Analogue Holdings Limited (1977) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for joining the 2023 Annual Results Investor Virtual Meeting of Analogue Holdings Limited. Today's meeting will be conducted in English. We will begin with the presentation by the management, followed by Q&A. You are welcome to turn your camera on, so that our management can greet face to face. Before we start, let me introduce the management team to you. They are Dr. Otto Poon, Founder and Executive Director. Dr. Kin Mak, Chairman and Executive Director; Mr. Raymond Chan, Chief Executive Officer and Executive Director; Mr. Brian Cheng, Executive Director; and Mr. Peter Cheng, Chief Financial Officer and Executive Director. Without further ado, may I now invite Dr. Poon to give you an overview of Analogue's results. Dr. Poon, please.

Good morning, ladies and gentlemen. Thank you for joining our 2023 Annual Results Investor Presentation. As you have probably noted from our announcement, Dr. Kin Mak has taken up the role as Chairman of the Company from first of March 2024. And I will continue to serve on the Board as Executive Director, contributing to the overall strategy planning for the group with a special responsibility for our Lifts and Escalators business. As today's presentation is about the announcement of our annual results for the financial year 2023, during which I was the Chairman of the company, I will start off the presentation by sharing with you an overview of the company. Other members of the team will walk you through our financial, operational highlights for 2023, followed by our outlook and growth strategies. With over 45 years' experience of operating history, Analogue Holding Limited is a leading electrical, mechanical, engineering and technology service provider with headquarters in Hong Kong and offices in Macau, Mainland China, Europe and America. We provide one-stop Electrical and Mechanical engineering and technology service across diverse sectors, including buildings, data centers and infrastructure. Environmental Engineering, ICBT, which means Information, Communication and Building Technologies and of course, Lifts and Escalators. In 2023, we were able to maintain sustainable business growth with high value-added contracts in hand. We have obtained 62 international patents and designs showcase our commitment to fostering a culture of innovation. We are also committed to sustainability and creating share value for community through ESG initiatives. We achieved progress in a number of areas in 2023. We have actively participated in tendering activities and achieve high contracts in hand. We also generated strong recurring revenue from maintenance services. All these have established a strong foundation, a strong foundation for us to seize future opportunities, especially in Hong Kong and Macau, where the markets are strong. Underpinned by our strategic periods of new technology, new market and new business model, our Lifts and Escalators business is well set to provide service to the global market. During the year, we completed the acquisition of 2 lift companies in U.K., coupled with our strategic alliance with TEI in the U.S. Our factory in Nanjing and operations in Hong Kong are one step closer to penetrating the global market. We will continue to explore potential business opportunities and equity partnerships, including expanding into Middle East, Southeast Asia and related business segments. We are committed to driving innovation, stay ahead of the market. Our innovative solution launch during the year included Digital Twin, energy optimization and IoT solutions and the comprehensive crane and hoisting system. We are prepared -- I'm sorry, we are pleased to share that we have successfully implemented BIM, DfMA, MiMEP in over 50% of our building service -- services projects. For talent development, we have been providing training programs that offer a wide range of opportunities, including graduate trainership and apprenticeships. This is an important strategy to drive not only the growth of our business but also to sustain an industry development. We are also revitalizing an industrial building in Kwai Chung, named ATAL Tower to become our new headquarters, which will enhance synergies among the business segment and operational efficiency. ATAL Tower has achieved provisional platinum rating and the BEAM Plus New Buildings (V2.0), highlighting our commitment to reduce environmental impact, ATAL Tower scheduled to come on stream in 2024. Thanks to our team's dedication, we have achieved a number of awards during the year, in recognition of our contribution to the industry, ESG, innovation and human resource development. Our CFO, Peter will now present to you the group's financial performance in year 2023. Peter, please.

Thank you, Dr. Poon. Good morning, everyone. I'll run through financial performance of the group in 2023. Starting off with our group's order intake reached HKD 5.8 billion during the year. While our contract in-hand remain high at HKD 11.5 billion. Despite the challenging market environment, our revenue remained at a similar level at HKD 6.1 billion. Profit attributable to owners of the company was reported at HKD 251 million, representing a year-on-year growth of 100 -- approximately 120%. The profit attributable to owners of the company in 2023 into account among others, 2 items, which I'd like to highlight. One is a dilution gain of HKD 124 million upon completion of a private placement by an associate of the company, which happened in the first half of the year 2023, and a provision of HKD 122 million made related to certain contracts in the healthcare sector, and this provision was made in the second half of 2023. These items I just talked about, one being positive, the dilution gain and the other being negative, which is the provision made for the contract in health care sector, had a more or less neutral impact on the group's 2023 result. Excluding these items, the adjusted 2023 profit attributable to owners of the company would have been HKD 249.4 million. And then in comparison, for 2022, the previous year, the profit attributable to owners of the company was reported at HKD 114.6 million. During the year of 2022, if we exclude the litigation provision made for HKD 150 million, that's recognized in 2022, the adjusted 2022 profit attributable to owners of the company would have been at HKD 264.6 million, which is very similar to 2023 reported profit. The other item that I would like to highlight is that the company remain strong with our resources. We have cash and bank balance amounted to over HKD 900 million and a low gearing ratio of 15 -- just over 15%. Next slide highlights our key financial data. Revenue decreased by 5.3% year-on-year, which was due to a decline in revenue of our Building Services segment. Gross profit decreased by 17.6% to HKD 833 million, owing to the provision made on certain contracted healthcare sector, which we mentioned earlier already. Gross profit margin was down to 13.6%. Profit attributable to owners of the company amounted to HKD 251.5 million with details elaborated in the previous slide. Basic earnings per share increased by 125% to HKD 0.18. Dividends for the year totaled HKD 9.52 per share, HKD 8.52 was paid in the first interim dividend, and we are paying on more cent in the second interim dividend. As for the revenue breakdown by segment, our Building Services segment continue to be our primary revenue driver, while other segments have all recorded revenue growth. By project nature, our contracting work remained the key revenue contributor. Our drive to increase recurring revenue and showing it as maintenance work has recorded a revenue growth of 13% and continue to strengthen our recurring revenue stream. Revenue from sales of goods has remained at a similar level as the corresponding period for last year. Overall, the group has maintained a healthy balance sheet and key financial ratios. We have a strong cash position and adequate committed bank facilities to finance our future growth and development. Our return on equity has continued to rise, reaching 12% at the year-end. The slide shows our dividend payout record since listing in 2019. And for 2023 financial year, our total dividend will be HKD 9.52 per share. I now completed the financial highlights. I will pass on to Brian to share with you our business highlights in Building Services. Over to you, Brian.

Good. Thank you, Peter. Good morning, everyone. I'm Brian Cheng. The Building Services segment continued to contribute the largest share of revenue for the group with contract in-hand value at HKD 5,800 million, up 6.9% year-on-year. Segment revenue was HKD 3,700 million, strengthened by the award of new maintenance contract in 2023. Our Building Services segment provides one-stop Electrical and Mechanical Engineering Service to client in every sector. We are committed to adopting the latest technology to deliver innovative and competitive solutions for our customers. Today, over 15% of our building service projects have adopted building information modeling, BIM, design for manufacturing and assembly, we call it DfMA and also multi-trade integrated mechanical, electrical and plumbing, MiMEP to improve management efficiency, quality and safety. We continue to invest in construction technologies such as BIM, modular integrated construction and MiMEP. We have also developed automatic calculation algorithms for mechanical, electrical and prompting MiMEP discipline to enhance equity and also speed. During the year, we continued to maintain a strong order book with a major package contract for a prime commercial project in Causeway Bay for MiMEP with innovative commercial building solution secured. In addition, Hong Kong's attractive location for data centers, coupled with our leadership in the sector position us well for future growth. Our data center project team has secured and commenced a number of large-scale data center project for a major data center service provider in Hong Kong. In Macau, we are currently executing a major contract for a sizable hotel development. We also see an increasing contribution to revenue from our new business model as new maintenance contract of HKD 600 million were secured in the year. Here are some of the signature project of this segment such as the Skycity commercial development at Chek Lap Kok. The Commercial Development at New Kowloon Inland in Kai Tak and also AIRSIDE in Kai Tak. We are entrusted with several university campus development, including the United College Choi Kai Yau Residence, Student Hostel at Shaw Campus of CUHK and also the Capital Development Complex at Pokfield Road Site of HKU. We have secured several projects from the housing authority, including the Public Housing Development at Kai Tak Sites 2B5 & 2B6, Public Housing Development at Tung Chung Area 109 and also Public Housing Development at Ching Hong Road, Tsing Yi Phase 1 and Phase 2. From the Hong Kong Housing Society, signature projects worth highlighting, including Housing Development at Kai Tak Area 1E1 and also proposed mixed Housing Development at Pak Wo Road project in Fanling, We also took part in the development of North Runway Modification Work, which is part of the Hong Kong International Airport free runway system project. Our data center team has commenced works on the high-voltage system installation and data center fitting our work for a major data center service provider at Tseung Kwan O. We have also been working on signature project in the Greater Bay area. Actually, after completing Phase 1 of the new world class facility of the Hong Kong Jockey Club Conghua Racecourse project in the Guangzhou, we have successfully secured the contract of Phase 2 expansion of this facility. Other signature projects include Galaxy Hotel Lot 4 in Macau. I will now pass on to Raymond, who will share with you the performance of our other business segment. Thank you.

Thanks, Brian. Good morning, everyone. I will go over the performance of 3 business sectors, namely Environmental Engineering, ICBT, which stands for Information, Communications and Building Technologies and Lifts and Escalators. For environmental segment, we have contract in-hand value at HKD 4.2 billion. Our revenue was up by almost 10% at HKD 1.4 billion. Our Environmental Engineering segment offers total solution for environmental engineering facilities, including water, wastewater, sludge, solid waste and gas treatment. We continue to develop advanced technologies and innovative environmental solutions, such as our award-winning Digital Twin technology, Algo Water and also at Multi-Stage Flocculation & Sedimentation III. As for new market, our tendering activities outside Hong Kong and Mainland China include water -- wastewater treatment was in Philippines and also in Nepal. Our first project in Nepal is scheduled for completion in the first quarter of 2024. We are keen to explore new business models through synergistic public private partnerships for One Belt One Road projects and offering engineering, procurement and construction, EPC and turnkey solution to enhance our competitiveness. We have also adopted Green Fund to support our progress in delivering quality, environmental solutions that benefits the communities. Some of our signature projects include, the reprovisioning projects at Sha Tin Water Treatment Works, South Work, a term contract for inspection, overhaul and testing of M&E installation at Stonecutters Island Sewage Treatment Works. The upgrading of the Cheung Chau Sewage and also Disposal Facilities to accommodate their online islands operation flow and development needs. O PARK1, the first organic resources recovery center in Hong Kong. More signature projects include the design, build and operate of the food waste pretreatment facility at Sha Tin Sewage Treatment Works, which is now in operation. The West New Territory Landfill Gas system in Phase II development and the New Leachate Treatment Plant for North East New Territories Landfill Extension. The group 5-year maintenance contract for Castle Peak Power Station and Black Point Power Station was at work in [indiscernible] energy contract of the year. Our award-winning all in one waste water treatment system, AMSFS III has been applied in sewage project in Mainland China. Separately, AMSFS III and AlgoWater has owned the Certificate Of Merit at the Hong Kong Institute of Engineer Grand Award. For our ICBT segment, our contract in-hand amount to HKD 843 million in 2023. Revenue increased by 5.1% to HKD 663 million. Our ICBT segment offers green and intelligent building solutions to facilitate Hong Kong's development into a smart city. These solutions integrate a wide range of information and communication technologies, including AI-enabled Digital Twin, energy management technologies and also ESG dashboards, indoor environmental quality, IEQ, management, robotic services and smart lampposts. As for new business model, we adopt a subscription basis, what we call is the SAAS model for our energy and technologies business. We deployed digital technologies to enhance our maintenance service capabilities. Some of our signature projects include a contract for supply and installation of Building Management System for 2 commercial buildings about West Kowloon Station. The supply installation of our automatic vehicle clearance support system at Shenzhen Bay Control Point. The supply and installation of extra low voltage system in the LOHAS Park Phase 13 at Tseung Kwan O. The supply and installation of access control systems in Taikoo Place. Other signature projects include the building management system upgrade for Three Pacific Place and also the supply and insulation of CCTV system with video analytics for Southside Mall in Wong Chuk Hang. Moving on our Lifts and Escalators segment. Our contract in hand reached HKD 637 million an increase of 15% over the previous year. Revenue was HKD 378 million, an increase of 7.2% with Maintenance contract being the major revenue contributor. Our Lifts and Escalators segment provide one-stop service for the design, manufacturing, sales, installation, maintenance and modernization of lifts and escalators and moving walkways. Anlev is our group's global bank for lease escalator and moving walkways. It's Hong Kong, it's a leading lift and escalator contractor, which has been awarded a safety star and 5 service qualities star, rating by electrical and mechanical services of the Hong Kong government for 44 consecutive quarters. We continue to reinforce the lift predictive maintenance and remote monitoring system for lifts and escalators. And if lifts, escalators and moving walkways serve millions of users across Asia, America and also Europe. We also have a wholly owned subsidiary, Anlev U.K. in U.K. and also an associated TEI, which share the U.S. market. During the year, Anlev completed acquisition of 2 companies, JCW Lifts Ltd. and Precision Lift Services Limited, which are successful lift business in the U.K. With our successful track record, we secured several strategic contracts in 2 fleet, ranging from the mixed-use residential building in Canada, public transportation in Mexico and private housing in Singapore, prestigious government office in Hong Kong and also other orders in Mainland China. We will continue to seek new distributor in U.S., Europe and Middle East and also Southeast Asia as part of our global expansion plan. To support future growth, we are exploring opportunities and collaborations to maximize our business growth in market presence. Our signature projects in Hong Kong include ALLEGRO in Kowloon City and also Yu Tak Court in Shek Mun and Porsche show room, which is the first record lift in Hong Kong. Other signature projects include the design and construction of a joint user government office building in Tseung Kwan O, contracts have been secured for the provision of universal accessibility facilities at Footbridges, elevated walkways and subways in Hong Kong. We also have project featured featuring our Automatic Parking System in Tsuen Wan and also in Kai Tak Inland Revenue Tower. In overseas market, Anlev U.K. has finished the order for the icons and prestigious residential project, Victoria Riverside in Manchester, U.K. Strategic orders filled by Anlev include a mixed-use residential building in Canada. We have also secured a number of residential and heavy duty lift contracts in Singapore. We have established our presence in Brazil, in Mexico, securing contracts in the mass transportation service and also hotel industry, respectively. As for our Maintenance Service, they cover all 4 business segments and serve both the public and private sectors. A strong recurring revenue of more than HKD 1 billion was generated by our maintenance service, representing an increase of nearly 13% year-on-year and also contributed nearly 18% of the group's total revenue. Some of the key contracts include a 3-year contract -- a 3-year current contract -- maintenance contract with the Hong Kong Housing Authority for fire survey installation and also water supply system in a number of districts. A maintenance contract for automatic vehicle clearing support system at Hong Kong, Zhuhai Macao Bridge Hong Kong Port and also Shenzhen Bay Control Point. A 3-year term contract for maintenance of mechanical electrical installation for Hong Kong Port and also Hong Kong Link Road and Hong Kong Zhuhai Macao Bridge, and 3-year contracts for the central mid-level escalator and walkway system. I will now pass to Kin to share with you the market outlook and also the growth strategies.

Thank you, Raymond. Overall, we see strong market demand and growth opportunities in our various market segments as evidenced by our strong tender activities throughout 2023 and high contracts in hand. Our continued success in securing new business opportunities and winning tenders provides a good foundation for us to remain competitive in the industry and expand our revenue, customer base and market reach. With our headquarters in Hong Kong, we are strategically positioned for greater business opportunities in the Greater Bay Area. We are also ready for expanding our operations with offices in Europe and America and distributors around the world. Hong Kong alone is expected to see an increase in both public and private sector construction as the total construction output is projected to reach approximately HKD 300 billion annually in each of the next 10 years. The government also plans to increase its annual capital works expenditure to over HKD 100 billion in the coming years with a focus on infrastructure and housing. As mentioned by Brian, we see huge potential in data center development. Hong Kong's attractive location for data centers, coupled with our leadership in the sector, positions us well for the future growth. Our data center project team has secured and commenced a number of large-scale data center projects for a major data center service provider in Hong Kong. In addition, the government's commitment to implementing digital initiatives and increasing the use of open data presents further opportunities for us. We are at the forefront of cutting-edge technologies, including Digital Twin, AI, robotic solutions, IoT, big data and data analytics. Our focus on innovation not only allow us to deliver significant benefits to our customers and the community but also to capture the emerging business opportunities ahead. In order to maintain our market-leading position, we will continue to advance our 3 pillar business approach focused on new technology, new market, and new business model. We'll continue our investments in new technologies, construction methods and robotic solutions to improve productivity, safety and quality. In particular, we see potential in advanced food waste treatment technology and aim to contribute to sustainable urban development. In terms of new markets, we will continue to explore potential synergistic business opportunities and equity partnerships, including expansion into East Asia, Southeast Asia and the Middle East. We will leverage our recent expansion in the U.S. and European markets to maximize growth and market presence. To drive further growth, we will have -- we have recently expanded our business development activities and our presence in new potential markets. To promote new business model, we have reorganized our operating units and worked on new appointments and procedures to strengthen our governance and business development, expanding our O&M capability, setting new standards of excellence and continuously improving our services in various business segments. In the coming years, we will continue to work closely with our customers to create shared value for all stakeholders. Our focus on sustainability and innovation will enable us to stay ahead of the curve and provide optimal solutions that benefit both customers and the wider community. This concludes our presentation. I will now pass the mic back to our Founder, Dr. Poon.

Thank you, Kin. Looking back to my 47 years with the company, which has grown from a small engineering trading company to become a leading electrical, mechanical environmental, ICT and lifts and escalators group, it was truly an extraordinary journal -- journey filled with challenges and opportunities. I would like to take this opportunity to express my support for our investors for your continued support. Our Board is led by professional team that processes, available insights and shares a common set of company values. I'm confident that with this leadership, we will continue to achieve sustainable development and reach new heights. I will now pass the floor to our MC for the Q&A session. Thank you.

Thank you, management, for the presentation. [Operator Instructions] We have the first question coming from Stephen Wong of Gate3 Capital. The first question is, can you please provide more details on the provision in relation to the healthcare project? I think investors deserve to know what has happened and why it happened. Is the loss fully booked last year? Or it will also be reflected in this financial year? And the second question from him is, why don't we try to liquidate more of our Canatal shares?

Okay. Maybe I give you answer on the first question and the second question let Peter to reply. For the first question about the healthcare projects, this project, we submit to government, the tender submit to government during the COVID period. That is the fourth quarter of 2022. As we know, the construction work assumed after COVID-19 in early 2023. The healthcare sector subcontracting work in Hong Kong due to the manpower shortage has become more expensive. During the tendering stage, we prepared to use our own labor to do the maintenance work of this contract. However, due to the shortage of the manpower, we lost subcontract. The maintenance work to the subcontractors, which become more expensive. In a prudent manner, all known impact covering the full term for a 3-year contract have been provided for and recognized into 2 to 3.

I will try to answer the second question. Why don't we try to liquidate more of our Canatal shares. Look, Canatal has been with us for probably in 30 years. And it has been a very profitable investment, generating profit as well as increasing our shareholding holding. Recently, we set the factory in the Canatal Nanjing and also make aware that they have now 3 new range of products ready for the market, which was that recently developed. And we believe these 3 range of products will further increase our market position. The same point I wish to make is about the equipment we make from Canatal is for many data centers. As in any parts of the world, a data center is a growing business, whether in China or in Hong Kong, or anywhere else. And with this new product range, we believe that we can capture even more of the data center equipment. So we do not -- we have no mind as to liquidate more or liquidate less of the Canatal shares. I think we will observe the performance in the next 12 months and see how do the company perform before we make our final decision.

Thank you Peter, do you have any supplement?

Yes. I mean following to Dr. Poon's points regarding to Canatal. I think here is that in parallel, we will continue to look in the marketplace for whether it's an interested party, et cetera. But I think here is that the Shanghai Stock Exchange has now a very controlled environment for disposing shares from founders, shareholders and large shareholders. And we will continue to monitor the situation and continue to negotiate and look for potential investors into our Canatal shares. And I'll move on, if that's okay, to the third -- to one of the points that being raised by Mr. Wong is about the cash situation. Let me try and explain. Currently, in Macau and in Mainland China, the -- our business require roughly about over 2.5 to 3 -- sorry, HKD 250 million to HKD 300 million of working capital to satisfy all the requirements as well as the working capital, et cetera. And then in our Hong Kong business in order to continue to bid for some of the government's contract, the Development Bureaus require us to demonstrate that we have sufficient working capital to satisfy our contract in-hand going forward, which require roughly about HKD 500 million to HKD 500 million. So we would take into account of this working capital requirements, et cetera. We are not -- I think we're not over offered cash position, I think that we are managing is to actually give us an adequate cash position to expand our core business going forward. And then in addition to all of that, we have now set -- we have now established a sufficient bank facilities for us to grow our business further hopefully using leverage and borrowing to help us to do that.

[Operator Instructions] We have the second question from [indiscernible] of Futu. We would like to know more about the 2 acquired companies. How are the selections made and please also provide the latest updates of the 2 companies.

I'll try to answer this question. Our Lifts and Escalators business is a vertically integrated business with design manufacturer of the Lifts and Escalators, installation and service. Now when we get into the U.K. market, we're able to only sell the equipment with now installation and service capability. So with these 2 acquisitions, we are able to go to the market and tell our customers that we have a full service capability from supply of quality and energy saving lifts and escalators, we can install them for you, and we also can service you. So these 2 companies acquired, one is an installation company, and the other one is mainly a service and modernize company. So that complements extremely well with our total strategy of providing comprehensive service. The acquired the company initially, they were -- the particular one company was a little bit downhill because they are still in the market for sales by the holding company and the morale of the people have been very -- not very good. So our -- with injection of our business and our management team, the morale is extremely improved. And we have now substantial orders received in the first quarter of 2024, and we would expect a further increase in the sales in the balance of the year. So I think all in all, I believe this will definitely set us up successfully in the U.K. market.

Next, we'll have questions from Mr. David Webb.

Thank you for the presentation. Just -- I might just say that all of us on this call have already read your management discussion and analysis yesterday evening. And it might save everybody a lot of time if you could abbreviate the presentation from 40 minutes to perhaps 15, so we can get straight into the real issues. But thank you anyway for that. Now the -- just to clarify on the hospital provision, have you provided an amount that would leave you with a normalized profit margin net of provision or have you over-provided or underprovided? Is it simply that you provided an amount, which matches the noncash gain on the Nanjing Canatal situation so that it sort of neutralizes the effect? Or is this a realistic provision that would leave you still with, a, to normalized profit margin on the contract -- the hospital contract over 3 years? That's the first question.

Let me start off on the financial part of the points of the provision. And then I'm sure Raymond and Brian can talk a little bit more about on the business side and operational side. In order like provisions based on the accounting standards and Hong Kong Stock Exchange requirement, we need to estimate the full impact of these contract to the end of the terms. So we have provided in full the losses that we anticipated for these contracts to the end of the term. So that hopefully answer part of your question, David -- Mr. Webb David.

So you'll be running those -- you expect to just break even after that provision rate. You haven't...

Yes. You're right.

So -- but normally, you would expect over a contract to make profit. So...

I think you said in the GAAP or the accounting standard, we make provisions to the end of the contract on a breakeven basis. If we start accruing more provision, I think our advisers will challenge us on that point.

Well, it doesn't put it on a pari passu basis with your other contracts. You haven't but don't mind. We'll move on. I think you get the point that.

And then on the second point about the Canatal shares, disposals, et cetera, I think is that as you've seen in the last few years, we continue to dispose or reduce our shareholding in Canatal.

On that -- and by the way, the profits of Canatal have gone down 2 years running and the revenue has been roughly stable, so it's not quite a growth business that Dr. Poon suggests unless there's something spectacular in the pipeline. But is it the case at the moment that you are frozen in that shareholding? Or do the rules allow you to sell shares on the market this year?

Okay. I think here is that as you -- as all the audiences know more than I do in Shanghai Stock Exchange, the listed company, the A-listed company there are 3 ways of disposing shares or the shareholdings of these companies. One is through the open market but you only allow to dispose 1% of issued shares for every 90 days. The second part is what they call a large transaction, which is maximum 2% through that particular process within 90 days. And then the third one is so-called negotiated contract disposal. That then is that there's no time limit on those. But that kind of transaction, negotiated kind of transaction, it has to be more than 5% of the issued shares. Now as you all -- I'm sure you -- again, you watch the stock markets much closer than I do. Back in, I think, mid last year 2023, there are guidance and advice given by the stock exchange as well as I think the government regarding to disposals of shares. Now Canatal is not under -- it's not, so we say, restricted for shares disposal. However, the process of the first 2 -- the two first processes of disposal shares, we need to make announcement before we can -- in Shanghai Stock Exchange before we going to dispose. And in order to do make the announcement, Shanghai Stock Exchange has to approve the announcement. So we have in queue waiting for the approval for some of these announcements, but we are still waiting. And we, in parallel, are talking to potential fund investors, et cetera, regarding to the negotiated contract for the 5% plus. So we are trying to look at weight of disposing. However, I think as you guys probably -- investors, you probably know better than I do, that it is very difficult to trying to go through the processes for disposals of....

Okay. So is it the Board's intention to sell if you can, after you get your approvals because that's not what Dr. Poon indicated just now, he we said, we've had this company for 30 years. It's wonderful. We're not going to sell any basically, which is it? What does the board want to do?

I'm just try to clarify. I think here is [ both ] full disposals of shares in the end is what price we can actually sell it at. So until we -- I and the team had quoted the Board and said, we can -- there are certain transactions that's being negotiated. And at that price, then the Board can make a decision whether that return is okay or not.

Okay. So you are actively -- you are trying to it. You Board has time to say but the Board has allowed you to carry on this track, not just sit there and watch the market doing, something about it.

Yes.

Because it's -- as a shareholder, I would say this is a noncore business. You can still work with Canatal as a business partner without owning shares in them even though I realize that Atal is part of their name and there's a long history to it, but it's longer in a listed public company to hold those shares and it would free up working capital, would allow you to distribute basically all of the proceeds because it's currently not held in cash. And that's about HKD 800 million worth. I mean if you add back to the cash in your group, the rest of the business trades for nothing at the moment. Moving on. In revenue, note 3, graphics 2. I see that the transaction price allocated to remaining performance obligations is now looking rather good. For the next year -- this year, basically, 5 -- you're looking at about HKD 6.33 billion of expected revenues from existing contracts, which is significantly higher than a year ago when the figure was around HKD 5.2 billion, HKD 6.3 million versus HKD 5.2 billion, to me, that looks like you're on track for a very good year. Would that be a fair consensus on revenue?

Okay. I think using your analysis, [ 3 brackets 2, ] so that everyone's on the same page and you announced on Page 10. So if you look at it historically, like last year and the year before and the year before, the -- that table that's showing revenue within 1 year, we are usually pretty close when we report the actuals in comparison to this table, this analysis.

Yes. And actually, you win some business during the year was on the books at the end of year. So it looks like there's a sort of minimum of HKD 6.3 billion of revenue between '24, whether it's profitable or whether it includes more bad tenders on hospitals, we don't know. Can you assure us that you fixed that tendering problem and will not in the future go out on the limb with your pricing without securing the labor you need. Has that lesson been learned because it grow up in second part.

I think here is that this -- like you said, I pointed this out about 2 -- every year, the last 2, 3 years, this show what's our potential revenue for next year is. And then as historically for this company, it is a very solid -- very solid based company. So we have -- so it will be, I believe we are working very hard to make sure that we will continue to maximize the shareholders' value going forward. Now I'd like to add the point like you pointed out, our balance sheet is undercapitalized by HKD 800 million because of Canatal shares because it's listed, it is stated in the balance sheet at costs. It is not at market value. So our share price and our market cap is understated by that amount of money, at least.

I'm glad you think the shares are underpriced same as [indiscernible]. Okay. So we're looking at a pretty good year with potentially additional revenues above the book at the end of the year. And we don't think there's any more miss tendering going on. I mean, that process has been tightening up.

Yes. Can ask Raymond or Brian, to...

Yes. I want to have some supplementary on the healthcare sectors. As I mentioned before, origin during the tendering stage, we use a vary and now we are changed to subcontractor. In fact, the subcontractor cost is higher than what we expect. So we already -- to be prudent, we already put it in our provision in 2 to 3 of HKD 122 million. So this is for the whole contract period 3 years. And also, as a pioneer on adopting new technology, we are also in the present moment also trying to do some savings, whether we can do some saving in this prudent provision. So we try our best.

Yes. No, I know the history but I'm asking, have you revised your tendering processes so that you will not in the future take such big leaps on the tenders without having lined up the labor because that's what went wrong here at a cost of HKD 120 million, basically eliminating the profit in the second half. That's why your dividend is only 1% in the second half and that's why the market is down this morning.

Yes. In fact...

So, I want to know that the process has been improved and that you will properly hedged when you tender either with lining up subcontractors or with knowing for a fact that you have the labor on that. So if you've got to move people in Hong Kong because of things like long service payment that they're knocked into if they reside move to you, they forfeit their long service payment, that's not an attractive proposition. So there was a bad mistake and along with 2 other big problems in the last 2 years, the company looks accident-prone, it needs to improve its record to give investors more confident in the future. Does that -- there's the competition commission time at the previous year. And then there's also a piece of work. I don't want to go into details here but you know what I'm talking about. You have to repeat the work at a cost of about HKD 40 million. You mentioned it in the interim results presentation. And so that also impacted 2023 repeating that work and costing another HKD 40 million, the results would have been better without that. So I just -- I'm concerned about the process, not the history but do we have a better process for winning contracts in the future?

Okay. I understand. In fact, after these nonrecurring items, we have conducted real on our procedures, and we have a solid foundation for business going forward. During -- in the tendering issue, we have a system to classify the tender under different cost levels for some high-cost risk level the CFO, CFO -- CEO, CFO and also the legal development, we will participate in during the tendering exercise to identify the risk and provide input to reduce the risk. During the project execution stage, we also have some reorganization of our structure to our working teams, including appointing a COO to -- as a third party to go through the project execution and provide advice to project teams. They also alert the project teams before an expected issue happened. So this is our action on tendering and also project execution exercise.

Okay. That sounds good. I hope you can explain that in -- full annual report to the internal control section because setting that process right, learning from mistakes is important. A couple of quick questions before I make room for others. The -- moving into ATAL Tower, Peter should, in theory, free up rents, how much will we save annually -- annualized basis by relocating into the Tower because at the moment, we've been doing both, obviously, we've been renovating the Tower and paying rents outside?

Yes. So I think in 2024, we are having the depreciation of our ATAL Tower as well as the rents that we currently is occupying in our rented properties. Going forward, we are looking at -- with ATAL Tower to improve our -- the whole team working together in the same building as well as that we can utilize the ATAL Tower a showcase for our -- some of our technologies and products for our customers. One of the things that I'd like to highlight is that it's not just rents that we will be looking to save. As everyone know, in the history is that all rental agreements for offices for 3, 4 years rent, we have to then spend quite a lot of money for reinstatement of the property before we return to landlord. And also, if we would to move to a new property, we would have to make certain declarations, et cetera. So it's not just rents that we will be looking to save, we're trying to look at all the depreciation of fixtures and fittings as well. We are hoping that the -- our revitalization of this rather old industrial building into a office commercial building will actually give us a longer life of our investment. And I think more importantly that we're all working in the same building. Hopefully, our efficiencies and operational efficiency will improve as well as that, we can then also use the whole building with a Beam Plus platinum, highest accolade that we can have for environmental, ESG certificate to demonstrate to our commitments to our partners, customers and potential partners that we are committed for our green intention.

So yes, I get all the SG stuff but how much rent are we going to save and your -- that was the question? Obviously in the next year.

I actually don't have the figures with me but...

Al right, we pay in rent last year.

About -- in total, I think about HKD 4 million, HKD 5 million for these offices that we are migrating out.

Okay. Now finally, there's an Environmental Engineering, which includes new overseas projects. I see that there is a large impairment loss recognized under expected credit loss model, HKD 13.5 million. I was concerned at the last call or the 1 before that once we start doing things in Nepal, Philippines and other and less developed countries, that we might run into credit risks and project cancellations and somethings like that. What does this relate to, which country and which project?

Okay. This is the expected credit loss that we're showing based on our business in China. These -- as everyone knows, the customers are not actually bad debt customer. They are just very long paying customer. Unfortunately, with the third-party valuations on credit exposures and accounting standard, anything that's over a year old, we have to mix provision for. And hence, why, in this case, in China, we are showing -- this credit loss that we are showing roughly about HKD 17 million. I -- let me try to emphasize though. We continue to work with the customers to recover these debt. We're not giving up and recovering them. This is a provision based on third-party evaluations as well as accounting standard.

How many projects or customers does that relate to?

I think [ there is ] handful customers in China that we are looking at, they are...

We didn't have that problem last year. So they've got worse in paying. Do we really think they'll pay back in the end?

I think he is [indiscernible], we have a cycle that we continue to change less. And for example, I think in 2021, '22, there was also a large exposures but then in '22, '23, we started collecting those debt. And then we -- '21, '22, we started collecting those debt and then we saw a released a provision based on that. And in 2023, we build up these provisions again because the slow payment. And I would continue to emphasize a slow payment at the moment that we see rather than back payment.

Well, I hope we get it back, and that adds back to the bottom line next year.

So do I. So do I.

The next question is from Sandra Chen of HSBC. Now that we are in the post COVID period, how has this impacted the group's overall operations in terms of project progress and tendering activities, what opportunities do you see in the market? And has the market sentiment recovered?

Thank you very much for the question. As we all know, 2023 we're still seeing the tail end of COVID. And in Hong Kong, for example, restriction was only lifted 3, 4 months into '23. Now recovery has since followed but at different speed in different markets. For example, in New York City, we saw a 50% decline in occupancy of commercial buildings. And Hong Kong, actually, by comparison is faring a little bit better. Now we, by and large, have turned the corner in New York because our associate TEI has expanded its portfolio from commercial buildings to residential building and has also expanded to the certain states, which are the fast-growing property development area in the U.S. In Hong Kong, our overall tendering activities are very strong, and this is reflected in -- not only in our contract enhanced but also in the tendering activities that are ongoing. You will also note in the reports by Brian that we are also capturing the opportunities in new segments such as more residential states, new technologies as well as the university sector. And also data center is particularly strong. So overall, the progress has been strong, and we're looking out for other opportunities in the -- in other markets such as the U.K. and so on. Now our leadership in technology will also come into hand will come -- used -- become useful because, for example, our MiMEP leadership will allow us to operate more efficiently with less labor on-site and enhance safety and quality. And our strength is we commit, we perform and we deliver. Our aim is to uphold this and that should bode well in the future for us. Thank you.

The next question is a follow-up question from Stephen of Gate3. What is the expected net margin of our contracts in hand? And are they going to be normalized like the past?

Regarding the net margin of contracts in hand, I think a different sector and also different time, the value will be different. So it's difficult to say the exact margin value of the contracts.

Thank you. We'll have the last question from [indiscernible] of Futu. Regarding the Nanjing factory, how is the expansion going on? And have all the facilities commenced operation yet? If not, why not?

The answer to this question is yes, I think all the electrical, mechanical equipment, have been installed and commissioned and is now they are working. The only outstanding item is increasing the height of the test tower, which should be completed before the end of the -- before first half of this year. And yes, the expansion program is going well.

I have a supplement on this. Regarding the factory expansion, in fact, most of the physical work already competed. Now the remaining work is in their documentation.

Since there is no further questions, this concludes our investor presentation today. Thank you for your continued support to Analogue. If you would like to have a separate meeting with the management, please contact SBRG for coordination. Once again, thank you for your participation today. You may now disconnect.

Thank you.

Thank you. See you next year.