Broad Homes (02163.hk) To Intensify Its Leading Position Through Data-driven And Dual-driver Strategies

HONG KONG, Feb 26, 2021 - (ACN Newswire) - Recently, promotion policies of prefabricated buildings were rolled out in succession, contributing to an on-going increase in scale of industrial chain and positive industry sentiment. In particular, Broad Homes (02163.HK), one of the industry leaders, which has exploited the construction industrialization field for over two decades, is committed to consolidating its competitive edges and has delivered remarkable performance with CAGR (Compound Annual Growth Rate) of revenue reaching 32.36% for the last three years (2017-2019), market share (of PC unit manufacturing business) amounting 13.5% and research and development (R&D) expenses as a percentage of revenue accounting for 8.82%, both topping the industry.

Thanks to the recent favorable policies in the prefabricated construction industry, Broad Homes remains dedicated to its PC unit manufacturing business and upholds the data-driven and B+C dual-driver strategies, well positioned to further consolidate its leading position and achieve leapfrog growth.

EXPEDITE INDUSTRIAL CHAIN DEVELOPMENT THROUGH COMPREHENSIVE DIGITAL TRANSFORMATION AND SECURE EXCESS PROFIT LEVERAGING INTELLIGENT MANUFACTURING

As the only prefabricated construction enterprise having been selected for the Pilot Demonstration Project of Intelligent Manufacturing in 2018 by the MIIT (Ministry of Industry and Information Technology of the PRC), Broad Homes has, through over two decades of cultivation, spared no efforts in facilitating the digital transformation of the industry and expediting industrial chain development. It has established eight generations of product systems for prefabricated buildings, conducted R&D into domestic first-class full process digital solutions and boasted experience accumulated in industrial projects of over 100 million square metres and strategic factory layout across the nation.

Currently, leveraging the leading manufacturing capacity of PC units, PC Maker I, the first domestic forward design software based on BIM platform in the field of prefabricated buildings, and PC-CPS intelligent manufacturing management system, the digital solution for the full process of prefabricated buildings, Broad Homes has bridged every stage of the whole industrial chain from design, manufacturing, construction to operation and maintenance and become a standardized portal for industrialization and intelligent service platform of the construction industry.

The design software PC Maker I of Broad Homes effectively improves design interactivity and optimizes design process to significantly reduce the time required for a single design process. With improved design accuracy, it enjoys better function integration capacity and consistency between the subsequent production processes and actual use when compared with other BIM software, thus winning great trust and favor from customers. As of the end of December 2020, we had provided comprehensive solutions of prefabricated buildings for nearly 300 customers, including Vanke, Country Garden, Evergrande, Jinke and Gemdale, and established cooperative relations with nine out of China's top ten property developers and China's top ten construction enterprises, thereby promoting the transformation from business cooperation to standard co-construction, and accelerating the shift of prefabricated buildings into standardization, digitalization and intelligence at the product end.

The picture 1 shows the functions of PC Maker 1 software

Project
Prefabricated preliminary design
Construction drawing
Prefabricated deep design
Prefabricated inspection
Drawing
Model creation
Unit dismantling
Unit design
Drawing management
Parameterized unit library
Parameterized accessory library
Custom module

The PC-CPS intelligent manufacturing system of Broad Homes is applied in digital twin technology to pre-simulate the whole process of prefabricated buildings in the system and trigger all instructions through data, which integrates process, cost, logistics and supply chain management, and coordinates the whole process from forecasting to goods acceptance in real time, thus significantly improving production and operation efficiency. It has become a standardized portal and intelligent service platform for building industrialization and enjoys trust from various reputable domestic property developers and construction customers. In 2021, Broad Homes will continue to improve the PC-CPS platform, enhance R&D capabilities, boostthe soft power of intelligent manufacturing, promote the comprehensive integration of the industrial Internet platform system, and propel the modernization of China's construction industry.

The picture 2 shows the whole functioning process of the PC-CPS system

Strategic customers
Product R&D
Business protocol for building modeling
Project import
Building model
Engineering model
Business model
Concluding contract
Delivery + first-level confirmation
Construction site
Complete semi-finished products
PC manufacturing
Finished products warehouse
Transportation
Site warehouse
Assemble prefabricated parts
Processing and packing
Pallet distribution
QR code-based production
QR code-based loading
Project startup
QR code-based warehousing
QR code-based launching
QR code-based delivery
QR code-based loading
QR code-based hoisting
Level-three QR code triggered by hoisting
Settlement
Analysis

In recent years, Broad Homes continued to increase R&D investment and strived to achieve digital transformation and upgrading. In 2019, its total R&D expenditure as a percentage of revenue remained at the forefront of the industry, which laid the foundation for the rapid expansion of its PC unit manufacturing business and forging leading advantages in the prefabricated industry, and brought about sustainable competitiveness and excess profits.

The picture 3 shows the total R&D expenditure as a percentage of revenue of industry peers in 2019 and R&D expenditures of Broad Homes from 2017 to 2019 (including the amount expensed and capitalized based on the information in the prospectus of Broad Homes and CITIC Securities Research Institute)

Total R&D expenditure as a percentage of revenue
China State Construction
Honglu Steel Structure
Golden Mantis
Orient Landscape
Shanghai Construction Group
China Chemicals
China Design Group
China Industrial International
Broad Homes
R&D expenditure
R&D expenditure as a percentage of revenue

From 2017 to 2019, the operating revenue and net profit of Broad Homes increased at a CAGR of 32.36% and 108.26%, respectively. In 2020, despite the shock of the COVID-19 pandemic, the PC unit manufacturing business, the core principal business of Broad Homes, secured sound growth with new contract amount of RMB4.091 billion, a year-on-year increase of 31.7%, and contract amount secured yet to complete of RMB5.196 billion, a year-on-year increase of 38.6%. Sufficient new orders and backlog paved the way for Broad Homes in 2021.

With the relief of the pandemic, the revenue of PC equipment manufacturing business of Broad Homes will pick up. Upon completion of reform of the remaining joint factories and leveraging potent demand, the overall performance of Broad Homes will steer into a normalized growth track.

PREFABRICATED BUILDINGS AN INEVITABLE CHOICE AMID POTENTIAL INDUSTRY BOOM

In recent years, the state issued relevant policies to vigorously guide and motivate the development of prefabricated construction industry. The "13th Five-Year Plan of Action for Prefabricated Buildings" of the Ministry of Housing and Urban-Rural Development clearly stipulates that the proportion of prefabricated buildings in new buildings should reach 25% by 2023 and 30% by 2025. The prefabricated building industry will embrace explosive growth.

Policies regarding China's fabricated buildings were first introduced in 2016. Although the industry grew at a CAGR of 55% in recent four years, the penetration rate of fabricated buildings in China in 2019 was only 13%. According to Frost & Sullivan, the domestic market scale of PC unit manufacturing business will reach RMB65.4 billion in 2020 and RMB285.5 billion in 2024, with a CAGR of 44.5%. Compared with the traditional cast-in-place construction method, the prefabricated building is energy-saving and environment-friendly, which may shorten the construction period by 45% and save manpower by 75%. Looking into future, due to the disappearing demographic dividend, high labor cost and limited capacity of resources and environment, prefabricated building materials will be an inevitable choice for the transformation and upgrading of the construction industry. With the improvement of penetration, this industry is expected to usher in a trillion-level "blue ocean" market. From 2014 to 2024, the domestic market scale of PC units for prefabricated buildings is estimated to record a year-on-year increase of 680 times, promising great potential. (Picture 4)

It is fair to say that in the next few years, the domestic prefabricated industry will enjoy a boom, and Broad Homes will also usher in an obvious turning point in profit. Three advantages will facilitate it to tap on the scale advantages 1) Broad Homes has established factories in Hunan, Tianjin, Yangtze River Delta and Pearl River Delta, which are the key areas for promotion of the prefabricated buildings, and 62 Joint Factories it contributed to span across the nation, which is expected to increase the capacity utilization rate of Broad Homes in the market boom; 2) the two design software of Broad Homes, being PC Maker I and PC-CPS, the intelligent manufacturing management system, empower the development of the industrial chain through digital management, resulting in per capita production efficiency far exceeding peers, and enjoy popularity among customers; 3) Broad Homes boasts eight generations of prefabricated building product system and experience accumulated in industrial projects of over 100 million square metres, positioning it in a very favorable position to seize the huge blue ocean market in the future.

INTENSIFY LEADING POSITION THROUGH DUAL-DRIVER STRATEGY TRANSFORMATION AND PROPOSED INITIAL PUBLIC OFFERING OF A SHARES

At the beginning of 2020, Broad Homes categorized its business into two major sectors, being B2B and B2C, in which B2C represents the B-house business charged by the Module Integration Technology Division, and the new product B-BOX business will also be launched. In the B2C field, B-house products primarily target C-end consumers and country villa market, and seven standardized products have been offered. In the first half of last year, it commenced to take orders for country villas.

It is reported that the self-built housing in rural areas and approximate to cities in China covers an area of over 1.3 billion square meters, and it is estimated that there will be more than 2.2 million new rural houses each year, implying great market potential for rural construction. Since the beginning of 2019, policies on rural residential pilot projects, marketing of collective management of construction land and decentralization of land use approval authority have been successively rolled out. Therefore, TF Securities pointed out in its research report that To C business will generate new growth driver for Broad Homes, and it is predicted that the scale of To C business (excluding B-BOX) of Broad Homes will reach RMB5.25 billion in the next three years, thereby contributing to considerable performance growth.

Besides, Broad Homes proposed to apply for initial public offering of A shares and listing the same on ChiNext of the Shenzhen Stock Exchange, to further enhance its capital strength. No more than 86.054 million shares will be allotted and issued under this IPO exercise, and the proceeds raised will be applied in six fields, including Broad Homes CPS Henan Research, Development and Production Headquarter Base Project, The First Phase of Assembly PC Factory Construction Project of Broad Homes Weifang Direct Company, Broad Homes Smart Site Research and Development Project, Broad Homes Mansion Exhibition Center Project, B-BOX Modularized Building Production Line Technology Renovation Project and supplementing of Working Capital, with an investment amount of approximately RMB1.879 billion. In particular, Broad Homes CPS Henan Research, Development and Production Headquarter Base Project and The First Phase of Assembly PC Factory Construction Project of Broad Homes Weifang Direct Company will increase the PC units production capacity of Broad Homes by 240,000 cubic meters, upon which, total production capacity of wholly-owned factories will reach over 2 million cubic meters. As such, Broad Homes is expected to consolidate its leading position and promises great growth potential in the mid- and long-term.

According to Frost & Sullivan, in terms of the revenue in 2019, Broad Homes is the largest domestic PC unit manufacturer, with a market share of 13.5%, and also the largest domestic PC equipment manufacturer in China, with a market share of 38.3%.

Looking into future, with the relief and even disappearance of the COVID-19 pandemic, Broad Homes will continue to consolidate its leading position through data-driven and dual-diver strategy transformation and A-share listing, and share the dividend of rapid growth of the industry with shareholders and investors.

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