Analogue Holdings Limited (1977) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for joining the 2024 interim results investor virtual meeting of Analogue Holdings Limited. Today's meeting will be conducted in English. We will begin with the presentation by management followed by Q&A. [Operator Instructions]. Before we start, let me introduce the management team to you. They are Dr. Kin Mak, Chairman and Executive Director; Mr. Raymond Chan, Chief Executive Officer and Executive Director; Mr. Brian Chan, Executive Director; and Mr. Peter Cheng, Chief Financial Officer and Executive Director. Now may I invite Dr. Mak to give an overview of annual results. Dr. Mak, please?

Good morning. Thank you for joining our 2024 interim results investor presentation this morning. It is my pleasure to present the results for the first time as Chairman. During the presentation, I'm going to share with you an overview of our company. Then other members of the team will walk through our financial and operational highlights, followed by our outlook and growth strategies. With over 45 years of operating history, Analogue Holdings Limited is a leading electrical and mechanical engineering service as well as information and communications technology solutions provider with headquarters in Hong Kong and offices in Macau, Mainland China, the U.K., and the U.S. We provide one-stop G&M engineering and technology services across diverse sectors, including building services encompassing buildings, data centers, and infrastructure, environmental engineering, ICBT, which stands for Information, Communications and Building Technologies and lift-and-escalators. During the reporting period, we were able to achieve sustainable business growth as well as the high value of contracts in hand. Committed to fostering a culture of innovation, we have obtained 62 international patents and designs. We are also committed to sustainability through ESG initiatives and creating shared value for the community. During the reporting period, we made progress on different fronts. We actively participated in tendering activities to seize the opportunities in the market and have successfully built-up high contracts in hand as well as strong recurring revenue from our maintenance business, especially in Hong Kong, Macau, where the markets are strong. In accordance with the tendering schedules, the award of many of the submitted tech vendors is still for announcement later in the year. These achievements have allowed us to build a strong foundation to go forward. Our lift and escalator business advanced with expansion in the U.K. and U.S., and we also explored for different business segments, other new markets in Southeast Asia, East Asia, and the Middle East. We successfully implemented the advanced construction technologies of MiMEP, DfMA, and BIM and over 50% of our building services projects, enhancing quality, safety, and productivity and hence our competitiveness as evidenced by a number of significant projects that we want on the basis of our leadership in such advanced construction technology. Committed to innovation, we continued to focus investment in the fast-developing digital technologies, including digital twin, artificial intelligence, smart building management systems, and robotic solutions to continuously enhance our distinctive edge as an ICT solutions provider. We also focused our R&D and collaboration with partners on developing green and environmental technologies, which contribute to the increasing needs of the community for climate solutions, clean water, and waste and sewage treatment solutions. Recognizing training as an important pillar for an engineering and technology solutions provider, we have long been offering training programs that successfully nurture graduate trainees and apprentices. This drives not only the growth of our business but also the sustainable development of the industry. Ushering in a new milestone, our new headquarters, ATAL Tower has been completed and will be fully operational in the third quarter of 2024, providing superior infrastructure to better serve our customers and partners who will also significantly enhance productivity through closer collaboration and synergy among our operating units. ATAL Tower has received a provisional platinum rating under the BEAM Plus New Buildings version 2 for the revitalization of industrial buildings at our headquarters, highlighting our commitment to reducing the group's environmental impact. Our CFO, Peter will now present the group's financial performance in the first half of 2024.

Thank you, Dr. Mak, and good morning, everyone. Let me quickly go through the financial results of the 2024 first half. During the reporting period, our group order effect reached HK$ 3.5 billion, while our contract in hand stood at a high level of HK$ 11.7 billion. Despite various challenges in the market, our revenue increased by nearly 15% to HK$ 3.3 billion and the profit attributable to owners of the company reached HK$ 82 million. We had bank balances and cash of around HK$ 1.1 billion and a low gearing ratio of maybe approximately 24%. Okay. Let's take a closer look at some of our key financial data. The 14.9% increase in our revenue was mainly driven by the revenue growth in the Building Services segment. Gross profit was up by 5.3% to HK$ 478 million, and our gross profit margin is at a level of 14.6%. For the first half of 2024, the profit attributable to owners of the company amounted to $82.4 million, which includes the group's share of once-off net insurance claim income of approximately HK$ 15.2 million received by TEI, our associates in the U.S. Excluding this one-off item, the adjusted profit attributable to owners of the company was HK$ 67.2 million. And in comparison, for the current period in 2023, i.e., the first half of 2023, the profit attributable to our owners of the company was HK$ 237.5 million, which included the once-off diluted gain of just over HK$ 124 million and the once-off gain on disposal of interest in associates of nearly HK$ 39 million. Excluding the above once-off items, the adjusted profit attributable to owners of the company for the first half of 2023 was $74.7 million. Compared to the 2 adjusted profits attributable to owners of the company year-on-year, there is a decrease of around 10%. This difference is mainly due to the phasing of projects between the 2 periods. Basic earnings per share was $0.06, and the Board has declared an interim dividend of $0.0238 per share. As for the revenue breakdown by segment, our Building Services segment continues to be our primary revenue driver with a 21% revenue increase, while the environmental engineering and ICBT segments remain at similar levels. In particular, the lifted escalator segment made great progress with a nearly 50% revenue increase following the acquisitions of the 2 U.K. companies. Our team will tell you more about this segment later. By project nature, contracting work remained a key contributor for revenue. During the period, we continued to strengthen our recurring revenue stream and achieved moderate growth of 9% in maintenance revenue. Revenue from sales of goods remained at a similar level to the same period of last year. Overall, the group has maintained a healthy balance sheet and key financial ratios of a strong cash position and adequate which has bank facilities to finance our future growth and development. Our return on equity was 3.8% for the period. Here is our dividend payout record since listing. The interim dividend for the first half of 2024 is $0.238 per share. As you can see from the chart, we are committed to proactively returning capital to shareholders in a stable manner. Thank you very much for your attention. For now, I will pass on to Brian, who will share with you our business highlights in improving services. Over to you, Brian.

Thank you, Peter. Good morning, everyone. As of 30 June 2024, contracts in hand for the Building Services segment was valued at 5,500 billion. Revenue growth difficulty by 20.8% year-over-year to $200 million, maintaining the status of building service that's the largest revenue contributor to our group. The recurring maintenance revenue streams, which increased by 11.2% were continuously supported by new maintenance contract in the first half of 2024. The Grade A office building at Caroni Hill Road in Causeway Bay [indiscernible] project in the first half of 2024. It is the first commercial development in Hong Kong to adopt the innovative MiMEP construction technology to compete across major 80% of the installation, one of the highest levels of MiMEP application in the city. Here are some more signature project of this segment, the Sky City Commercial Development at Chek Lap Kok, the commercial development at New Kowloon Inland in Kai Tak and also the Sha Tin New Central Waterfront. In the active higher education sector, we have been entrusted with several university campus developments, including the United College, Choi Kai Yau Residence and Student Hospital of CUHK. The capital development compressed at the profit growth side of Hong Kong Ho and the Student Hostel on [indiscernible]. For public housing, which continues to be an important impetus for meeting community needs. We have secured several projects from the Hong Kong Housing Authority, including the public housing development at Kai Tak 2B5 and 2B6, public housing development at [ Hiu Ming] street as well as public housing development at Tseung Kwan O Phase 1 and Phase 2. Other housing authority project include the proposed housing development at Cheung Chau Area at 103 and also 109. With the government eager to tackle Hong Kong's housing issue and moving to provide more proper housing in the coming years. We expect more opportunity to arise from the Hong Kong Housing Authority. From the Hong Kong housing society, signature projects worth highlighted include the housing development at Kai Tak as well as the proposed mixed housing development at Pak Shek Kok project in [indiscernible]. The exposed growth of technology and big data continues to drive the need of data center. Our data center team has commenced work on the high-voltage system installation and the data center fit-out for a major data center service provider in [indiscernible]. We have also been involved in the infrastructure development of the North One-Way modification work, which is part of the Hong Kong International Airport 3-Runway System project. In the Greater Bay area, we have been working on the Galaxy Hotel in Macau and the training center, Phase 1 and 2 of the New World-Class Hong Kong [indiscernible] in Guangdong. We are also involved in the podium construction project and Lee Gardens in Shanghai. I will now hand over to Raymond, who will present the performance of our other business statements.

Thanks, Peter. Good morning, everyone. I will go over the performance of 3 of our business segments, namely environmental engineering, ICBT which stands for information, communications and billing services and building priorities and lifts and escalators. Let me start with the Environmental Engineering segment. Both contract in hand and segment revenue remains at a similar level as compared to the same period last year at HK$ 4.5 billion and HK$ 621 million, respectively. Two notable projects were awarded during the reporting period, including the [indiscernible] and LALA improvement work in Yunnan with from the largest [ atomic ] station of this kind in Asia and the [indiscernible] treatment works for West new territory landfill extension in [indiscernible]. Other signature projects include the upgrade for the existing Yunnan sewage movers to become the Yunnan [indiscernible] policing plant and the institutional provisioning projects of water treatment works [indiscernible] and a new [indiscernible] treatment plan for [indiscernible] territory extension. We are also involved in the upgrading of the Cheung Chau sewage treatment and disposal facility to accommodate the [indiscernible] island population growth and development leads. San Shek Wan sewage treatment works project to address the sewage disposal leak and also the growing population in the San Shek Wan region. And also, the design and build an operation project for the food waste pretreatment facilities within the sewage treatment For our ICBT segment, contract intent and revenue also remained at similar levels as compared to the same period last year at $133 million and $295 million, respectively. The group's cutting-edge geologies continue to make an impact on Hong Kong's prestigious buildings in plant business districts. On the notable signature project is the supply and installation of Building Management System for Hong Kong San Shek Innovation and Territory parks, Batch-18. Some more of our most notable signature projects include the supply and installation of BMS for 2 commercial buildings above with current station and also automatic vehicle clearing support system in [indiscernible] control point and also BMS upgrade for specific pace. And the supply and installation of CCTV system with video analytics for Southside mall in Hong Zhao. Some of our other projects include the supply installation of extra low-voltage system ELV it the has part Phase 3 at Chenguang and also access control systems in Taikoo Place. Moving on to our [indiscernible] segment, our contract in hand reached $667 million, an increase of 15.8% year-over-year. Total revenue from this segment was $239 million, an increase of nearly 50%, thanks to our success in overseas projects. Anlev is responsible for the lift installation at ATAL Tower, our new headquarters in Kwai Chung. We have also been involved in the design and construction of the development of Queen Mary Hospital Phase 1. Our 3 other projects completed in Hong Kong include [indiscernible] and also [indiscernible], which is the first great vehicle lift in Hong Kong. The design and construction of Joint-user Government Office Building in Tseung Kwan O contracts secured for the provision of universal accessibility facilities at [indiscernible] walkways and subway in Hong Kong. Our automatic parking system is also featured in projects in Tsuen Wan and also in [indiscernible]. In overseas markets, and in U.K. secured contracts for both residential and commercial projects in Birmingham, London, and Manchester. We have also established our presence in Mexico and also in Brazil, securing contracts for mass transportation. Our maintenance service cover all 4 of our business segments and serve both the public and private sectors. This business generates strong recurring revenue of HK$ 614.7 million, an increase of 9% year-over-year and contribute nearly 19% of the group's total revenue. Some of the key contracts include a 3-year term maintenance contract with the Hong Kong Housing Authority for fire safety installation and also water supply system in a [indiscernible]. A 2-year contract for management and operations and maintenance of the Hong Kong Government Data Center Complex in [indiscernible] A 3-year term contract for maintenance of mechanical installations for Hong Kong Port and Hong Kong North Road at Hong Kong Zhuhai Macao Bridge and also a 5-year maintenance contract for CLP, Black Point Power Station and Castle Peak Power Station, which has also been awarded the 2023 energy contract for the year. Some other key contracts include a maintaining contract for Automatic Vehicle Hearing Support System at Hong Kong Zhuhai Macao Bridge, Hong Kong Port, and San Shek Wan Control Point and also a 3-year term contract for the Central to Mid-Levels Escalator and Walkway System. I will now pass to Kin, who will present the market outlook and our growth strategies.

Thank you, Raymond. We are cautiously optimistic about the business outlook given the strong contracts in-hand, our leadership position in growth segments, and strong tendering activities in the first half of 2024. The government's planned annual capital works expenditure is about HK$ 90 billion, which includes housing, infrastructure, and the northern metropolis. We see opportunities in health care, infrastructure, data center, housing, transportation, retrofitting existing facilities, and so on. In terms of new technology, our enhanced competitiveness is evidenced by the major contracts that we have won for applying the Advanced Construction Technology of MiMEP. To leverage this further, we have added an MiMEP facility in Mainland China to augment our existing MiMEP facility in Hong Kong and will continue to invest in cutting-edge construction technologies and robotic solutions to continuously enhance productivity, safety, and quality. In addition, we will actively capitalize on our distinctive edge as a leading ICT solutions provider to capture the opportunities in Digital Twin, AI, IoT, Big Data, Analytics and other new market segments, driven by demands arising from the government's digital initiatives and the fast increasing use of data. As a leader in the environmental engineering segment, we also see potential in advanced food waste treatment technology and other solutions for meeting community needs for climate solutions, clean water, and waste management. In terms of new markets, we are strategically positioned in Hong Kong to capture the emerging opportunities in the Greater Bay area. Beyond this, we will continue to expand our existing operations in the U.S. and the U.K. and will build on our distributorship around the world while also continuing to explore other suitable synergistic business opportunities, including expansion into East Asia, Southeast Asia, and the Middle East. For new business model, in addition to [indiscernible] continuous product development and extension of our comprehensive business model of design, manufacturing, construction excellent service, we're expanding our operation and maintenance capacity to support mission-critical operations such as data centers. Striving forward, we'll continue to provide a comprehensive suite of quality services and uphold our model, we commit, we perform and we deliver, not only for the benefit of our customers, employees, and shareholders for also to contribute to the betterment of society in Hong Kong and around the world. And this concludes our presentation. I will now hand over to our emcee for the Q&A session. Thank you.

Thanks to management team for the presentation. Now we come to the Q&A session. [Operator Instructions] Now we see the first question in the chat box. It is from Arthur. The question is, building services, the major revenue contributor, why this segment recorded a growth in revenue, but a drop in segment profit? What measures do you have to enhance its profitability?

We're actually building service segment has done very well with project execution. This is evidenced by the improvement in revenue. And I'll let Brian address more of the details.

And actually, it's still to the project [indiscernible] some new projects, even they have revenue, but still not reach the profit recognition for a whole. Actually, they will then reach public regulation gradually and will contribute profit later in the future. In fact, with the recent achievement of significant new projects, including Grade A, obviously, [indiscernible], which adopt highest level of MiMEP, almost over 80% and as well as a number of large-scale projects in Hong Kong and also in Macau. We currently actually have a large sustainable contract in hand. So actually, we have confidence on our business performance. As we can see, the tendering activity remains active either in Hong Kong and Macau. So that's all.

[Operator Instructions] Mr. Webb has raised his hand. Please, we are unmuting your channel.

Thank you for the results presentation. I think Arthur's question in text, underlines a general issue with your presentation, which is too much focus on revenue and not enough explanation on profit margins as to how you reach the -- because if you have profitless growth, it's not rewarding shareholders, it's just diluting your return on equity. And as you noted, the return on equity was only 3.8%. And that has a lot to do with the bloated balance sheet. You have taken out new so-called revitalization loans and Greenland they're just loans. When -- on the face of it, there's no need to have done that given the substantial cash that we still hold, not to mention potential proceeds from the sale of further shares in Nanjing Canatal. And there's no mention of Nanjing Canatal in this announcement at all, except for historic notes on the gains last year. So, I mean the first question I've got after commenting on the lack of margin analysis in your presentation. The first question, I thought is why are we borrowing money to put it in the bank, which is basically what's happened here. We've drawn down $230 million in loans. Our bank balance has gone up by $241 million. What's going on there, given that obviously, our customers are satisfied with our credit worthiness and it doesn't actually change our credit worthiness, and we have $600 million of performance bonds to guarantee our performance anyway. So why are we borrowing more money and thereby paying interest on that, which will be more interest than we will earn on the deposits?

So, thank you for the question, Mr. Webb let me try to explain the situation. As I've mentioned before, I think he is that our capital allocation is that we require roughly about HK$ 600 million for our Hong Kong working capital requirements. And then in PRC, we currently have HK$ 170 million in PRC for working capital. And then in Macau, as Brian mentioned, we have secured some of the big contracts in Macau. So, our working capital is increasing from about $60 million, $70 million to about $100 million in the near future. So, what happened is that we take into account our operations and earnings and then our capital requirement and service and general financial conditions, contractual restrictions and our capital expenditure and future development requirements and other factors that we think is -- we is relevant at the time. And then we arrange for the cash position for our group so that we can have a safe guard our working capital and the sufficient working a sufficient cash position to continue our operations successfully.

That doesn't really explain why you need an extra $250 million in the bank compared to last year. And by the way, you're completing your confusing working capital with cash, your working capital is mostly considered to be most analysts would say that's your net current assets, which are $1.1 billion. But why do we need so much more cash? I mean, if you were borrowing money in order to make your balance sheet leaner by paying out a special dividend, I would understand this company can give an exact it paces it can afford to borrow. It can have some net gearing rather than net cash. But that's not the case. It's simply sitting there in the bank, and we'll have to pay interest on the loans less than we get on the cash. So, I mean, it's not a good thing to issue a green loan just for the sake of being green and putting money in the bank. That's not actually a real green purpose.

I totally agree, Mr. Webb. I think he is that, as I said, we look at our future requirements as well, not just the working capital as of today. And the working capital, as you mentioned, I think here is that in Hong Kong, we have to tender some of the public sector contract the development bureau required that we have sufficient working capital on our balance sheet to actually...

Where can I see that in the tender conditions? I mean, I know they have 4 tenders. They avoid it to the lowest price, meeting the technical requirements. And they require, in some cases, performance bonds, of which you have HK$ 600 million outstanding. Those are contingent liabilities from bank performance bonds. Your competitors don't hold this much cash but simply, if you look at FSC, for example, FSC Lifestyle, which is maybe half your size in government business, it doesn't have anywhere near as much cash. So that doesn't really provide an excuse. And of course, it's not -- the cash is not security to your performance. It's unsecured cash. It's not pledged to the government or anything like that. So, I don't really buy that reason. And what else could it be? Are you planning a big acquisition? Because you cut the dividend basically even on a $0.06 earnings, you're not paying $0.03, not paying 50%, you rounded it down in some way. Maybe you've excluded the TEI effect. I tried to work it out. It looked like you've got -- if you add TEI you get down to $0.24, and then you decided to be very Chinese about it and pay $0.0238, just to have a lucky number on the end rather than a thought. Is that what happened?

We -- when we looked at the proposal for the dividends, -- as I said, we take into account all our positions and our commitments as well as our opportunities going forward. Like you mentioned, we continue to be examining and reviewing a lot of opportunities currently on the projects, whether it's mergers and acquisitions or the JV partners, et cetera. So, we take into account of all of those when we look at the cash position. But obviously, we need to ensure that we have sufficient cash as well as sufficient facilities in place.

On TEI, you mentioned an insurance payout being a one-off item that's on personal injury action that was now paid back to the company for sure or what?

Okay. That particular payout is a TEI insurance. That was an insurance taking out on a partner of TEI before our acquisitions or our TEI, the [indiscernible] is retired already from of the business. And the key managed insurance, continue to be in place as part of the severance payments for the gentleman. And unfortunately, he passed away during the first half of 2024. And then the insurance payout for that claim.

So, we have to pay it to him. How is it going to us? Or is it...

The insurer is paying to us and will have a benefit from the insurance payout.

Even though he's not working for us anymore, we're still ensured a get the loss of him?

That's correct.

Right. Okay. So, if you take that off from the $1.4 million share of profits of the associate, then minus $15.2 million gets us to minus $13.8 million, and that is worse than last year, a loss of $9.4 million. So how is it that you say that the other factor involved was higher gross profit margins in TEI. I mean, how did we end up with a larger loss with a higher gross profit margin? It's just, that it's mainly due to higher gross profit margins recognized in the period and share of the insurance claim. Surely, if we take off the insurance claims and the loss is larger, it indicates a lower gross profit margin, unless there's some other item I'm not seeing.

Okay. I think the -- for TEI, we are certainly seeing an improvement on the associate's results. And there are other associates that as you know, we have the...

There's one other one. But I'm just looking at this one in Page 27, where it's of the announcement, where it says that there were 2 factors involved in the result. One was the insurance pane, which we can deduct. And then after that, there was a higher gross profit margin, but we made a larger loss. So was there something below the gross profit line that caused a larger loss? What was the turnover change in TEI, for example, is one factor in that.

I'm just trying to locate the point that you...

Page 27, third paragraph, the share of results of associates.

As said on here, the operations of the associates in the U.S. a turn from a loss-making to a profit-making during the 6 months because of a higher gross profit margin recognized in the period and the share of the net insurance income of $15.2 million.

Right. But if you do the math and take off $15.2 million, then we're down to minus $13.8 million. And last year, it's minus $9.4 million, wasn't it?

Yes. There is also an impairment that's in the associate results of about $18.9 million. That's also included in this figure.

Well, the impairment on goodwill, et cetera, and that's in Note 4.

Yes, that's the impairment. In this case, because it's brand impairment, it is actually the associate's results.

So they internally have an impairment of...

Sorry, there are 2 impairments that happened in 2024 first half. One is the impairment of goodwill, which is on a different note. On the impairment of brand name, which is roughly about $19 million is reported due to shares of results of associates.

Well, that's not mentioned in your announcement. So if you took -- if you add that back, then you've got an improved gross profit margin. So instead of being minus $13 points, whatever I said, plus $6 million or something. It still seems that acquisition has been disastrous is your first and largest acquisition. And we've now fully impaired $137 million of goodwill paid for it. And then internally, it had brand value, customer values, the usual stuff on acquisition accounting, and now you're impairing that as well, as you just mentioned. And is the turnover now any higher than when we bought it of this business? And are they purchasing any analytics or just doing their own things?

We are expecting TEI to be [indiscernible] It is unfortunate that the timing of the acquisitions was to coincide with the downturn of the economy in the U.S. I mean, obviously, COVID caused the main part of it. But a downturn of the real estate, especially commercial real estate in New York City, which TEI is based mainly. And then during that time, TEI has already changed the strategies or there's the focus from commercial real estate to residential markets. And hence, why there is a substantial order intake of New York City Housing Authority, which they are working on and completing and have hedged start turning back into profits in the New York area. They are also expanded into the solid state currently in Florida. They started back in 2023 December. That's the start date of that office. Since then, they have been very successful in securing maintenance contracts as well as installation contracts in the Southern States area. And we are hoping that they will continue to expand and then have a portfolio that minimizes the exposure of risk of one particular area...

They bought any elevators from Anlev?

They have before, some escalators mainly. And then I think that we are still talking to them. We're one of the major retailers to supply a significant amount of our products into the U.S. market across the whole of U.S.

No, that sounds promising. It's still only an associate. It was once a subsidiary. As you recall, the company held back 2% because of concern about the former Chairman's Wife sanctions situation given that she's no longer -- also your sister given that she's no longer or rather she no longer the factory for Justice and the Chairman has stepped down and Kin is now the Chairman. Could we revisit that and take full control of this entity or at least majority control so that we can consolidate it and perhaps put more of the Anlev ethos through it because I have this feeling that they're just doing their own thing and maybe they'll buy a few lifts and escalators from Anlev, but it's not really the reason we bought it, which was to launch the brand into the United States and gradually, we didn't just want to buy another service company that was doing it time business.

You're absolutely correct. We didn't just want to buy a service company to add to the portfolio. We expect a -- the plan is to expand Anlev products into the U.S. I mean, we started with escalators. We are currently in research and development and close to the end of that program on some of the elevated products that can be then sold and installed in the U.S. We are working very closely with TEI and the team. It is unfortunate that you have the impression that they are doing their own thing. He's certainly not. I mean, we have -- we work closely with TEI team, obviously, not just the President and CFO. We also work very closely with the operational directors and the sales director so that we can collect market information for products and pricing so that we can design our R&D, our products in manufacturing margin to satisfy the markets going forward. And we are hoping...

Well, I hope that works. I hope the U.K. one's work and we're not just supplying a lift to projects only by Hong Kong companies like [indiscernible] and [indiscernible] because that seems to be the main project inside Manchester one. Now you've made some acquisitions. I'll have those work out. I just want to quickly ask about Nanjing Canatal because I'm sure you've got some questions queue up in the chat there. But Nanjing Canatal is not mentioned just looking at the stock price in Shanghai and it's collapsed this year. It's down about 40% in the last 12 months. And you've not been able to sell anything more shares. And I've been asking this question for years, why don't you just cut it and keep doing business with them, but don't do know any of it? What's the update on that? When are we going to realize some more cash? Or are you having an endowment battery on pushing the share price was back at $10 before you start selling [indiscernible]?

Well, we are keeping our associates in Nanjing Canatal under periodic review now. Canatal currently has been very successful in expanding its sales of precision conditioning and related products and the vol has achieved an improved revenue. It's also completed a data center. Now when this is launched, it would bring in a significant contribution to both revenue and profitability. And in addition to that, they have a very successful AI-driven energy optimization product, which is about to be launched. So we are closely monitoring their progress and make an appropriate decision in due course. And of course, if the decision is made, then there will be an announcement.

Well, you could announce a potential sale of another block of shares. What's happening with that? That was a few months ago?

We announced a provision to enable us to do that, but to actually take that action, we keep the business situation under close review, and we'll see how is business progressed before we use that facility.

So basically, you think the share price is too low? It's what you're saying. You're not saying because you think in your judgment is going on?

Well, it could bring in more value to our shareholders in due course.

It might be in this value might keep on going down. I mean you say it's growing revenue. But if I look at the numbers on Reuters, which I take to be likely, revenue is almost flat for 2023 versus '22. It's $635 million versus $625 million and net income, $35.4 million versus $36.5 million down. So maybe the market is right, it usually is. It's judged that Nanjing Canatal's prospects are not what it once was, and you're never going to get back to a higher price and it might go lower. So why not keep on selling in accordance with your original statements because it's not core to our business. We need to care the core apparently; we need to stick it in the bank. That's what you're doing with the bank loans at the moment. I think you can be distributing that capital and making the return on equity higher. But either way, it probably shouldn't be in these shares. And is for you to do this and the share price was [indiscernible]. So that's really on you?

Well, we note your point. But as I said, they have a 3-pronged expansion strategy, and they are about to launch the data center, which we will be monitoring before we take the appropriate action.

How does the data center help? How will it help their profits?

It would be a significant business in addition to the established business of precision air conditioning.

But we don't know that it's going to be profitable?

Well, it could be very profitable, but they have just completed the data center. So, it's a...

Anything the market knows that. It's not a secret is it. So, it's already in the share price?

The share price will reflect the progress in launching these 3 businesses. And I think the timing of whether we sell it depends on our regular review.

Do you have a target price in mind? I mean, is it -- are you looking at 8.88% or something like that before you would sell or?

No, we can't predict the share price. And as I said, the underlying business dynamics and at this point, we feel or the Board views that it's useful to keep it under review and make a decision in due course.

Okay. I will yield the floor to the other shareholders and investors, thank you.

Thank you, Mr. Webb. Thank you, management. Here are some more questions from the floor. The first question is from Holly. The question is about that labor shortage has been an industry-wide usual. Did the labor cost rise significantly in the first half. How does the group tackle this problem?

Talent is always a high priority for us. We have been able to attract and retain talent. As you can see, our workforce remains relatively stable. This is through a lot of the initiatives that we have in place, including a graduate training and apprentice training program, which has been very successful over the years, noting over 1,000 graduates, which form an important pillar of our workforce. At the same time, we offer remuneration, which is benchmarked against the market, that's one prong. In parallel, in the second prong, we also used the government labor importation scheme. Of course, you know the labor importation scheme mainly brings in talent as well as manpower at a comparable level to the Hong Kong market salary. And that's why we have been working on improved productivity and hence, competitiveness. An example of this is our improvement of advancement construction technology. We have been very successful with introduction of MiMEP to enhance productivity as well as quality. We are now adding a second MiMEP plant in the mainland augment the one that we have in Hong Kong. And we've also encouraged exchange between our maintenance staff and Hong Kong programs. And in particular, they're able to support our overseas projects. So overall, I think the situation with talent and labor have enabled us to take on project implementation very smoothly. This is reflected by our improvement in revenue this year. And we hopefully we'll be ready to take on more projects, which we have submitted tenders for and are due for announcement later.

And another question is from [indiscernible]. Why the contract in hand of business segments except lean escalated drop year-on-year. Does it mean that the revenue will decline in the near future? How should we expect the revenue performance?

Well, actually, our contract in hand at a high level for both environmental and ICT segment, they are similar to previous levels. And of course, as you said, the lift and escalator contract in hand has increased significantly due to our success of overseas projects. And then the building services due to effective project execution and active tendering also achieved a high contract in hand value. But of course, tender schedule varies from year to year. And we -- many of the tenders we submitted a due for announcement of reward later. Brian, do you want to add anything to that?

Actually, yes we still have a strong contract and on also a great tender opportunity in the future as we can see. So, I do think the business performance is positive in the future for this one.

So, there is a follow-up question from David. Please clarify how much is our share of the impairments of TEI brand value? So, we can mentally add that back as nonrecurrent?

Yes. The amount related to the impairment on TEI brand value is approximately, HK$ 19 million. I hope that helps to clarify. My apology, it wasn't clear before.

So, was just wondering if there is any other questions from the floor? Any further questions? Okay. As there's no further questions, this concludes our investor presentation today. Thank you for your continued support, excuse me. Sorry, there is one more question popping up. As the economy is slowing down, can you give us your view on the prospects of the construction industry?

Let me answer this question. We see some downside on the commercial property sector. However, there is -- there remains active opportunities in public sector, particularly in housing, health care and also in infrastructure as well as other areas like data center, smart technology and also solid waste treatment projects.

Okay. Thank you. So as there's no further questions for now. Thank you for your continuous support to Analogue. If you would like to have a separate meeting with the management, please contact FGRG for coordination. Once again, thanks for your participation today. You may now disconnect.