Main Board Listing Research

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1 9/F, 10 Des Voeux Road Central, Hong Kong. Dealing: Research: Facsimile: HONG KONG RESEARCH Analyst: Carmen Wong 30 th July 2013 Main Board Listing Research 佳明集團控股有限公司 Grand Ming Group Holdings Limited (01271) Sole Sponsor : Cinda International Capital Sole Bookrunner and Sole Lead Manager : Cinda International Securities Sector : Real Estate Business : Providing building construction services and leasing of data centre premises in Hong Kong Total share offer: 100,000,000* shares (25.0% of the enlarged share capital) Public Offer: 10,000,000 shares (10%) Placing: 90,000,000 shares (90%) Greenshoe: 15,000,000 shares * All 100,000,000 shares are New Shares. Price: HK$0.90 HK$1.11 per share Market Capitalization: HK$360 million HK$444 million Pro-forma FY2013 EV/ EBITDA: 8.6x 9.3x Adjusted NTA per share: HK$3.40 HK$3.45 Staffing: 140 (as of 21 st July 2013) HK Public Offer period: 30 th July nd August 2013 noon Receiving bank: Hang Seng Bank Share registrar: Tricor Investor Services Limited Listing date: 9 th August 2013 Business of Grand Ming Group Holdings Limited ( Grand Ming or the Group ) Grand Ming has been providing building construction services to property developers in Hong Kong since The Group generally acts as a main contractor in building construction projects as well as existing buildings alteration, renovation and fitting-out projects. In addition, Grand Ming started to engage in leasing business of data centre premises in Its existing data centre building, itech Tower in Tsuen Wan, Hong Kong, has a total raised floor space of approximately 53,200 square feet. Its leasing business focuses on developing and building of data centre building and leasing out raised floor space as a wholesale co-location provider of high-tier data centres. The Group is also responsible for supporting mechanical and electrical engineering facilities and security, to ensure that the premises leased out meet the specifications and expectations of its customers on an on-going basis. Shareholders after Listing (Assuming the over-allotment option is not exercised) Chan HM Company Limited wholly owned by Mr. Chan Hung Ming, the Chairman and Executive Director of the Group 67.5% Lau CW Company Limited wholly owned by Mr. Lau Chi Wah, the Chief Executive Officer and Executive Director of the Group 7.5% Public shareholders 25.0% 100.0% This report has been prepared solely for information purposes and we, East Asia Securities Company Limited are not soliciting any action based upon it. Neither this document nor its contents shall be construed as an offer, invitation, advertisement, inducement or representation of any kind or form whatsoever. This document is based upon information, which we consider reliable, but accuracy and completeness are not guaranteed. Opinions expressed herein are subject to change without notice. At the time of preparing this report, we have no position in securities of the company or companies mentioned herein, while other Bank of East Asia Group companies may from time to time have interests in securities of the company or companies mentioned herein.

2 Use of Proceeds Net proceeds from the offer are estimated to be HK$73.4 million (based on the mid-point of the indicative Offer Price of HK$1.01 and assuming the over-allotment option is not exercised) HK$ million For development of its second data centre building in Hong Kong 47.7 For initial outlay for its new construction projects 18.0 For general working capital purposes 7.3 For sales and marketing activities of its Group 0.4 Financial Highlights HK$ '000 HK$ '000 HK$ '000 Revenue 457,961 1,058, ,700 Gross profit 93, , ,052 Attributable profit 247, , ,981 Underlying profit * 45,781 58,936 81,586 Gross margin 20.4% 11.0% 18.1% Net margin 54.1% 9.6% 19.3% 31/03/ /03/ /03/2013 Net Debt to Equity ratio 75.8% 54.6% 60.5% * Underlying profit excludes changes in fair value of investment properties Breakdown of revenue by business activities (HK$ '000) Construction business 349, % 926, % 640, % Data centre premises leasing business 108, % 131, % 133, % Total 457, % 1,058, % 773, % Breakdown of gross profit by business activities (HK$ '000) Construction business 10, % 20, % 41, % Data centre premises leasing business 82, % 96, % 98, % Total 93, % 116, % 140, % Gross profit margin by business activities Construction business 3.1% 2.2% 6.4% Data centre premises leasing business 76.1% 73.7% 74.0% 2

3 Peer valuation comparison Name Code Market Cap (HK$ million) 2013E EV/ EBITDA 21Vianet Group Inc VNET US EQUITY 5, x Coresite Realty Corp COR US EQUITY 5, x Dupont Fabros Technology DFT US EQUITY 11, x Interxion Holding INXN US EQUITY 13, x Telecity Group Plc TCY LN EQUITY 23, x Digital Realty Trust Inc DLR US EQUITY 57, x Equinix Inc EQIX US EQUITY 69, x Average 26, x Grand Ming # 9.0x # Sources: Bloomberg ( # ): Based on the mid-point of the Offer Price range (HK$1.01) Strengths/Opportunities Construction of its second data centre building in Kwai Chung is currently underway and is scheduled for completion around August The commencement of operation of its second data centre building should bring positive impact to the Group s turnover and profitability, as the gross profit of data centre leasing business is over 70%, way higher than the single-digit gross margin for its construction business. Grand Ming has entered into long-term agreements with its customers of data centre leasing business ranging from 5 to 20 years, which can provide stable recurring income for the Group. Weaknesses/Threats Grand Ming is a small market player in both the industries of property construction and leasing of data centre premises in Hong Kong. For data centre leasing business segment, the Group s market share is around 2.0% in 2012, while the top 10 players accounted for an aggregate market share of 67.7%. Besides, the property construction industry is highly competitive in Hong Kong, as the top 5 building contractors accounted for less than 25% of the total revenue of the residential property construction industry in 2012, compared to Grand Ming s market share of around 1.3%. The Group relies on a small number of customers. For the three years ended 31 st March 2013, revenue from its top five customers in aggregate accounted for approximately 88.6%, 94.3% and 97.4% of the total, respectively. Due to the project-based business nature for property construction, the total turnover may fluctuate according to the difference in number, size and progress of construction projects undertaken by the Group in a particular year. Revenue from its construction business jumped 165% year-on-year in FY2012 but fell 30.9% year-on-year in FY2013. Grand Ming s gearing ratio may see upward pressure, as its estimated development costs for the second data centre building is approximately HK$682 million, in which HK$570 million will be financed by bank facility. Its liquidity position may also be adversely affected, given that no rental income will be incurred prior to the operation of the second data centre building as well as a portion of the development costs is expected to be funded from its operating cash flows. Furthermore, as construction of its second data centre will take relatively long development time up to 3 years, there will be no assurance that the market demand for data centre premises will not change upon its completion. 3

4 There is no relevant peer with major business of leasing data centre premises listed in Hong Kong. Nonetheless, when compared to its international peers, we think Grand Ming s valuation is not particularly compelling, as most of the large-cap overseas players have established diversified portfolio in data centre with strong presence in international markets. Recommendation: Not Subscribe 4

5 Important Disclosure / Analyst Certification / Disclaimer This report is published by East Asia Securities Company Limited, a wholly-owned subsidiary of The Bank of East Asia, Limited ( BEA ). Each research analyst primarily responsible for the content of this report (whether in part or in whole) certifies that (i) the views on the companies and securities mentioned in this report accurately reflect his/her personal views; and (ii) no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. This report has been prepared solely for information purposes and has no intention whatsoever to solicit any action based upon it. Neither this report nor its contents shall be construed as an offer, invitation, advertisement, inducement or representation of any kind or form whatsoever. This report is based upon information, which East Asia Securities Company Limited considers reliable, but accuracy or completeness is not guaranteed. The analysis or opinions expressed in this report only reflect the views of the relevant analyst as at the date of the release of this report which are subject to change without notice. Any recommendation contained in this report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific recipient. This report should not be regarded by recipients as a substitute for the exercise of their own judgment. Investments involve risks and investors should exercise prudence in making their investment decisions and obtain separate legal or financial advice, if necessary. East Asia Securities Company Limited and / or The Bank of East Asia Group accepts no liability whatsoever for any direct or consequential loss arising from any use of or reliance on this report or further communication given in relation to this report. At the time of preparing this report, East Asia Securities Company Limited has no position in securities of the company or companies mentioned herein, while BEA along with its affiliates/associates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this report. BEA and its affiliates/associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. BEA and/or any of its affiliates/associates may beneficially own a total of 1% or more of any class of common equity securities of the company or companies mentioned in this report and may, within the past 12 months, have received compensation and/or within the next 3 months seek to obtain compensation for investment banking services from the company or companies mentioned in the report. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of, or located in, any locality, state, country or other jurisdiction, publication, availability or use would be contrary to law and regulation. 5