Analogue Holdings Limited (1977) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Thank you for joining the 2024 annual results investor virtual meeting of Analogue Holdings Limited. Today's meeting will be conducted in English. [Operator Instructions] You are welcome to turn on your camera, so that our management can greet you face-to-face. Before we start, let me introduce the management team to you. 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. Now may I invite Dr. Mak to give you an overview of Analogue's results. Dr. Mak, please.

Good afternoon. Thank you for joining our 2024 annual results investor presentation today. I'm going to commence by providing you with an overview of our company. I will then hand over to other members of the team for our financial and operational highlights before I summarize the growth opportunities. For those joining us for the first time, let me briefly introduce our company. With more than 47 years of track record, Analogue Holdings Limited is a leading provider of electrical and mechanical engineering solutions and information and communications technology services for smart cities with headquarters in Hong Kong and operations in Macau, the Mainland, U.S. and the U.K. We provide one-stop E&M engineering and technology services across diverse sectors, including building services encompassing buildings, data centers and infrastructure, as well as environmental engineering, ICBT, which stands for Information, Communications and Building Technologies, and Lifts and Escalators. Committed to technical excellence and research and development, we foster a culture of innovation, which has resulted in 61 international patents and designs. Throughout the years, we have successfully achieved sustainable business growth and maintained a high level of contracts in hand. We also placed great emphasis on sustainability, as reflected in our various ESG initiatives and our focus on creating shared value for the community. During the financial year of 2024, we made substantial progress on different fronts. I'd like to highlight our achievement of high contracts in hand and strong tender activities and recurring revenue streams, which provide a solid foundation for our business going forward. With our broad base of 4 business segments in different markets contributing to solid profits, we are in a good position to capture the opportunities from the shifting market priorities towards smart solutions, data centers, environmental, engineering and climate solutions, hospitals, infrastructure and housing. To continuously enhance our competitiveness and productivity, we established the MiMEP design and manufacturing center and the MiMEP high productivity research center in Zhuhai, as well as other MiMEP manufacturing facilities in Hong Kong, integrating our capabilities in the Greater Bay area with cutting-edge technology from Hong Kong. MiMEP stands for multi-trade integrated mechanical, electrical and plumbing. Embracing the 3 pillars of our business strategy, namely new technology, new market and new business model, we explored and successfully seized a variety of business opportunities to drive our growth. In overseas markets, our Lifts and Escalator business made substantial progress in the United Kingdom and extended our reach to new cities across the South of the United States. We also established a smart data automation business unit bring to the market new environmental technologies for clean water, sewage and waste treatment as well as new industrial applications. An additional business unit -- business development unit was also established to provide mechanical handing -- handling solutions, including a comprehensive crane and hoist system, a smart options for the E&M system. In addition, we are actively exploring opportunities in new markets, including East Asia, Southeast Asia, Central Asia, the Middle East and other parts of the world. Deeply committed to innovation, we have established industry leadership in new construction technologies, including MiMEP; DfMA, which stands for Design for Manufacturing and Assembly; and BIM, which stands for Building Information Modeling. By leveraging our extensive experience to systematically develop our own methodology, we are able to significantly improve quality, duration required, productivity, safety and sustainability. These technologies have been successfully implemented in over 50% of our building services projects. We've also developed a pilot direct liquid cooling solution for AI data centers, a sector with strong growth potentials. Revitalized from an industrial building our new headquarters, ATAL Tower, is a significant investment in the future for us and for Hong Kong. With its intelligent infrastructure, ATAL Tower has always -- has already created a better working environment to motivate staff and has an enhanced efficiency and synergies across businesses by consolidating all our units under one roof, while delivering quality services to customers. In addition, we established the ATAL Design, Research and Training Center in the ATAL Tower to further foster innovative technologies and cultivate talent for both the group and the broader industry. These efforts do not only fuel our business expansion, but also foster sustainable development of the industry. In parallel, we are celebrating the 40th anniversary of our graduate training and technician trainee programs, which gives us a competitive edge in attracting and retaining talent. Next, our CFO, Peter will now present our financial performance in 2024. Peter?

Thank you, Dr. Mak, and good afternoon, everyone. Let's start off looking at some key financial figures from our financial statements. In 2024, the group's order intake has increased just under 4% to $6 billion, while our contract in hand reached a strong total of just over $11 billion by year-end 2024. Despite various market challenges and conditions, our revenue increased to HKD 6.45 billion, and the profit attributable to owners of the company reached over $135 million. Our bank balance -- our bank balances and cash reported over HKD 1 billion, and our gearing ratio is at a 26% roughly. So let's take a look at some of our key financial data from our income statements. Revenue was up by over 5% to $6.45 billion. Gross profit reported to 15.5%, a growth from 13.6% in 2023. Our profit attributable to owners of the company for 2024 was over $135 million which included a couple of one-off expenses. One is the over $23 million before tax for relocation to our new headquarters, ATAL Tower, to realize some better efficiency and synergy across business units. And a provision before tax was made for $88 million for expected credit loss. The latter reflects the risks associated with the recoverabilities of certain receivables and contract assets held by the group in relation to certain construction companies during the year. Excluding these one-off items, the adjusted profit attributable to owners of the company would be $206 million in 2024. In comparison to 2023, this would represents an increase of around 10% when compared to the adjusted profit attributable to owners of the company in 2023 of $187 million. This -- the group is -- has approved the second interim dividend of a further $0.02 per share, making the 2024 dividend total of $0.0438 per share. Let's look at some analysis on the revenue. The Building Services continue to be our main contributors on our revenue at about 61% of our total revenues. Revenue from Environmental Engineering and ICBT segment remained at a similar levels between 2024 and 2023. In addition, the Lift and Escalators segment performed particularly well with a nearly 40% increase in revenue. This is mainly because of the revenues in 2023 for the U.K. company that we acquired was 3 months roughly of revenue and in 2024 as a full year revenue being recognized for those U.K. acquired company. And then we have a look at the nature of our revenue. Contracting will continue to be our main contributor for our revenue, circa 80% per annum. And during the period, we continue to grow our recurring revenue streams, generating a modest growth of 15% in maintenance revenue. And then just look at the balance sheet, some of the key figures in the balance sheet. The group's overall balance sheet remains sound with a strong cash position and sufficient committed bank facilities to fund our future growth. The gearing ratio is at 26%. That is mainly because we draw down on a short-term green loan and the revitalization loan during the year. And in the next slide, we show our dividend. As I mentioned earlier, the Board has resolved to pay a second interim dividend of a further $0.02 per share, which together with the interim -- the first interim dividend of $0.0238 per share already paid brings total dividend for the year to $0.0438 per share. Now I'd like to hand over to Brian who will take you through the business highlights of our business services segment, and thank you very much for your attention. Over to you, Brian.

Thank you, Peter. Good afternoon, everyone. The Building Service segment continues to be the largest contributor to the group's revenue with contract in hand of $5,100 million in 2024, while providing a solid foundation for our performance in the next 2 years and beyond. Segment revenue was $3,900 million, up by 5.3% year-on-year, driven by the addition of new maintenance contract. Our recurring maintenance revenue reached $420 million, reflecting a significant increase of 40%. As Otto mentioned earlier, our excellence in evolving advanced construction technologies, such as MiMEP, has enabled us to lead the industry and maintain our competitive advantage. To provide strong back-end support for MiMEP adoption, we have established the MiMEP Design and Manufacturing Center and the MiMEP High Productivity Research Center in Zhuhai, along with other MiMEP manufacturing facility in Hong Kong. We have also developed our own systematic MiMEP methodologies and solution for standardized production and management. In addition, we have established real-time remote monitoring of manufacturing process to link this different facility to our headquarter at ATAL Tower to facilitate remote monitoring of work and to ensure quality. During the year, we co-organized and participate in various MiMEP events, including A Sustainable Future, pioneering MiMEP innovations of it and also visit further government official to tour our MiMEP center in Zhuhai to exchange our wearable MiMEP experience and insights with the government, industrial leaders and technical experts, driven innovation in MiMEP and shaping the future of buildability. Our leadership in MiMEP has led to significant achievements, including securing a landmark MiMEP package contract for a grade A office building at Caroline Hill Road in Causeway Bay with the highest level of MiMEP application at 85% for a commercial development. Through our systematic decision-making methodologies and quality assurance study, we are able to ensure win-win benefits for various stockholder and to enhance quality and productivity. With this advanced technology, we are also able to address common pain points in the traditional work culture of the local construction industry such as tight schedule, difficult site environment and demanding work hours. It is worth noting that our diverse service offering enable us to capitalize on the shifting market priority towards data centers, infrastructure, hospitals, housing and private development. Here are some more signature projects under this segment. In terms of data centers, we secured a data center fitting-out work for a major data center service provider in Tseung Kwan O. And also, as for hospital, we were awarded a contract work on the expansion of building at a major hospital in Lai King. On the private development side, we secured a range of contracts, including projects in Kai Tak, Central and West Kowloon. We have also been awarded a diverse range of projects across other regions, including a commercial development project, a mega integrated construction project and a podium construction project in Shanghai as well as a significant hotel project in Macau. Separately, for public housing, which continues to be an important driver in meeting community needs, we secured projects in various districts such as Kai Tak, Tung Chung and Fanling. Other signature projects, including residence and student hostels at different universities and Hong Kong International Airport three-runway system for the modification of their North runway. I will now hand over to Raymond, who will present the performance of our other business segments. Raymond?

Yes. Thanks, Brian. Good morning, everyone. I'm going to take you through the performance of 3 of our business segments namely: Environmental Engineering; Information, Communications and Building Technologies; Lift and Escalators. I'll start with the Environmental Engineering segment. Both contract in hand and segment revenue remained at similar high level as in the year before, totaling HKD 4.33 billion and HKD 1.348 billion, respectively. Our Environmental Engineering segment provides environmental and climate solutions to ensure sustainable and efficient outcomes. By leveraging our expertise in design, research and talent development, we have integrated advanced technologies and innovative solutions, including AI-enabled digital twins, powerful solutions for various industry applications and operations under the brand of AlgoWater and ATAL Multi-Stages Flocculation Sedimentation III in the water and wastewater and also solid waste design-and-build projects as well as the operation and maintenance of E&M works. This approach allow us to identify the best operational decisions, extend the life cycle of plants and ensure excellent serviceability of environmental infrastructures. In order to bring the various innovative technologies that we develop to the market, we established a new business unit called Smart Data Automation to bring the benefits to customers in water treatment plant, sewage treatment plant, tunnel ventilation and also operation and maintenance of critical infrastructure and other industrial facilities. Our signature sewage treatment project include Yuen Long Effluent Polishing Plant, Cheung Chau sewage treatment and disposal facilities and San Shek Wan sewage treatment works. This -- in flood prevention project sector, we secured the Barrage and Nullah improvement work in Yuen Long. Other signature projects for water treatment works include the reprovisioning project of Sha Tin Water Treatment Works and the Tsuen Wan Water Treatment Works ceramic membrane pilot test. For the solid waste project, we include leachate treatment works for West New Territories Landfill Extension and also new leachate treatment plant for North East New Territories Landfill Extension. We are also working on gas treatment projects such as the West New Territories Landfill gas power generation Phase 2 development project. We also secured 2 other notable mechanical handling projects during the year namely the supply and installation of a laundry service system for garment sorting and finishing at Shum Wan Laundry and also the supply and installation of automatic storage and transportation system for the Hospital Authority Services Center. In addition to contracting works, we also undertook operation and maintenance projects that contribute to our recurring revenues, including the Organic Resources Recovery Center at O Park 1 and the food waste pretreatment facility at Tai Po and Sha Tin Sewerage Treatment Works, Pillar Point and San Wan Sewerage Treatment Works and also Shandong Qingdao Jimo Sewage Treatment Plant. For our ICBT segment contract in hand, which HKD 959 million, a year-on-year increase of 13.8%. Total revenue remained stable year-on-year at HKD 640 million. Based on the advantage of our own design research and talent development, the green and intelligent building solutions offered by the ICBT segment integrate a wide range of information and communications technologies enable us to meet the growth demand for smart and digital solutions. We also actively cooperate with leading global and Mainland China manufacturer. In 2024, we partnered with a global recognized leading company to provide digital solutions, including ready-to-use BIM assess, prefabrication, IoT integration and AI analytics. ICBT segment is committed to driving sustainable innovation, creating connected and intelligent urban environments and fundamentally enhancing the way people live, work and interact with other surroundings. Our technical deployment capabilities are demonstrated by the supply and insulation of a variety of advanced technologies in signature projects, including the supply and installation of BMS, ELV, ICT and IoT system for commercial development projects in Causeway Bay, in addition to the MiMEP for E&M equipment, private commercial development in Western Kowloon and Central and also a private residential complex in Tseung Kwan O. Secure infrastructure project also includes the supply and installation of BMS for Hong Kong-Zhuhai (sic) [ Hong Kong-Shenzhen ] Innovation and Technology Park and also the supply and installation of an automatic vehicle clearance support system at Shenzhen 1 Control Point. In addition, we worked on several public hospital projects, which include the supply and installation of BMS and security systems. Moving to our Lift and Escalators segment. Our contract in hand rose by 3% to $656 million. Thanks to our success in securing projects overseas and the consolidation of the 2 acquired lift company in U.K., our total revenue was up nearly 40% year-on-year to $529 million. We continue to extend our quality services from Hong Kong to the global market under our well-known brand Anlev. In Hong Kong, we provide maintenance service for both commercial and government buildings, our main profit contributor during the year. With our Nanjing factory in Mainland China, we are able to deliver an increasing range of quality products from designing through manufacturing and construction. As for our business in the United States, we achieved a turnaround, moving from a loss to a profit with a higher global gross profit margin in 2024. This was naturally due to the gradual COVID-19 recovery in the New York market. We also made progress in expanding our business in additional cities in South. Anlev made progress with the business, and the 2 acquired lift companies in U.K. contributed a proportion of revenue growth. In the global market, we were successful in securing overseas projects, which contributed to positive revenue growth. With enhanced different lift and elevator products to meet customer needs and to remain competitive, we aim to build critical mass to improve the efficiency and price competitiveness, enhance quality and also extend the benefits of our excellent service from Hong Kong to other markets with the established and strong global distributor network, enabling us to reach customers in over 20 countries around 6 continents. The signature projects will compete in Hong Kong provides private sector include our headquarter, ATAL Tower, a data center in Fanling, a vehicle show room and also a private residence in Kowloon Bay -- Kowloon City. Our signature project in Hong Kong's public sector also include the design and construction of a joint-user government office building in Tseung Kwan O; the private -- the provision of universal accessibility facilities include footbridge, elevated walkways and also subways; the design and construction of a public hospital redevelopment; and also a public housing in Shatin. We have also extended our reach to the automated parking system and worked in 2 projects, one in Tsuen Wan and the other in Kai Tak Inland Revenue Tower. Our diverse overseas projects showcase our successful developments in the United Kingdom, the United States, Brazil and also Mexico. Our maintenance service cover all our 4 business segments and shared both the public and private sectors. In 2024, the maintenance business continued to generate strong recurring revenue of $1.23 billion, an increase of around 15% year-on-year. It also contributed nearly 20% of the group's total revenue. Some of the key contracts in the Environmental Engineering segment include contracts for the maintenance of a mechanical installation and also main power supply and distribution equipment for the Hong Kong Port and also Hong Kong Link Road in the Hong Kong Zhuhai Macau Bridge region, a maintenance contract for upgrading and maintaining the facility of Stonecutters Island Sewage Treatment Plant and the provision of integrated maintenance and project service for CLP Castle Peak Power Station and auxiliary plant for NEC Package B3, and also a term contract for the maintenance of Phase 1 of the online chlorine generation plant for the water supply department. Other key contracts in Building Service and ICBT segments include maintenance contract with the Hong Kong Housing Authority for their surface installation and water supply system in the Tai Po districts, maintenance contracts for chiller replacement works for MTR stations, and maintenance services for the automatic vehicle clearance support system at Hong Kong-Zhuhai Macau Bridge, Hong Kong Port and Shenzhen Bay Control Point. Some other multiple contracts in Lift and Escalator segment include the management, operation and maintenance of the central and mid-level escalator and walkway system and the maintenance of the lifts and escalator system at Ocean Park. I will now hand over to Kim to present the market outlook and our growth strategies.

Thank you, Raymond. Notwithstanding the challenges around the world and in Hong Kong, our continuous improvement of core strengths and investment in innovation empowers us to stay ahead in the market. Distinct from our peers, we're not only a leading provider of E&M engineering solutions, but also ICT services for smart cities. This unique broad base of business positions us well to capture the opportunities from shifting market priorities towards smart and digital solutions, data centers, environmental engineering and climate solutions, hospitals, infrastructure and housing. Moreover, our strong cash position enables us to take on additional work and capture opportunities arising in the market. We are committed to continuous product development of Anlev and the expansion of its comprehensive manufacturing, installation, maintenance business model, while expanding our recurring operations and maintenance business through the MOM, or management operations and maintenance, service contract for mission-critical facilities. We will invest to keep enhancing our solid underlying operational performance, mobilizing all our staff and our leaders and leveraging our value of innovation. Significantly, we have achieved industry leadership in MiMEP and developed our own systematic decision-making methodologies that create distinctive customer value and facilitate industry transformation. We will continue to strengthen our competitive edge through continuous cycles of improvement to drive productivity. Going forward, we are strategically investing in design and research on new innovative construction techniques. These efforts aim to address common pain points in traditional methods by reimagining construction and engineering processes, digital technologies and environmental engineering and climate solutions. The group's growth strategies have enabled us to capture the valuable business opportunities arising in multiple markets. Mainland China has shown resilience and adaptability. For Hong Kong's construction industry, the public sector alone is expected to see government capital works reaching between $90 billion and $120 billion. Beyond this, additional opportunities are emerging in various other sectors, driven by the fast-growing demand for new technologies and data processing. The development of the metropolis need to refresh, improve and extend the life cycle of assets and ongoing O&M. With intelligent infrastructure of ATAL Tower, we are linked to our various productive facilities in Mainland China and Hong Kong, strategically positioning us for the Greater Bay market. Looking at our overseas markets, we continue to build on our expanded operations in the U.S. and the U.K., while exploring business opportunities in other markets, including East Asia, Southeast Asia, Central Asia, the Middle East and other parts of the world with the aim of bringing new technologies to these markets. That concludes our presentation. I will now hand over to our emcee for the Q&A session. Thank you.

[Operator Instructions] We have the first questions from Albert. With the construction industry facing tough times and many companies struggling, is the company feeling the impact, too? What can you do to maintain profitability in this challenging market?

Well, it's true that there have been challenges over the past years, well, with COVID-19 followed by economic downturn around the world. But if you look at the Mainland Chinese market, it remains broadly resilient, and we see a lot of effective measures recently. As far as the Hong Kong market goes, the government capital works program alone still stands at $90 billion to $120 billion. So overall, we are remaining cautiously optimistic as evidenced by our very high level of contract in hand made possible by a 3.6% increase in intake in 2024. Our tendering activities are very active, and we also saw a 15% increase in our maintenance revenue. Because we have a broad base of business and we have a leadership position in what we do, we are in a good position to capture the market opportunities arising from changing priorities towards data solution -- data center, environmental engineering and climate solutions, hospitals, infrastructure and so on. We are cautiously maintaining a strong cash position to enable us to take on additional work as appropriate. We, in the long term, are continuously enhancing our profitability through a variety of measures, including innovation, positioning ourselves in growth market segments and also continuous enhancement of our operational strengths.

Our next question is from Stephen. His first question is about the dividend payment. Will we consider to increase the payout given we have a lot of excess cash? And he was saying the payment is a bit disappointing.

Let me address the dividend payments part of the question. We -- the Board has resolved to pay a further $0.02 per share for the second interim dividend, and that will bring the full year to $0.438 per share. We have looked at our cash positions and our asset position regarding to our working capital requirements for both in China, Hong Kong and Macau and overseas, et cetera. And we reviewed the situation, and we currently are being cautious regarding to the availabilities of our financial resources to meet our further growth of our business.

Our next question is from Stephen and also Jeff because it's on the same -- similar issue. What is the plan to sell down your stake in Nanjing Canatal? Are you going to speed up?

Let me answer this question. In fact, the group will keep under review the investment in Canatal to ensure it's aligned with our strategic objective and to maximize value to the group and the shareholder. In view of the present situation that Canatal is now also constructing another new facility to meet the market requirement, and also we foresee there will be a big increase in the market, so that the Nanjing Canatal build more facility to meet the requirement. In view of that, any further disposal will be carefully considered, and we will make a public announcement if there's any update.

The next question is from Jasmine. Management mentioned a project in Causeway Bay with a high level of MiMEP adoption. How large do you think the MiMEP market is? And what opportunities do you see for the company?

Okay. Thank you for your question. Let me answer the question. As an industrial pioneer in the adoption of advanced construction technology, we have successfully implemented MiMEP and other construction technology like DfMA and MiMEP in more than 50% of our building service project, okay? So our experience with the standard setting MEP contract from a major developer to apply highest level of MiMEP to a grade A commercial building in Causeway Bay has demonstrated how early-stage integration of this system can dramatically improve our efficiency and also our on-site safety. We believe adoption of MiMEP will become more popular in the future. In addition, as per my presentation, we have established a real-time remote monitoring of manufacturing process to link our facility at ATAL Tower in Hong Kong with our MiMEP Center in both Zhuhai and also Hong Kong. This integration provides us with a significant competitive advantage to seize growth opportunity of MiMEP in Hong Kong as well as in other cities of Greater Bay Area. Thank you.

The next question is from Jeffrey. Why do you think ICBT's revenue dropped even with more contracts in hand? What steps can we take to boost ICBT's profit margins back to the previous levels?

Okay. With the increasing demand for intelligent building technologies and smart city solutions, our order intake covered various industries and market sectors, including government, hospital and also infrastructures. The slight variation of the revenue between 2024 and 2023 was due to project phasing. Regarding the profitability, it is due to the project phasing as each new project has the -- has to reach a certain revenue threshold before the profit is recognized. Therefore, the new project just starting in a review period will reach profit recognition gradually and will contribute to profit later in the future phase. The segment profit margin remained at the normal level of around 5% to 7%, and the significantly boost segment profit margin in [ 2020 ] was primarily driven by the 2 projects in the final account.

[Operator Instructions] We have a follow-up question from Jasmine. What do you think caused the order intake in the Environmental Engineering segment to double this year? Which geographic markets drove that growth? And how can the company manage the risk of overseas projects?

Okay. Let me answer the questions. The increase in order intake is due to the winning contracts for environmental infrastructures needed to enhance climate resilience, environmental protection, sustainability of water supply and also waste treatment and support public housing and utilities. The segment have been active in tendering activities. The award of a land book submitted tender will be due for announcement in phase in 2025.

Is there any questions? Any further questions? As there is no further questions, this concludes our investor presentation today -- sorry, we have one -- let me unmute you, Mr. Webb.

Sorry, I couldn't find the raise hand button. I'm not very good at this. Where would it be normally? Just tell me.

It's under the emotion icon.

Under the emotion -- anyway, I'm on now. The business, particularly Building Services, would have done really well if we've been paid for what we do. The obvious problem is the huge impairment losses on the construction contracts. And this is the latest accident in a series of problems that the group has encountered. There was the mispricing of the hospital contract last year. This year, it's, I believe, exposure to a well-known group in Hong Kong that's calling for liquidation called Paul Y. What are we doing about avoiding that kind of problem going forward? What is the group doing about credit control and tightening up on receivables, particularly with groups like that, which have been known to be financially challenged for a long time? That's my first question.

Okay. So thank you for the question, Mr. Webb. First of all, I think what we have is a process that has proven so far in many years that we manage our assets and the recovery route of our assets. And we will continue to improve our processes and our control and our covenants to ensure that we minimize the risk of these kind of exposures. We already are working very -- with our best than ever to try to recover some of these assets that we have made provision. And once they are recovered, then we will book those recovered assets accordingly.

Is there anything we can do to avoid this problem going forward or mitigate it? And why would we give so much credit to the Paul Y group? Given the situation, why take on these contracts with such a weak intermediary, even if -- they have a bigger customer, I assume, in most cases, but we seem to be at the bottom of the food chain here?

We are -- in this case -- or in these cases, we are the subcontractor to a particular company, and this company is the main contractor for the end user. I think here is that these contracts usually are multi-years for delivery. And then before that, there is also a period of time that we will have to go through tendering process, et cetera. So for these contracts at this point in time that we have to make a provision for, they would have been probably reviewed a number of years before in those -- in these kind of contracts.

Well, I just wonder whether our existing -- expected credit loss calculation for our receivables is fair given this incident, whether we should be increasing the provision for non-impaired receivables given the large amounts that we have at any point in time outstanding under contract assets.

The expected credit loss is not a decision just made by the management team. It is -- we have to work with the independent valuers who review the whole -- the market situations as well as our client portfolios, et cetera.

But we work on a percentage assumption. We're like an insurance company. I think we're trying to calculate the risk, but it seems like the risk has gone up, at least based on this incident. Maybe it's a one-off, but I'd like to think that it's a one-off, but I'm not convinced. Second question. Do we still have a 50% dividend policy? Because it seems like we've ignored it for the last 2 years now, and it's in the annual report on Page 62.

We have dividend policies based on after we reviewed our group requirement for future expenditures and our commitments, et cetera. And then we made our dividend declarations based on that.

So are we deviating from the policy stated in the annual report, would you say, that says subject to the factors, we expect to pay no less than 50%? Shouldn't you explain your actual dividend in the context of the policy and why you didn't pay 50%? There might be a good reason, but shouldn't there be some explanation if you have such a clear policy?

I think the statement actually said is that we review the -- our resource -- our financial resources situation is a requirement, and then we make the dividend declarations based on that.

Okay. I think we're not getting anywhere on this question. The third question. Nanjing Canatal, the share price is up somewhat this year, but it's hardly making any profit. It may be doing lots of projects, but if we had that money today, would we go out and buy 16% of Nanjing Canatal? If we wouldn't at current market prices, then why aren't we selling it? Because it's not key to our business. It hardly contributes any profit in the associate line. So I think you're suffering from endowment policy. It's a well-known psychological problem in humanity that once you've got something, you feel you should keep it. You can't really [indiscernible] in it, but you wouldn't buy it if you have the cash today.

Our policy for all those years has been looking at the long-term sustainability of the company. We are -- we do not look at profit year-on-year, but we look at probably a longer period, so that we dispose or we use our resources intelligently. I think, at this point of time, the world market is very difficult, and Hong Kong is also in not a better shape. But however, this is also an opportunity for us to get ahead of our competitor. For example, our investment in the last few years on MiMEP is starting to bear fruit. And we do believe that this design will enable us to capture a larger share of the building market in Hong Kong and hopefully beyond. And actually, we are looking into AI-enabled MiMEP, so that we would be able to not monopolize, but we will be definitely be a leader in this technology for the years to come.

So does MiMEP have anything to do with Nanjing Canatal? Are we inhaling technology from Nanjing Canatal? Or is it just unrelated?

Well, I think I have to say, again, is that we are really looking at the long-term sustainability of the company. And we believe we are doing our best to look at the risks as well as the investment opportunities. And for example, our acquisition in U.K. is now starting to bear fruit. And our investment in Nanjing with the new production line that we are able to reduce our cost and efficiency substantially. So I think we are basically building -- we are making all the building blocks to enable us to improve the shareholders' return for the -- not eventually, but for the years to come.

I agree with that strategy. I agree with the acquisitions of subsidiaries that we've made. It's consistent with the segments we're in. What I'm saying is that 16% of Nanjing Canatal is not one of those segments. It's just an appendage that's worth, I don't know what it is now, HKD 600 million or something and hardly has any attributable earnings on that $600 million. The return on equity is tiny. We ought to be getting out of it. And focusing on our core wholly owned segments, including data center management in Hong Kong and elsewhere, there's no reason why we need to own shares in Nanjing Canatal for that.

Well, regarding Canatal, I think this has been a subject we had been discussing for a number of years. And as you have -- might have seen in the last 6 months, the price of Canatal has moved significantly -- moved up significantly. It's just the last few days, there was a little bit of setback. But I think with the new production facilities and with getting into the data center market aggressively, we -- Canatal is investing. And I think we will be able to see a much better return on the profit in the next year or 2. So I think we consider -- we do not consider Canatal as an opportunistic investment, but as a long-term investment to create value for the shareholders.

Should we buy more of it then?

Well, I think this could be an option for us, but I think -- we actually look at the things continuously. We are investing the situation condition continuously. And we will make the decision -- the right decision at the opportune moment.

All right. Well, from my shareholder's point of view, please don't put more money into it. Take money out from it. We could still have a small shareholding to follow.

Your point is noted. And as Mr. Poon and Mr. Raymond Chan said earlier, we'll keep the situation under review. And we will make a proper announcement when there is a plan to do so. Thank you.

Okay. I would like -- I would just like to circle back and say that I think the Board ought to -- through the Audit Committee and Risk Management Committee, if you have one, ought to revisit credit control policies, tighten things up and put something in the annual report about how you are.

Okay. Let me try to add a little bit more on the corporate governance. We do have a Risk Management Committee, which is a subcommittee to the Audit Committee. The Risk Management Committee actually 2 years ago raised the risk profile regarding to the client base as well as our suppliers or vendor management base to the highest level. We already, at that point, increased our -- improve our processes to try to manage our exposures. It is unfortunate it's -- what happens in 2024. We have worked very hard to try to recover some of these assets already. And I believe we are optimistic -- or cautiously optimistic in recovering some of these assets.

And sorry, one other thing. There is a mention in the notes about an impairment on a loan to a Hong Kong associate. I think it was $13 million. Is that this [ Oscar Bio ] something? What is it? Why are we still making impairments on the loans to a Hong Kong associate?

Okay. This -- the -- this particular project is incurring a loss at the moment. So the impairment we are making is based on the loan we make rather than taking the loss from the income statement of this particular project.

So what's the outstanding loan? I thought for some reason, those have been written off a long time ago. It's not -- Oscar Bio is still an ongoing risk. Is it -- what's the outstanding loan to it now?

I'm afraid I don't actually have the figure on hand at the moment, the outstanding loan figure.

Right. The $12.8 million is the number I'm looking at. And last year, it was $8 million. But it seems like $20 million in 2 years, we could expect that.

The would be the right magnitude, but I can't confirm whether it's exactly $20 million, but that's the right magnitude of the year.

Well, that's how much we've impaired in the last 2 years. But I'm wondering how much worse it could get with this particular associate. These are shareholder loans basically.

Okay. Well, at the moment, we're working very hard with our partner, JV partner to improve the operations and, obviously, the profitabilities of this project. And I would even pass on to Raymond, who can probably talk a little bit more about the technologies that we are looking at improving. But we are discussing with Environmental Protection Department on some of the improvements that we could make. And then hopefully, then we can turn the project around sooner rather than later. I don't know whether Raymond want to add anything.

I can give you some information on that. In fact, this project is the first project in Hong Kong. I think in every city, there is a special characteristic of the waste. And for this Hong Kong project, we work together with the Environmental Protection Department. And now we operate the plant for 4 years already, and we found that there are some difference on the characteristic of the waste. And we have a long discussion with the EPD, Environmental Protection Department. And now we have some proposal for them to modify the existing plant in order to make the plant in a reliable and in a constant operation. And more or less, they are now starting our proposal. I think within 3 or 4 months' time, they will make a decision. If it's okay, then they will make a [indiscernible] order to us to upgrade the plant in order to suit the characteristic of the waste. If the plant in good operation, then we can gather more revenue, and it will improve the present situation.

If I look at the accounts last year, Page 132, it says that there is some amount due of HKD 118 million from the JV. Does that sound right?

I don't remember the exact value.

So that we lost -- we only impaired HKD 13 million this year. We could have another HKD 105 million of losses from this JV if it completely fails.

I'm afraid I'm going to have to get back to you on that. I don't have that figure at hand. My apology.

Okay. Yes. I'm looking at Note 19, there is 5 in last year's report.

The last year report, I don't have the last year report.

We will get back to you.

Okay. Thank you for the questions. And as there is no further questions, this concludes our investor presentation today.

Well, I think before we end, I think we should thank Mr. Webb for his care and support to our company.

Thank you for all your continuous support to Analogue. If you would like to have a separate meeting with the management, please contact [ SPRG ] for coordination. Once again, thank you for your participation today. You may now disconnect.

Thank you.

Thank you.