceeds from the company’s IPO has been allocated towards LSS production expansion and the exploration of opportunities in mergers and acquisitions and joint ventures, to drive further growth.

LSS stands out as a backfilling material due to its self-compacting property especially for narrow spaces where compaction is near to impossible and also helps to reduce construction time and manpower (no manual compacting needed). Furthermore, the material has waterproofing characteristics and its liquidity and strength can also be customised to meet specific requirements. Current applications include backfilling and use as a non- structural fill for buildings and other structures.

The group is one of the pioneers in developing LSS back in 2003. Though it was a tough sell initially, the material has since gained popularity due to lower costs and the recognition of its advantages (In 2008, the Public Utilities Board specified LSS as an approved material to be used in the backfilling of civil pipelines.).

Simultaneously, the firm is constantly promoting the use of LSS for other purposes.

It is also Huationg Global’s intention to leverage on its expertise in LSS to expand its customer base into overseas markets such as Malaysia through strategic alliance with local partners.

A successful entry into the Malaysian market could potentially be a great boost for the group, given the country’s rapid development and plans to develop its own MRT system in several areas (projected RM160 billion rail-related spending by government up to 2020).

Although turnover contributions from the sale of construction material is small, since most of the materials produced are used by the company for its own projects currently, the recycling of concrete wastes and marine clay allows the generation of extra income from waste products that will otherwise be discarded.

Barriers To Entry
Over a span of more than 30 years, Huationg Global has grown into a sizeable business focusing on a niche area in civil engineering. While there is constant flow of entrants into the market, however, it is almost impossible for them to compete on the same scale within a short time span due to high barriers to entry.

As Warren Buffett once said, “In business, I look for economic castles protected by unbreachable ‘moats’.” It is time for the group to enjoy its fruits of labour in the form of a moat (scale of the business) it has built over the years.

The firm’s strength lies in the many years of accumulated experience and also the complementary effect from the other two segments on its core civil engineering business, where resources from these two segments create synergies to support its own projects.

As Huationg Global grows itself and attempts newer markets, new engines of growth are created to help it achieve greater heights.

Armed with a bachelor in mathematics, Jia Hui keeps close tabs on the oil & gas, and manufacturing sectors in Singapore.

Please click here for more information about this author.

Huationg Global  -- -- --   
Business: Provides civil engineering services for infrastructure projects & ancillary inland logistics support services. [FY18 Turnover] Civil engineering (87.5%), sale of construction materials (6.7%), inland logistics support (5.8%).

Insight: Mar-19, FY18 revenue rose 13.1% due to increased r... Read More


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