Local construction veteran Lai Si Construction & Engineering Co. Ltd. has recently listed on the Hong Kong Stock Exchange. Given the market’s enthusiastic response, the company’s chief executive Harry Lai Meng San is optimistic about the future and reveals the company’s ambition to explore opportunities beyond the Macau Special Administrative Region
Few local companies are listed on the Hong Kong Stock Exchange, so why did your company decide to do so?
For the company itself, there were a lot of restrictions after getting listed, and currently the projects that we are working on require the company to be more standardised. Becoming a listed company definitely helps. Moreover, entering the stock market has enlarged our platform, which leads us to more opportunities. We also have more ways or approaches to obtain capital. We now have more restrictions, but it also builds up confidence in our clients.
How long did it take to get the company listed?
From the preparation to the official listing, it took around a year and a half. The whole process was completed faster than I expected. For companies in Macau, many encounter a lot of difficulties during the listing process. Some fail [to list] and some spend a significant amount of money but in the end they can’t meet the requirements. Others give up because of all the complicated and troublesome procedures and requirements.
What was the most challenging part of the listing?
Companies may spend two to three years to go through the listing procedures, and this includes companies in Hong Kong. Every month, we paid for compliance consultants, legal support groups, auditors and sponsors [in order] to meet the listing requirements. Meanwhile, the tax systems between the two SARs are different, and Hong Kong’s system is stricter. It is fundamental for an approved company to pay all the taxes according to its profit earned and [that] has to be shown in the company’s annual audited report. Normally, the requirements for listing include providing the company’s records for the past three years, but we hired an agent – which required us to provide five year’s worth [of documents] and so we succeeded in passing the evaluation.
Many of the listed companies from Macau are gaming operators. Lai Si Construction is one of the few non-gaming listed companies. Why do you think more local construction companies aren’t listed?
In terms of companies related to construction, our company is the first [to be listed on the Hong Kong Stock Exchange]. I know that there are other construction companies working on that, but they haven’t crossed the finish line yet. Aside from the issue of time, honestly speaking, many from the same [construction] field are veterans. They might not like the idea of disclosing information about the company to the public – this includes how much they earn every year or what kind of projects that they are working on. Many companies here are capable of listing on the stock market, but they are simply not interested in the idea of trading publicly.
How do you feel about the results of the subscriptions?
Investors in Hong Kong, in my opinion, are optimistic about the market in Macau. Hong Kong investors have a great demand for the stocks offered by local gaming operators. The prices of stocks from these companies are still rising. And after the Chinese New Year holiday, the environment is even better and the Heng Seng Index reached 23 or 24 thousand. It is rare for companies from Macau to exceed the subscription; in short, the exceeded subscription revealed that Hong Kong investors are interested in the market in Macau.
What is your opinion about the stock price doubling within a few weeks of being listed?
I can see that there are days when transactions exceeded HK$100 to HK$200 million, which is comparable with the performance of Cheung Kong Property Holdings Limited! The circulation is definitely high. We issued 100 million stocks and there are 70 to 80 million stocks traded every day, meaning the stocks were not held by the investors and stocks were constantly being traded. The response is better than I had expected.
What are the differences for the company since the listing?
Prior to listing, a profit prediction was created and we had to reach the goal for the year. After the listing, there is a larger amount of capital that can be used to explore new projects of a larger scale, such as public construction projects. We are planning to make tenders for public projects with other companies, [including] with state-owned companies from Mainland China. And being a listed company definitely makes co-operation with national enterprises much easier. In terms of operation, more effort will be needed, such as preparing the report of interim results. But I would not say there are huge differences after being listed. The workload is heavier but we can handle it.
With a few of the major gaming properties such as MGM Cotai completing their construction this year, how will the decrease in the number of projects available impact the local market?
Many of our clients are gaming operators and we provide fitting-out projects for restaurants and shops in those resorts. Usually, gaming operators have a budget for renovations. In Macau, there are over 1,000 shops opened within those gaming venues. Our company took most of the fitting-out projects for shops in the city, and only one company from Hong Kong exceeds the amount of projects we have [in that area]. And as such, our company has a significant share of the local market. Like I said, renovation is constantly demanded, whereas constructional projects are over once the structure is built. So our work can be developed sustainably.
What major projects has the company recently completed?
Not long ago we completed the podium construction at The Parisian Macao. We spent two years working on that and it cost MOP200 million (US$25 million). And we also finished the fitting-out project of a restaurant – Square Eight – in MGM Macau. Previously, the introduction of the policy to set up smoking lounges in casinos also led us to receive many projects. The smoking lounge projects had very tight deadlines but casinos offered extra rewards.
What are your other plans?
Our business is primarily based in Macau, but the company’s prospectus also mentions our intention to expand our business to Hong Kong. In Hong Kong, the market is huge and our business in Macau has already stabilised. We had in fact already launched our branch in Hong Kong during the preparations for the company’s listing last year, and we are currently working on two projects in Hong Kong. Also, our management team is mostly composed of expats from Hong Kong and other foreign countries. With their established knowledge and experience in Hong Kong, we are able to arrange personnel to develop the market in Hong Kong. Moreover, we have also launched a branch in Singapore. The establishment of our Singaporean branch was due to an invitation made by a client and it is still in its preliminary stage; we have yet to arrange staff to manage the subsidiary. For business in Mainland China, we focus on the real estate business but it is not within the current listing scope. With the market in Macau reaching saturation point, we might reach out to the Southeast Asian markets when our business becomes more mature. Like in Vietnam and the Philippines, both of these places are developing their gaming industries and could provide a lot of opportunities.
How do the construction markets in the SARs vary?
The market in Hong Kong is huge, but it is also very competitive. The amount of labourers engaged in Hong Kong’s construction sector is not trivial, and the majority of construction workers in Hong Kong are locals. Frankly speaking, despite me being a local in Macau, when comparing the construction sectors in the two SARs, Macau’s output value is much lower. There are young people entering the construction industry and well-developed related training and education channels in Hong Kong. Meanwhile, it is a completely different scene in Macau, where young people find construction jobs unattractive. As a result, the only way to resolve the shortage of construction workers in Macau is to import non-resident workers.
Generally, the construction industry often encounters difficulties in hiring workers. Has your company experienced similar challenges?
Absolutely, we are no exception. But the MSAR government is supportive of local companies and we have been receiving quotas to hire non-resident workers, as long as we provide contracts with information about the projects and date of completion.
Would you consider gaming operators as your major clients?
The fact is, those gaming operators have expanded their businesses into other regions and they want our participation in their projects there as well. And we are open-minded about these invitations, thinking about trying to expand our business in other regions, as well as seeing if our management team can handle this scale of expansion. I would say they [gaming operators] have fostered our business growth. I remember the first gaming-related project that I participated in was Sands Macao in 2002. Our company during that time was small and we were only able to take part as subcontractors in many projects. It was upsetting because we were doing all the work when we were the subcontractor, and the main contractor would get the money first. Later, we had a direct contract with the developer for the construction of the Venetian Macao, and it was our first direct contract for a gaming project.
If I had to choose between public projects and jobs from gaming operators, honestly I would choose the latter. Work for gaming operators offers better remuneration and there are more competitors in public projects. But the gaming operators are stringent in contracting their projects, and so we have hired a number of foreign staff so as to better handle negotiations and get more chances to co-operate with the gaming operators.
Lai Si Construction & Engineering Co. Ltd.
Lai Si was founded in 1980 in Macau, and registered under the Land, Public Works and Transport Bureau (DSSOPT) in 1989 as a professional contractor. The company engages in civil construction, retail fit-outs, interior design and renovation projects of all scales, with retail fit-outs serving as its major business. Over the past 30 years, Lai Si has expanded its business to encompass Macau, Hong Kong, Taiwan and Singapore.