Analogue Holdings Limited (1977) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for joining the 2021 Interim Results Investor Virtual Meeting of Analogue Holdings Limited. Today's meeting will be conducted in English. First, we will have a presentation session followed by a Q&A session. [Operator Instructions] Before we start, I would like to introduce to you our management on stage. They are: Dr. Otto Poon, Chairman and Executive Director; Dr. Kin Mak, Deputy Chairman and Non-Executive Director; Mr. Victor Law, Executive Director; Mr. Raymond Chan, Executive Director; and Mr. Peter Cheng, Chief Financial Officer. Now let me pass the time to Dr. Poon, who will give you an overview of Analogue's results. Dr. Poon, please?

Good morning. And thank you for joining us for today's meeting. As part of today's presentation, I will provide a company overview. My colleagues will then talk about our company's financials and review our business during the first half year. Just in case there are new participants, I will provide a quick recap of our company. For over 40 years, we at Analogue have been a leading E&M engineering service provider. Headquartered in Hong Kong, we provide a wide range of services under 4 major segments: namely Building Services, Environment Engineering, ICBT and Lifts and Escalators. Our clients come from both the private and public sectors in countries and regions around the world. As a pioneer in E&M engineering technologies, we collaborate with [indiscernible] universities on R&D capability and have reached 55 patents and designs internationally. Despite the many challenges faced over the past 2 years, we have leveraged the strong foundation of our core businesses to maintain a sustainable growth with high value of contracts in hand. Our motto, we commit, we perform, we deliver, is reflected in everything that we do. Our commitment to innovation and technical excellence has allowed us to seize the high ground within the industry. Our innovative technologies, high service quality and commitment to environment, social and corporate governance have been recognized by the community, as demonstrated by the various awards and [indiscernible] won during the period. We'll provide -- we will continue to strive for excellence, both as a company and as a corporate citizen to create value for all our stakeholders. Our financial review section, let me pass the time to our CFO, Peter Cheng.

Okay. Thank you Dr. Poon. Let us first look at some of the results highlights of our group for the 6 months ended 30th of June 2021. Our group has been able to sustain growth despite the challenges faced by many companies in different industries around the world. Our outstanding contract in hand have once again hit a new high at HKD 11.9 billion, up by over 10% year-on-year. I am also pleased to add that our net profit has also increased year-on-year, rising by 5.3% to HKD 112.5 million. During the period, the group remained in a healthy financial position with strong cash and bank balances amounting to HKD 1.25 billion and with no borrowings on our balance sheet. As always, we are committed to rewarding our shareholders. So with our dividend payout ratio standing at 50%. Now let's go through on this slide, some of the key trading performance financial data, the income statement. Just 1 qualifying point, as TEI was consolidated into our group financial statement for -- from April to June 2020, which isn't the case for the first half in 2021. So a column has been added to show the difference after excluding TEI's consolidation so that we can show a like-with-like comparison. So on the same basis, the total revenue of the group would have grown by 3.9% year-on-year. And the net profit attributable to owners of the company rose by 5.3% to HKD 112.5 million, while earnings per share were at HKD 0.08 per share. So we demonstrated that we are remaining at the same profitability year-on-year. And the Board has proposed an interim dividend of HKD 0.0402 per share for this interim dividend. The payout ratio will equate to 50% of our profit reported. So the next item, let's have a look at the revenue breakdown. So the revenue by segment, first of all, the chart. The Building Services segment continues to be our main major revenue contributor accounting for over 60% of our revenue, just under HKD 1.4 billion in the first 6 months of 2021. In addition, revenue from Environmental Engineering has increased by 2.5% to HKD 511.2 million. As for the Lifts and Escalators segment, revenue rose by 16.2% to around HKD 180 million, and thus in comparison, excluding the TEI's revenue in the first half of 2020. ICBT also recorded revenue of around HKD 226 million. In terms of project in the nation, so we're looking then on the graph of revenue by nature. Contracting work accounted for almost of our revenue at close to 77%. But it is important to note that our maintenance works has been increasing year-on-year. And in the first 6 months of 2021, it's now accounting for over 20% of our total revenue. So on the last page, so here are some of the items on the balance sheet, showing the financial health of the company. Mainly just 2 items that I would like to highlight, which is -- which are the bank balances and cash, as I reported, is now stand at -- on 30th of June, stand at HKD 1.25 billion increased from the 31st of December 2020. And then the other one is the penultimate row on this table. The gearing ratio remains at no borrowing at the current point in time on 30th of June 2021. So now let me hand back to Dr. Poon and the rest of our colleagues to talk about the company's business highlights. Over to you, Mr. Otto Poon.

As the pioneer in providing innovative E&M engineering services, analyze a number of cutting-edge technologies that allow it to reinforce its leading position in the industry, including MiC, MEP and BIM. Such technologies have helped to further raise our competitiveness by improving the overall efficiency and quality of all our projects. I'm particularly proud to note that Analogue has participated in several first-of-its-kind projects, such as the Anderson Road grey water treatment plant project which is the first district-wide centralized grey water recycling system and the first personal stacking system car park in Hong Kong. We have also placed considerable effort on enhancing recurring revenue from maintenance service. Its proportion of total revenue has consequently risen from 16.4% in the first half of 2019 to 20.2% in the first half of 2021. As an industry leader, we have built a track record of successful E&M works and earning the reputation as the provider of first-in-class service, such an achievement have paced the way for realizing our global expansion goals. Apart from our strategic alliance with TEI in U.S., we established a foothold in London earlier this year, allowing us to provide one-stop service for customers in the U.K. as well as to capture opportunities in Europe. In the meantime, we are also looking into the opportunities in Oceania and Great Bay area. Now let us pass the floor to Victor and Raymond and they will share with you the highlights of our business segment during the period under review. Victor, please?

Okay. Thank you, Dr. Poon. Let me report the business of Building Service segment, which remains the major revenue contributor of the group. For the period under review, revenue from contracting, maintenance work and sales of goods increased steadily, which make the total revenue increased by 5% year-to-year -- year-on-year. While revenue from maintenance work increasing by more than 20% to HKD 136 million, this has helped to strengthen our recurrent revenue stream in the coming years. I would also like to add that the value of outstanding contracts in hand, which HKD 5.1 billion for the period. In the following slide, I would like to report the different sector achievement. Our Building Services segment provides comprehensive E&M service, including heating, ventilation and air conditioning, fire service, plumbing and drainage, electrical and extra low-voltage system. The client we serve cover wiring of buildings and facilities. Ranging from institutional, residential, industrial, data center, health care, commercial to infrastructure facilities. As an industry leader, we have always taken the lead to adopt smart technology adoption, including MiC, BIM and MEP. Currently, over 50% of our building service project employ BIM in coordination and project management works. It does not only strengthen our competitiveness and drive construction to [indiscernible] but also mark a significant step forward in bringing construction practice to the digital age. Our 1 notable example is InnoCell in Hong Kong Science Park. We have also applied innovative technology in major projects in Hong Kong, including various residential and commercial projects in Kai Tak development area. Under the Building Services segment, we see great opportunity in health care service sector. In terms of project with the hospital authority, we are working on an [ A& A ] contract for E&M works involving 11 public hospital and 20 clinics health center within [Kaplan] East and [Kaplan] Central hospital customers. And we will also have to upgrade the BMS system for United Christian Hospital in Kwun Tong. For pilot projects, we entered into an MOU with Chinachem Group, and we will be working on delivering comprehensive services to the health care industry in Hong Kong. The partnership aims to foster the management of health care facility and allow us to explore opportunities in such areas as medical, tourism, telemedicine and IoT solutions for the health care industry. Ultimately, this will allow us to build on our foothold in the local health care sector. Data center is also one of the areas that we are actively involved in lieu of the rapid growth of 5G and IoT. As a leading service provider in data center infrastructure in Hong Kong, we provide customized solutions, including energy-saving proposal, coupling full data center life cycle and advanced technologies such as BIM, offsite fabrication and modernization technologies. For now, we have participated in the construction of the government data center complex in [indiscernible] which is to be completed in 2022. We will continually allocate additional resources and investment to meet the increasing demand in the coming years. Geographically, we see attractive opportunities from the rapid development of the Greater Bay Area. One example is the Sky City, which is the biggest indoor retail payment destination and one of the largest commercial projects in Hong Kong. We took part in the [indiscernible] and fire service installation for this project, which we contract amount over HKD 485 million. In Macau, we will involve -- we are actively involved in the HVAC and electrical installation work at Galaxy Hotel Phase 3, a 38-storey to hotel with contracts around HKD 300 million. Apart from these opportunities, we are expecting even more in the future. Looking ahead, we will continue to identify business opportunities in different regions to further expand our Building Service business. This end my presentation. May I pass to our colleague Raymond to present the report on the other segment.

Okay. Thank you, Victor, and hello, everyone. It's now my turn to talk about our company's 3 other business segments, that is Environmental Engineering, ICBT and Lifts and Escalators. With regard to Environmental Engineering, this segment achieved an increase in revenue of 2.5%. It is worth noting that contracts in hand shifted by a significant 155% to HKD 5.3 billion. This was due to an increase in the lumber environmental infrastructure projects following the government's announcement of its commitment to environmental protection as outlined in the 2020, 2021 budget. Our Environmental Engineering segment delivers total solutions covering design build, operate, maintenance of environmental engineering facility of water, wastewater, solid waste and gas treatment. During the period under review, we stepped up investment in value-add initiatives and developed the Digital Twin technology to optimize the chemical and energy usage and enhance operational efficiency at the designated water and wastewater treatment facilities. Also, we leveraged our proprietary and proven track record to explore overseas business opportunities. We subsequently submit tender in Philippines, South Africa and also Bangladesh during the period. We believe that it is crucial to come up with a new business model to strengthen our competitiveness, which is why we are currently considering entering the public, private partnership program for One Belt, One Road projects. We will continue to explore local and overseas business opportunities for sustaining growth. Concerning the ICBT segment, it offers green and intelligent building solutions that contribute to the development of smart city and smart economy. In the first half of 2021, this segment contributed around HKD 226 million in revenue to the group and has around HKD 1 billion worth of outstanding contracts in hand, up to 5.5% year-on-year. The group has introduced a wide range of ICBT projects, including our in-house development -- developed cloud-based AI energy management platform. Our newly developed smart IoT applications, indoor positioning and AI-based video [ analytics ]. Our cloud-based AI energy management platform, leverage big data analytics enable HVAC system to perform optimally and use energy more efficient. A number of leading property developers are currently using this [indiscernible] For their energy management. As for our indoor positioning and AI-based video analytics, cold provide real-time location support. They are ideal for high-traffic locations and densely populated areas, ensuing cloud security, strategic [indiscernible]and engagement and better operational efficiency. Personally, we are developing a new subscription-based business model for the energy and technology business, which will provide recurring revenue for the group. I wish to look at the group marked a milestone by installing the city's first automatic robotic parking system for Hong Kong Science Park. We see huge potential for this type of business as more smart parking business opportunities are expected in the coming years as Hong Kong moves towards smart mobility. What's more, this trend will further drive digital transformation and the development of smart building technology to optimize energy use and enhance overall operational efficiency. For our Lifts and Escalator segment, excluding revenue from TEI in 2020, segment revenue rose by 16.1% to HKD 179.5 million. Despite the challenging environment in the first half of 2021, we were still able to maintain sustainable growth with high-value contracts in hand, which totaled around HKD 530 million. With regard to our lifts and escalator operation, we provide design, manufacturing, sales, installation and maintenance services for lifts, moving walkways, heavy duty escalator and escalators. We are proud that our labors have resulted in a number of success from gaining a foothold in Europe of our Lifts and Escalators business to sign new contracts and engaging in several icons projects locally in 2020 and 2021. The group's multiple contract wins or projects that will adopt cutting-edge technologies, underscore our ability to implement a once application systems, including Hong Kong's first personal stacking system car park at [indiscernible] Avenue Tower in Kai Tak, which has a [indiscernible] sum of around HKD 4.6 million. Well recognized by the community, we recently received gold medal at International Exhibition of Invention of Geneva 2021 for the artificial intelligent nylon optical fiber sensing escalator accounts in conjunction with EMSD and Poly U. We also earned the highest safety and quality performance weighting in lift contractors performance ratings and escalator contractor performance rating system from EMC for 34 quarters. Such recognition has definitely brought forward our global expansion plan. Through tremendous effort today, and it is not only a contractor in Hong Kong, but also a global brand name that serves millions of users across the world, including projects in over 20 countries that span across Asia, America and Europe. In early 2020, we established a strategic alliance with TEI that marks our first step towards tapping the U.S. market. We have now established our foothold in Europe with the opening of our first company in London in early 2021. Together with our existing operations in the local market, our international network will generate huge synergy, which will allow us to penetrate into overseas market even more effectively. On the operation front, we have our own R&D and manufacturing facility in [indiscernible]that meet the highest international standards. In lieu of the certain demand of high standard products, [indiscernible] has been expanding its manufacturing plant, which is expected to be completed by 2022. Upon commencement of operations, if production capacity will be substantially increased to meet growing demand and more importantly, to support our expansion to high-quality products. Covering all 4 business segments, our maintenance service serve the public and private sector, which include the Hong Kong Authority Water Supply Department, Drainage Service Department, EDD and EMSD, China Light and Power and also 2 international [indiscernible] center. Looking ahead, we were devoting more efforts to growing our maintenance services so that it will contribute further recurring and stable income to the group. This is all my part for today's presentation. I will pass to Dr. Kin Mak to go through the group's growth strategy. Thank you.

Thank you, Raymond. Looking ahead, we are cautiously optimistic about our prospects in view of the increasing opportunities in the region and across the world. The Hong Kong government has also pledged investment in infrastructure projects, including increased annual capital expenditure to supply 430,000 housing units in the coming decade and earmarking HKD 200 billion for the 10-year hospital development plan. We expect a continuous rebound of the construction industry. We will also continue to strengthen our leading position in the industry by pursuing new technology, new market and new business model. For new technology, there are exciting opportunities arising from smart operational requirements enabled by digital technologies, big data analytics, IoT and other innovation. What's more, there is an increasing demand for the upgrading and replacing our systems in existing duties with the latest technologies to enhance operational and energy efficiency. So we can expect great opportunities to emerge. To ensure we can continue to introduce innovative technologies, our investment in R&D, covering Internet of Things, artificial intelligence, big data analytics, modular integrated construction, multi-trade mechanical, electrical and plumbing systems and building information modeling, will be maintained. The importance of such technologies can't be underestimated as they benefit our clients on multiple levels, and at the same time, strengthen our competitiveness in terms of time, cost, energy and operational efficiency. Regarding the new market, as we start to witness the encouraging results from our strategic alliance with TEI in the U.S. and our business operations in the U.K., we will continue to leverage our expertise to expand our presence regionally as well as in the Greater Bay area. In terms of new business model, the group is anticipating rising demand for specialized solutions, which is why we are continuing to strengthen our operations and maintenance service capabilities. In addition, we are constantly broadening our business models by deploying new technologies in hospital facilities and smart car park systems and digital twin technologies in water and waste water plants. Besides, the club fully -- the group is fully aware of the importance of monitoring and mitigating risks such as human capital, material cost fluctuations and foreign exchange exposure. Overall, the group is well positioned to take advantage of opportunities in both public and private sectors. To build a strong and diversified portfolio that will add stability to the revenue pipelines from our business segments and maximize value to shareholders. Thank you very much this is the end of our presentation.

Thank you management for the clear and detailed presentation. We will now begin the Q&A session. [Operator Instructions] The first question comes from Mr. David Web.

Can you hear me all right? Hello. Can you hear me?

Please hold on. Please hold for a while. Please hold.

Hello. Can you hear me? Hello?

Hello. Hello, Mr. Web. Yes, we can hear you now. Would you mind repeating your questions once?

Yes. I haven't asked yet. I was waiting for you to confirm you can hear me. Good Can you see me? I've turned on my camera as well.

Yes, we can see you well.

Okay, good. So I have a number of questions. The building -- the profit margins in the operating segments ignoring the forgiveness of the government -- U.S. government loan in the associate TEI, which obviously boosted Lifts and Escalators somewhat. But in Building Services, particularly, you only had about a 1% segment profit, significantly lower, HKD 15.5 million versus HKD 52.5 million in the comparable period, and Environmental Engineering, HKD 24.8 million versus HKD 15.8, that was better. And if I go back to Building Services, that HKD 15.5 million included reversal of impairment losses on credit of HKD 8.6 million. So without that, the profit would have only been about HKD 7 million on HKD 1.4 billion of turnover. So my question is why has the margin come down? And will that be the future expected margin?

Mr. Web, let me try to answer this from the financial analysis, first of all, during the first half of 2021, there are a number of projects that has not reached the threshold for profit recognition during that period. So we are talking about significant project, which Mr. Law has highlighted during his presentation. For example, the government data center, there is a building services in one of the MTR station and then so on and so forth in Kai Tak as well. These are delay in the execution of the projects from our main contractor. So we have started work. But because of the delay in the project execution, we have not reached the threshold for profit recognition in this first half. We are optimistic and forecast that we should reach the profit recognition threshold in the second half of 2021. So we're optimistic or cautiously optimistic that we would be catching up on that. So let me just ask Mr. Law what...

But do you think if you recognize revenue and expenses. You're talking about actually recognizing revenue rather than recognizing profit.

That's correct. We recognize the revenue, but no profit because we have not reached the 30% threshold for profit recognition.

Sorry. Your -- I don't quite understand then how do you not recognize a profit or a loss if you're recognizing revenue and expenses?

I mean in the group accounting policy, for projects, we only recognize -- we should only start to recognize profit when the project reached 30% of work done. When that is reached, then we start recognizing profit, which is a...

That means that you deliberately don't recognize all of the revenue that has accrued in order not to book a profit effectively until you get 30% through the project.

That's correct. That's...

So you're saying this is due to a lumpiness in some of your revenue flows that will happen from time to time?

But it does happen from time to time, and it is also a common practice for construction industry for profit recognition. They don't recognize profit on 1% work done. They recognize 25%, 30% of work done.

So you recognize just enough revenue to cover the expenses incurred on the projects that have not yet reached 30% or what?

That's correct.

So they are neither profitable nor loss-making in these...

If they are loss making, we would make provision on day 1.

So what would be your target margin on this segment in the long run, your target profit margin?

We are expecting to -- we are cautiously optimistic to reach our performance as per last year.

But in the long run, would we target 4% or 2% or...

We will be expecting to...

When we tender for these projects, what's our target margin?

We are expecting to reach the profit -- the profitability as we have reported in 2020 by the end of 2021.

Okay. That's how you're tendering for new projects, is it? Obviously, you have a margin in mind when you tender, you don't tender randomly, you tender...

Yes. So we go through our tendering process and ensure that we maintained our performance going forward.

Okay. Now the -- a large portion of the period's net profit relates to the realization of gains in the sale of Nanjing Canatal shares and resulting in proceeds of about HKD 94 million. That's a liquidation of assets that were not previously used for any other business purpose. But you're not distributing those or a comparable amount of Hong Kong dollars, if they're still in RMB. And the cash is accumulating on the balance sheet. And I think the reason your shares have dropped into the results came out is probably, if I speculate a little bit, because you're still holding too much cash. It's -- you're focusing on 50% of EPS, which, of course, is a noncash measure of profits. If you were to liquidate all of an asset at cost, then it wouldn't create any profit, but you suddenly have lots of cash on your hands. In this case, there is quite a big gain. But it seems like the policy is somewhat inappropriate. And the continued retention of so much cash dilutes to your return on equity and investors are concerned about that. What do you say to that? And why don't you distribute the proceeds?

Let me try and answer on the numbering side, and then I'll pass it on to my colleagues to answer some of the others. I think first of all, is that the cash we hold at the moment, they have been allocated, capital allocation has been done for working capital because we have an increase on our order book, our contract in hand. Also, there are a number of projects that have been delayed, but absolutely, and that we are expecting to probably close some of these projects during 2021, which will utilize some of the cash that we have on hand. These are corporate activities. So we would be looking at whether it's M&A or other partnerships that we are doing. So currently, we are -- our cash position is fully allocated on the capital investment basis. I don't know whether anyone else would like to add to this. No? Okay.

And do you intend to further liquidate shares in Nanjing Canatal, given that the share price has gone up substantially since the end of June?

I think we will continue to evaluate the situation as we see. I think here is that we are -- we hold shares in Nanjing Canatal. We will continue to monitor the situation, and then we will decide as and when the liquidations or not liquidations of the holding.

So that's no, you haven't got any plan to sell more?

As of today, we are evaluating the situation.

As your second largest shareholder, I think you should sell more of it. I mean, it's not key to your business, it's stated -- it's carried in the books at cost, vastly less than the market value. And again, it's the proceeds of that distributed would alert investors to the attractions of your stock. It's just valued at roughly half of the market value of Analogue. So that ought to be dealt with. It doesn't stop you trading with them or selling -- providing services with them or whatever trade relationships you want, but one should never invest in companies for -- as customers or suppliers. That's not a good thing. Finally, on the Environmental segment, there is talk of venturing into developing markets like Bangladesh and the Philippines for business. And I would be very cautious about that because the history is strewn with failed projects and credit losses on what is a fairly thin margin business. As governments change in these places, the succeeding government tends to accuse the former government of corruption, projects get canceled and assets get stranded and debts get written off, you could expose the group to substantial losses if you went down that path, whereas you do know your home market in Hong Kong and Macau very well and to some extent, the mainland is less risky than some of these emerging markets. So I would not get too carried away if the mainland competitors of ours wish to engage in belt-and-road-type projects for nationalistic reasons, then let them do it. But I wouldn't want to see Analogue doing things for belt-and-road reasons. You should do them for profit reasons and avoid the potential credit losses. You should look for good quality state bank, PRC bank guarantees, for example, over a project you're engaged in.

Okay. Let me explain to you about this situation. In fact, for our tender in Southeast Asia countries, we involved mainly on the World Bank or Asia Bank projects, not the local finance project. And second point is our business model in South Asia in this new area is different than that in Hong Kong, Macau or China. In these projects, we are mainly involved in the -- as a technology provider. We will not be involve in any local site erection, something like this. So we will work together with a local company, local power, and they involve the local work, and we provide equipment and also technology to them.

So what would be the credit exposure then who would we be exposed to? Is it directly to the World Bank, which is fine with me, I trust them or the ADB or is it to the local construction partner, which may have very little capital base and they come into financial trouble if the project gets canceled?

There is a risk, but if we want to explore our opportunity outside Hong Kong, mainly China, we try to do this. So it is a long-term strategy.

Well, I would encourage you to obtain and factor into your tendering -- to obtain credit insurance, either from Hong Kong export credit insurance company or others on any products and services that we supply to the ventures to really secure against these risks. I mean things like the Bangkok elevated road and rail system that Golden [indiscernible] got involved in and there are many other projects like that, that resulted in big write-offs for Hong Kong companies and not just Hong Kong companies when they failed to proceed.

I think here is that we will continue to work closely together to try to make sure that we minimize the risk and exposure of any of these overseas expansion. Whether it is M&A or whether it is a PPP projects, whether it is the consultancy project.

Some of your competitors don't care so much because they're state-owned and they're doing it because it's the national policy and the state will always stand behind them and absorb the losses because it's all about...

I mean we don't have the central government behind us. So we have shareholders. So we will continue to monitor and minimize our risk.

Next question is from Jeffery Tam of Cinda International. The question is, the group mentioned about the business opportunity in GBA. So what opportunity is the group going to capture? And when will there be substantial top line and bottom line contributions from these new opportunities?

In -- for GBA in the moment, we are considering a field area that we want to invest. Apart from the conventional engineering contract, we may explore some opportunity in the health care -- new technology partner in health care facility. And also, we are considering to set up a backup office in GBA earlier to support the Hong Kong activity, including the BIM production and also the MIP prefabrication MiC facility.

Thank you. The next question is from Mr. [ Lawrence Wu ] of [ Eurovest ]. The question is, why did the value of the outstanding contract in hand of Environmental Engineering segment grown so much during the period. How much would be booked in the second half of 2021? How much was the profit margin? And how do you see its performance for the full year?

Okay. Regarding Environmental Segment, I think in the second half of the year, we still see there is a lot of potential projects set out by government. So we see no matter their order -- new order and also the revenue, in the second half year, there will be an increase.

Okay. A follow-up question. Any M&A targets under this segment, the Environmental Engineering segments?

Yes. We are exploring some potential M&A about this environmental segment. And we -- I think in a [indiscernible] time, we will announce this later.

The next question is from Mr. [indiscernible] of HSBC. The question is, is there any update on your partnership with Chinachem? Any concrete cooperation plans or projects to share with us? When do you think the partnership will start bringing in contributions to the group?

Regarding the MOU with Chinachem on the facility management for healthcare facility, we are working -- upon our signing of our MOU in July, we are working closely with Chinachem to form our business model, business strategy and also we are starting to contact with our target hire and also see opportunity for tendering some Pacific management project in the future. And we are working very hard on that, but how we can have the revenue contribution to the group. I think it will depend on our progress. In this moment, I can't give you a [revenue] but we do hope we can have the revenue, if possible, within a year.

The next question is from Daniel Zing of RS Core Capital. The question is, as a follow-up to the response to David's question, what are the reasons for the delay from your main contractors? This is the first question.

Okay. Regarding the delay of the project in the previous year, I think there will be quite a lot of reasons. It depends on project by project. There may be some decide change from the client side that will causing some delay of the construction. And there may be some resources opened from our upstream remain contracted, resources opened, and there may be some project management issue within the organization. There will be quite a lot of reasons.

Okay. And the second question is, can you share what the current backlog for TEI?

It is about USD 150 million.

Okay. And another question from [ Mr. Byu Zhong ]of MSQ Asset Management. As metal prices went up a lot this year, what is the impact to the company's profit margin? The metal prices went up a lot.

Well, the metal, I think the most critical is steel and also copper. I think in order to minimize our risk I think in the tendering stage, we seriously -- we will be changing the or the price fluctuation. And we will strategically determine what would be our price level we are going to quote. And also, in order to minimize our waste also, we also try to fix our cost with our vendor as early as possible.

One more point regarding this high fluctuation. For most of the government projects, there is a high fluctuation. It means the contract sum will increase based on the high fluctuation index. So for this, we have some compensation.

Let me just try and summarize. I think here is that with most of our contracts, we're trying to build in a mechanism to insure us against price fluctuation. And then the second point is, I think the Victor has also mentioned is that for commercial job where there's minimal protection again is the contract in the contract. Then what we do is that when we book -- when we awarded the contract, we booked our metal prices straightaway to minimize our exposure to the fluctuation.

So thank you so much for the investors' questions and also the answers from the management. Since no further questions are being raised, this will conclude our investor presentation today. Thank you for all of your participation and continuous support to Analogue. If you would like to get more information about Analogue, please go to the corporate website, atal.com. Once again, thank you for your participation. You may now disconnect.