Analogue Holdings Limited (1977) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Thank you for joining the 2025 Interim 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 the Q&A. [Operator Instructions] 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. 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 2025 interim results investor presentation today. I'm going to commence by providing you with an overview of our company. I'll 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 the 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 China, the U.S. and the U.K. We provide comprehensive one-stop E&M 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 year, 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 ESG initiatives and our focus on creating shared value for the community. During the first half of 2025, we made substantial progress on different fronts. Staying agile for opportunities in our diverse business space, we're happy to highlight our achievement of record high contracts in hand, strong cash position, high recurring revenue streams as well as the increased order intake by nearly 40%, providing a solid foundation of our business in the coming 2 years and beyond. To continuously enhance our competitiveness, we have established leadership in MiMEP with the expanded MiMEP Design and Manufacturing Center, MiMEP High Productivity Research Center and other MiMEP manufacturing facilities, digitally linked to our headquarters, ATAL Tower, to achieve real-time monitoring and seamless coordination across regions. Embracing new technology, new market and new business model as the 3 pillars of our business strategy, we have successfully seized a variety of business opportunities to drive our business forward. Specifically, the edges we have established in advanced MiMEP, innovative technologies and comprehensive capability are instrumental in our success in winning many of the significant contracts. Our ATAL Design, Research and Training Center has also proven to be an attractive hub for innovation, bringing together business partners to co-create solutions and position us to lead in emerging business segments. In addition, we are continuing to build on the expansion of our business into new markets. During the first half of the year, our associate TEI, being one of the largest independent lift and escalator company in New York continued to expand in the southern part of the U.S. by opening a second branch in Florida, and the group established a company in Germany to capitalize on opportunities in Europe. Besides Europe, we are also exploring Asia and the Middle East for projects and technical services opportunities. The lifts and escalators business is actively developing new products and partners for our expanding international markets to further enhance its vertically integrated business model, encompassing design, manufacturing, installation and services. Our industry leadership in advanced construction technologies of MiMEP, DfMA, which stands for design for manufacturing and assembly and BIM, which stands for building information modeling, helps transform engineering workflows, improving quality, enhancing safety, reducing site time, minimizing waste and ultimately preventing site issues before they arise. In addition, we are successfully integrating cutting-edge AI-enabled technologies from design through execution to operations, not only for buildings, but also industrial applications and mission-critical infrastructure to deliver smarter, safer and more sustainable assets. Our new intelligent headquarters, ATAL Tower is an investment in the future and in Hong Kong that enables us to consolidate all operating units under one roof and establish a center for nurturing ideas, technologies and future leaders, enhancing collaboration across business units, accelerating innovation and positioning us for sustainable growth in the coming decades. The ATAL Design, Research and Training Center established in the ATAL Tower, besides fostering innovative technologies, cultivates talent for the group at all levels to continuously enhance their knowledge, skills, integrity, customer focus, leadership and overall capabilities. Next, our CFO, Peter, will present our financial performance in the first half of 2025.

Thank you, Dr. Mak. Good afternoon, everyone. During the reporting period, the group's order intake was up nearly 40% to HKD 4.9 billion. Contract in hand hit a record high of HKD 13 billion, up over 11% year-on-year. Revenue was reported as HKD 2.87 billion with profit attributable to owners of the company of HKD 80.8 million. We had bank balances and cash of around HKD 1.14 billion and a low gearing ratio of 19.5%. Now let's take a closer look at some of the key financial data. Our revenue fell by 12%. That's mainly due to the timing and phasing of projects across the business. The decrease in revenue in the Business Services segment was partially offset by the higher revenue in Environmental Engineering and Lift and Escalator segment. Gross profit was slightly higher than in the same period last year, reaching HKD 484 million. The gross profit margin was reported at 16.8%. This increase was mainly due to the Environmental Engineering segment. New projects are also scheduled to start in phases and will contribute to future profits once they reach the threshold of profit recognition. For the first half of 2025, the profit attributable to owners of the company remained virtually unchanged at HKD 80.8 million. Basic earnings per share was HKD 0.06, and the Board has declared an interim dividend of HKD 0.026 per share. Let's look at some of the revenue breakdown of our business. In terms of revenue breakdown by segment, Building Services segment continue to be our main sources of revenue, accounting for nearly 55% of our total revenue. And the other segment, Environmental Engineering, ICBT and Lift and Escalators all recorded an increase in revenue in the comparable period of time. If we look at it by project nature, contracting work remained the main source of revenue. During the period, we continue to increase our revenue streams. New maintenance contracts totaled HKD 862 million, an increase of 143%. Now look at the balance sheet of the company. The overall balance sheet remains healthy for the group. The gearing ratio fell to 19.5% from 26.2%, mainly due to the repayment of some of the revitalization loans that were taken out during the project of ATAL Towers, but that's been repaid during the 6 months ended the 30th of June 2025. Our return on equity was 3.6% for the period for the 6 months. Overall, the group, based on looking at the balance sheet, has maintained a healthy balance sheet with a strong cash position and adequate committed bank facilities to finance our future growth and developments. The interim dividend for the first half of 2025 been declared at HKD 0.026 per share. We are committed to rewarding the support of our shareholders in a stable manner. I will now hand over to my colleague, Brian, who will take you through the business highlights of our Building Services segment. Brian?

Thank you, Peter. Good afternoon, everyone. For Building Service in the first half of 2025, we continued to strengthen our order intake in the Building Service segment, which reached HKD 3,400 million. This is an increase of 80%. Overall, the Building Service segment achieved a high level of contracts in hand of HKD 6,900 million. This provides a solid business foundation for the next 2 years and beyond for the Building Service segment, which continues to be the group's main source of revenue. As Dr. Mak mentioned, our lead in the advanced construction technologies of MiMEP has helped us further enhance our competitiveness. We developed our own MiMEP methodologies and solutions for streamlining production and management. We also set up modern manufacturing facilities and the MiMEP Design and Manufacturing Center and the MiMEP High Productivity Research Center in Zhuhai, along with our other MiMEP manufacturing sites in Hong Kong. To ensure quality and facilitate seamless coordination across the regions, a real-time high-resolution remote monitoring system has been set up for this MiMEP facility to be monitored from our headquarters at ATAL Tower. Our leadership in MiMEP has led to significant achievements, including securing a landmark MEP package contract for a Grade A office building at Caroline Hill Road in Causeway Bay. 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 technics, we are able to ensure win-win benefits for various stakeholders 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. Our comprehensive capability across diverse areas allow us to benefit from changing market trends in areas such as hospital, infrastructure, data centers, public and private housing, universities and commercial development. Among our varied projects in this segment, we secured public housing projects that address community needs in many districts, including Kwun Tung North, Fanling, Southern and Kwai Chung. There are some more projects, including Kai Tak and Tung Chung. 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 as for hospital, we were awarded a contract to work on the expansion of building at a major hospital in Lai King and also North District. We have also been awarded a diverse range of commercial developments, including development projects in Causeway Bay, Central, West Kowloon and Tung Chung. On the private housing side, we secured a range of contracts, including projects in Tung Chung, Jordan and Whampoa. In addition, other projects, including residence, student hostel and academic buildings at various universities and Hong Kong International Airports three runway system for the modification of the North Runway. Across other regions, we have also been awarded a diverse range of projects, including a mega integrated construction project, a podium construction project in Shanghai as well as a significant hotel project in Macau. I will now hand over to Raymond, who will present the performance of our other business segment. Thank you.

Okay. Thanks, Brian. Good afternoon, everyone. I'm going to go over the performance of 3 of our business segments, Environmental Engineering, ICBT and Lifts and Escalators. I will start with the Environmental Engineering segment first. Contract in hand remained at a similar high level to the year before, totaled HKD 4.6 billion. Segment revenue reached HKD 717 million in the first half of 2025 as an increase of 15.5%. Leveraging our own design, research and talent development, we have applied advanced technologies and innovative solutions, including AI-enabled digital twins for various industry applications under the AlgoWater band and environmental engineering solutions such as ATAL multistage flocculation and sedimentation 3. To bring our intelligent technologies to the market, our new business unit called Smart Data Automation, SDA, is applying these technologies in water, wastewater and solid waste as well as the operation and maintenance of M&E works to help make better operation decision, extend the life cycle of the plants and ensure excellent serviceability of environmental infrastructure. Our sewage treatment project include Yuen Long effluent polishing plant, Cheung Chau sewage treatment work and also San Shek Wan sewage treatment work. The signature flood prevention project is the Barrage and Nullah improvement scheme in Yuen Long. In water treatment side, our projects include the in-situ reprovisioning projects in Sha Tin water treatment work and also a pilot plant in Tsuen Wan water treatment work using ceramic membrane. In landfill project side, leachate treatment works in west new territories landfill extension. And also North East new territory landfill extension. We are also working on gas treatment projects such as the west new territory landfill gas power generation Phase 2 development. We also have other notable mechanical handling projects like the supply and installation of laundry service system for garment sorting and finishing at Shum Wan Laundry plant. The supply and installation of automatic storage and transportation system for the hospital authority service center. In addition to contracting works, O&M projects contribute to our recurring revenue include the food waste pretreatment facility in Tai Po and also the food waste treatment facility in Sha Tin sewage treatment work. The organic resources recovery center at O PARK1 and also Pillar Point and San Wan sewage treatment work and also the -- San Wan sewage treatment. Their projects in Mainland include wastewater treatment plant at Qingdao and also a combined heat and power generation at Shanghai Chongming and also Qingpu. We also have overseas projects, including wastewater treatment plant in Nepal and also in Croatia. Turning to our ICBT segment. Contracts in hand were HKD 863 million. Total revenue increased by 2.7% year-on-year to HKD 303 million. Leveraging our own R&D, design and talent development, the green and intelligent building solutions offered by the ICBT segment use a range of information and communication technologies. This allows us to meet the growing demand for smart and digital solutions. We are also actively collaborating with a leading manufacturer around the world in Mainland China to expand our technology reach. The ICBT segment is committed to innovation, building smart and connect urban environments and improving how people live, work and interact with the world around them. Our teleco deployment capabilities are demonstrated by the supply installation of a variety of advanced technology in signature projects, including commercial and development projects in Causeway Bay, West Kowloon and Central and also in Quarry Bay. Yes, and the signature infrastructure project also include Terminal 2 of Hong Kong Airport for supply and installation of smart washroom system and also associated equipment. Hong Kong-Shenzhen Innovation and Technology Park for the supply and installation of BMS, ICT and also smart systems and the automation vehicle clearing system at Shenzhen Bay Control Point. In addition, we work on public hospital projects, which include the supply and implementation of energy saving solution and also the supply and installation of BMS and security solutions. Moving to our Lift and Escalator segment. Contract in hand rose by 6.1%, up to HKD 708 million. Thanks to our success in securing major projects in Hong Kong and other projects in U.K., our total revenue grew 21% year-on-year to HKD 289 million. In Hong Kong, we provide maintenance service for a diverse range of buildings. This was our main sources of profit. Our factory in Nanjing and Mainland China has streamlined manufacturing process, expanded product offering and enhanced product quality. Meanwhile, our business in the United States continued to expand in the southern part of U.S., opening a second branch in Florida during the first half of 2025. The 2 lift company we acquired in the United Kingdom add to revenue growth. We have built a strong global distributor network, enable us to reach customers in over 20 countries around 6 continents. Our Machine-Room-Less lift products have gained traction in the market. The diverse projects we compete in Hong Kong include a headquarter of ATAL Tower, a data center in Kwai Chung, a vehicle showroom and also a private residence in Kowloon City. And they are joint user government office building in Tseung Kwan O. The provision of universal accessibility facilities, including footbridges, elevated walkways and also subways, a public housing in Shatin. We have also extended our reach to automatic parking system and work on the project in Tsuen Wan and also in Kai Tak Inland Revenue Tower. Our diverse overseas projects showcased our successful developments in the United Kingdom, United States, Brazil and also Mexico, including the icon 60 -- 56-story luxury hotel skyscraper on the border of Times Square in New York. Our maintenance service over all 4 business segments, in the first half 2025, the maintenance business generated strong recurring revenue of HKD 617 million. This represents 21.5% of the group total revenue. Some of the key contracts in the Environmental Engineering segment include the contract for the maintenance of mechanical installation and also the main power supply and distribution equipment at the Hong Kong Port and Hong Kong Link Road in the Hong Kong Zhuhai Macao Bridge. Integrated maintenance and project service for Castle Peak Power Station, upgrading and maintenance the facility in Stonecutters Island sewage treatment plant and also a D and B contract for landfill gas power generation facility for Phase 2 in WEST, W-E-N-T, landfill site for gas generation, a term contract for maintenance Phase -- to maintain Phase 1 of the on-site chlorine generation plant for the water supply department. Other key contract in Building Service and ICBT segment include maintenance contract with the Hong Kong Housing Authority for the fire service installation and water supply system in the number of districts. Maintenance contracts for chiller replacement work at MTR stations and also maintenance service for the automatic vehicle clearance support system at the Hong Kong port and also Shenzhen Bay Control Point in the Hong Kong Zhuhai Macao Bridge. Some other notable contract in the Lift and Escalator segment include management, operation and maintenance of the central to mid-level escalator and walkway system. Maintenance of the lift and escalator system at Ocean Park and Hong Kong Science Park and also the maintenance of the lift system at Kowloon East regional headquarters and operational base Ngau Tau Kok district police station. I will now hand over to Kin, who will present the market outlook and also our growth strategies.

Thank you, Raymond. Notwithstanding the changing landscape around the world and in Hong Kong, we continuously build on our core strengths and drive innovation for quality to enable us to stay ahead in the market. Distinct from our peers, we are not only a leading provider of E&M engineering solutions, but also ICT services for smart cities. Our wide base of business and comprehensive capability allow us to capture shifting priorities in diverse sectors, including smart and digital solutions, data centers, environmental engineering and climate solutions, hospitals and housing. Financially, our strong cash position allows us to take on additional work as appropriate and capture valuable opportunities arising in the market. On the business front, we are extending our comprehensive vertically integrated business model of lifts and escalators with more products and partners as well as expansion into the southern part of the U.S. Additionally, the new maintenance contracts for infrastructure, housing programs and lifts and escalators will enhance our recurring maintenance revenues. We will continue to drive innovation to enable the group to lead in emerging market segments and to meet evolving market demands. In particular, we've established a lead in the advanced construction technology of MiMEP, DfMA and BIM with our own methodology to create distinctive customer value and help transform the industry. We're also integrating cutting-edge technologies throughout the entire project cycle to deliver smarter, safer and sustainable infrastructure. Research and development will continue to be focused on advanced construction technologies that address common industry pain points, cutting-edge digital technologies, environmental and climate solutions and product to meet our expanding international market footprint. We shall also nurture and develop talent to boost our productivity and competitiveness. The group strategy is to capture the valuable business opportunities in multiple markets. Hong Kong's construction industry is expected to see government capital works worth HKD 90 billion to HKD 120 billion per annum. We will continue to stay agile for opportunities across our wide business space with diverse sectors, including health care, education, the Northern Metropolis that is being expedited, the need to refresh, improve and expand the life cycle of assets and ongoing operations and maintenance. We will, at the same time, increase our competitiveness with advanced construction technologies and position the group for providing services to facilitate the adoption of AI and other smart city developments. Our strong cash positions allow us to take on additional work as appropriate. For Mainland China, which continues to show resilience and adaptability, we see technological breakthroughs and ongoing GDP growth and continuing reform and supportive policies. We have undertaken strategic integration of resource deployment across business units and regions, including the integration of project teams, design capabilities and manufacturing assets in Hong Kong and the Greater Bay Area. Such cross-unit and cross-border coordination of resources and expertise enables us to respond more effectively to market demands and accelerate project delivery. With the intelligent infrastructure, ATAL Tower is linked to our facilities in Mainland China and Hong Kong for seamless integration and quality assurance across regions, strategically positioning us for the Greater Bay Area. Overseas, we are continuing to expand in the southern part of the U.S. and to build on our expanded operations in the U.K. Leveraging our foundation in these different markets, we will continue to pursue project and technical services opportunities in Europe, Asia and the Middle East, while also looking for synergistic partnership opportunities to enhance our local and global market position and exploring the possibility of broadening our overseas market offering beyond lifts and escalators to include engineering services. That concludes our presentation today. I will now hand over to our emcee for the Q&A session. Thank you very much.

Thank you, management, for the presentation. Now let's go to the Q&A session. [Operator Instructions] The first question is from Albert Chu. Why did order intake increase significantly by nearly 40% year-on-year? Where are these orders from? Do you see this trend to continue in upcoming years? As you mentioned, you have a solid foundation for the next 2 years and more. Management, please.

Okay. Thanks, Albert. Okay. Let me take this question, okay? In fact, there is a continued demand for construction project in Hong Kong a bit with a shift to education, infrastructure, hospital and housing. With our comprehensive capability in diverse segments, we are well positioned to capitalize on this development to further support business growth, okay? Talking about the trend, actually, as our industry leadership in MiMEP received a major boost, not only with the award of the standard setting MEP contract to apply the highest level of MiMEP, but also with the development of our own systematic decision-making methodology to enhance efficiency and quality and to create win-win share benefits with the customer and other stakeholders. And this has expected to result in additional MiMEP-related project in the future.

Thank you management. Now we take the second question from the floor. Why did you choose to set up a company in Germany? What opportunities do you see? And are you eyeing on setting up a company in another country? Can you please also share the opportunities in the Middle East market? This question is from Holly.

Okay. Thank you for your question. German has an excellent reputation in environmental technologies and also products. Therefore, the company in German will give a good platform for expansion into the EMEA market and also in Asian market. Currently, we are actively tendering to secure new business opportunity in this area, especially on the Croatia and also [indiscernible] these 2 countries. In fact, last week, we have a few people staying there just for the tendering work. For Middle East market, premarketing work was in progress, especially for the environmental engineering sectors. The group is also exploring the market opportunity in other parts of Asia and also Europe.

Okay. Thank you. Holly has a follow-up question. How about U.K.? What were the growth drivers for the U.K. market? Can we expect this growth trend to continue in the next 2 years? And will you increase your investment in the U.K. to maximize returns?

Do you want me to take this? Yes. Okay. Let me try to help to answer this question. I think here is that we started our footprint in U.K. back in 2021. So this is relatively a new market for us. So -- and we, in 2023, acquired 2 companies. So we are seeing the growth in the last 2 years because due to the start-up and then 2 new companies that we have acquired. We will continue to work to try to grow the business. Obviously, that's -- also it's very project-based. So there is timing and phasing of projects. In addition, it also depends on the U.K. economy and the environment -- the business environment, et cetera. So...

[Operator Instructions] Here is a question from Jeffrey Tan. Given the forecasted downturn in the construction industry with the number of private projects decreasing, what strategies do you have to navigate this challenging environment to maintain stability?

Well, notwithstanding what the question referred to, the market in Hong Kong actually remains quite active with government capital works alone accounting for $120 billion of investment per annum. There are many drivers, including health, education, the Northern Metropolis and so on. But there are other drivers as well, including the need to extend life cycle and even ongoing O&M. Now this is evidenced by our record high contracts in hand. Significantly, you can see that the new contracts that we successfully secured came from a diverse -- a number of sectors, including Macau hotels, data centers, environmental engineering, technology service and lifts and escalators. In fact, we stay active in tendering throughout the first half of the year and many of the submitted tenders are due for announcement in phases later. To maintain our leading position in the industry, we are continuously enhancing our competitiveness. For example, through technology development to deliver better quality, higher productivity, we also are developing a lot of environmental solutions and advanced digital technologies. Internationally, with the presence that we have established in the U.K. and the U.S., we are exploring opportunities in Europe, Asia and the Middle East as part of our longer-term strategy. And so -- with our leadership position and 48 years of operational excellence, we have nurtured comprehensive capability in diverse market segments and geographies. We also have our portfolio of innovative technologies and a cash position that will enable us to take on good opportunities. We are, therefore, confident in our ability to continue to capture opportunities arising in the industry, both in the local market and overseas.

Thank you, Kin. Participants, may we know if there's any further questions from the floor? There's a question from a participant. Now we will let you in. You may speak now.

First of all, I missed the first 27 minutes of this because I was in the queue or something waiting to be admitted to the room. Hopefully, I didn't miss very much if you were just reading a script. The -- I didn't see any commentary in the results, as I've only had a look at them for about 10 minutes because of the -- just came out. On Nanjing Canatal one of our -- probably our single biggest asset and your results announcement seems to be devoid of any commentary on it. What is our current intention with regard to that stake? Have we sold any shares since the year-end of December '24, either in the first half or since the end of the first half, 2 months ago? And when are we going to make some progress in liquidating that asset and returning capital to shareholders? That's my first question.

Okay. So let me bring you up to date with the situations on the disposals of our sold company. The -- we have -- as you know, the process for disposals of shares in a listed company in Shanghai is that we need to go through the process within the Shanghai Stock Exchange. We have applied and we are in the process of answering questions and going through the process. So in the first half of 2025, we have not achieved any disposal, but we are in the process of the application. And we are looking -- we are discussing with potential interested parties for these shares. Obviously, there's nothing that I can announce at the moment. But we are under -- the NCA positions are under review all the time with the Executive Board and the Board of Directors.

Would that be in respect of the whole stake or what percentage of the -- I think we have 16% at the moment.

We have about 15.7%. We are talking to interested parties in different shapes and forms. So if there are people interested in the whole lot, we would be interested to discuss or a good percentage or 1%, et cetera. We have to go through the process of the Shanghai Stock Exchange process of application, I'm afraid.

Is an application for on-market sale or off-market sale or both?

Okay. There's 3 ways of disposals of the listed shares of company in Shanghai. I'm sure you're all much more experts than I am. There is an on-market 1% -- no more than 1% share disposal. There is a more than 1% and less than 2%, which is they call a large transaction that also has to go through the same process of application with stock exchange. And then there's another -- the third one is more than 5% of shares disposal. That then is a negotiated transaction between 2 parties. Once the negotiation is agreed, that still need to be approved by the stock exchange. So all 3 are in process at the moment.

Well, that's -- we don't have to go through all that to sell some shares in Analogue in Hong Kong. Now next thing is you are still holding cash. Your net cash has gone up by about $200 million since the year-end, I think, if I subtract the debt from the cash in a rough calculation. If you had enough at the year-end, why do you need another $200 million of cash now just to flex your muscles for potential customers given that we seem to be winning tenders at a reasonable rate anyway. Why don't you increase the payout ratio, which is well below 50% at the moment on the headline?

What we have at the moment is a gearing ratios of just under 20%. We are -- we're still on a borrowing position at the moment. If we take out the borrowings less the mortgage of the ATAL Tower, then we are only about just under HKD 1 billion...

Sorry, you're not in a gearing position. My calculation suggests you've got HKD 718 million of net cash, cash minus debt, bank borrowings, HKD 718 million. That's up by about HKD 200 million. You're not in a...

Yes, I'm about to elaborate on the justification of why we have about HKD 700 million to HKD 800 million on hand. There is like previous times, I mentioned is in China, we have roughly just under HKD 200 million in China, Mainland and then it's about HKD 100 million in Macau. And then the rest of that is HKD 600 million is working capital required for running the business. Now -- so there is the requirements for that HKD 600 million, and now we have a record high contract in hand as well. That is more likely to increase rather than reduce the working capital requirements. And I think we should complement my colleagues. They've been working very hard to reduce -- to improve our working capital position. That's why our cash position is good. And then you can see that our account receivables is reducing, but the profile is still -- 84% of it is less than 90 days. So we're working to try to manage our working capital and then reducing our financing costs...

That's not quite true, though, because your trade receivables includes an increasing amount of unbilled revenue, which if you actually had billed it, and it says in the footnote, that you have the right table why you've counted that as receivables, then your total receivables have gone up, not down.

I think it's that the unbilled revenue. You quite rightly pointed out, and this is what I meant by increased working capital requirements when we have more and more orders in hand. We are doing more and more projects, and there is work in progress that we need to invest before we can build.

But it says that you can bill. It says that you have -- the group has yet to bill it, but has an unconditional right to the payment of it. So you could bill it any time. It sounds like you're just being nice to people by not sending them an invoice. And also trying to flatter your receivables numbers in the way you did just now by saying that they're coming down when in fact, they've gone up. You've got HKD 1,022 million of receivables now and HKD 958 million at the end of last year.

That includes, as you pointed out, about the unbilled revenue. The unbilled revenue has gone from, I think, about HKD 150 million to over HKD 200 million in the comparable period of time. And it is because we are increasing the contract in hand that we have. So more projects we do, there's going to be more work in progress, more work in progress, and we'll have the unbilled revenue.

It's unusual in public accounts to see this term unbilled revenue when you've got the right to receive it unconditionally, it says in your footnote. What's the thinking? Why do you not simply invoice as soon as you have the right to invoice?

Okay. I'm going to try to explain from a finance point of view. Maybe I can ask my colleagues to complement my explanation. The work in progress or unbilled revenues are work done that we have during the period, but not yet certified at work done by our clients. So we then have not invoiced based on the certification, the work done. So there is a period of time that between we done the work and then certification. As soon as we get certification, the invoice is raised and then we collect -- well, as you can see, 84% is less than 90 days.

I see. So it's -- but the clock doesn't start until you invoice it, even know you accrue the revenue. So it's a strange situation. Okay. Moving on...

I think that's quite a standard for construction industries done on unbilled revenue.

Yes. Hopefully, none of the people involved go into liquidation before you bill them because that could be a problem. The associates line of profit for the year -- half year, minus $14.4 million. But because there are 3 -- at least 3 things in the associates, I couldn't really see on first glance how the -- what the bottom line of TEI was. I do see there's a $10 million additional impairment, and we had this at the end of last year as well on what I'm assuming is the loan to Oscar Bioenergy associate. Would that be right? But apart from that, how did the other associates do, particularly TEI? And will you be publishing some numbers on that because it's an important part of the business. And it would have been a subsidiary where not for the issue of sanctions against the Chairman's wife, but isn't that a spent issue? And could we perhaps make it a subsidiary again to consolidate the numbers and make things clearer for the group?

Okay. You're correct on your first point about the -- what we call OBJV. And then the other associates companies, for example, NCA. For this corresponding period in 2024, they were making a profit Unfortunately, in 2025 for the first half, they reported a loss, which I'm sure you have followed on the Shanghai Stock Exchange announcement already. And then TEI in comparison is that in the first half of last year there were a keyman insurance payout, which we don't have, obviously, for the first half in 2025. If we look at the trading performance, they are not much better, but they are better. The revenue is going up and then the profit is going up. And in fact, the revenue has gone up by about 20%, but that's because they have expanded in the southern state of U.S. New York itself, they've gone up about a single-digit percentage, if I remember correct, about 5% or 6%. So the associates, I think, unfortunately, NCA has gone from profit to loss and then the HKD 10 million that you mentioned on OBJV. And TEI is -- as we highlighted the last 2 or 3 times, they are returning to profitabilities, and they are expanded into Southern states and they are growing well.

What was our share of TEI's profit or loss this half year then?

Sorry, can you repeat that?

In these results, what was our share of TEI's profit or loss?

It's about nearly HKD 16 million last year. This year, it's just HKD 1 million, I think.

About HKD 1 million positive or negative?

Yes. Because there's a HKD 15 million keyman insurance...

So it's about plus HKD 1 million for TEI and then minus HKD 4-point-something million for Nanjing Canatal and minus HKD 10 million for Oscar Bioenergy. Is that roughly the breakdown?

That's roughly it, yes.

Yes. And how much longer are we going to be making losses on the loan to Oscar Bioenergy? I think I asked the question 5 months ago, but we've still got HKD 125 million of loan to this associate. Are we looking at potentially impairing all of that? Or is it turning around? I mean it must be quite bad if we have to impair it rather than just wait for repayment.

Okay. And I think is that I will try to answer the -- you are correct. You asked the questions 5 months ago when we looked at 2024 annual results. And the notes on the annual report on Page 137, Note 19, it's Roman numeral 5. It talks about the HKD 131 million bank loan. We made just another HKD 10 million in the first half. So, so far, it's HKD 141 million. And then we are now currently renewing processes and equipment to improve the performance of the project.

The receivable -- sorry, the loan receivable is -- if I'm right, is HKD 131 million at the end of last year. And we've just impaired HKD 10 million of that. Is that right? So it's now down to HKD 121 million.

No, it's HKD 131 million plus HKD 10 million, so it's HKD 141 million.

Well, because of accumulated interest, it's interest-free. I don't quite understand. That's the amount outstanding, isn't it? Amount due, HKD 131 million? And are we just impairing HKD 10 million of that and saying we're reducing the book value of that loan to HKD 121 million?

Okay. I think here is that the group share post-acquisition, the losses of approximately HKD 131 million. So at the end of last year, HKD 131 million in total for that project since the beginning of 2017 is up to HKD 131 million. Six months in 2025, there are an additional HKD 10 million loan that we have written off. So it's now...

Because of the internal losses -- because of our share of the losses of the JV?

Yes, HKD 141 million is our share...

Okay. So the amount due from an associate, which was HKD 131 million, what is the actual amount of that? I mean it's only being recognized as the losses accumulate. What is the actual -- our shareholder loan to this JV?

The HKD 131 million is shareholder loans, all of that has been written off over the period.

Yes. But what is the total amount of the shareholder loan? How much worse can this get?

To the end of June 2025, it's HKD 141 million. The HKD 131 million plus HKD 10 million more is...

We're not lending new money to it, are we?

We are funding this JV in the HKD 141 million, and we have written it off.

So we're still pumping cash into this JV?

And as I said earlier, we are renewing processes and equipment to improve the performance of this project.

Is there any end to this? I mean, is there any cap on the partners' potential commitments to this JV? Could it be HKD 500 million one day? Or is there a limit on the joint venture by contract, a point at which we can walk away and say "Enough of this. We don't need to be involved in Bioenergy. It just didn't work."

I think we are -- we have contractual obligations to perform this contract.

It's a contract with whom, with the government or -- who is the counterparty?

It's with the government. It's the EPD, the Environmental Protection Division, I think.

And how long does it go on for?

To 2033?

2033? And we are doing what for the government under this JV?

Maybe can someone -- can you explain what we're doing for the government?

Okay. That's the Hong Kong government environmental production department projects. And this project, we include design, build and operate the plant for 15 years, and now it's in operation stage. As it is the first -- this is an organic waste treatment projects. This is the first one in Hong Kong. I think there are many uncertain items because we need to treat the solid waste from outside to this plant. And during this few year operation, we have -- it becomes, call it, a lot of problem because of the different nature of the incoming organic waste or what we call the kitchen waste. And now we have some discussion with the end user environmental protection department to upgrade the existing process. In fact, by September, we will have a pilot plant accepted by the end user to do the trial of the pretreatment equipment in order to prove the new upgrading will make the plant more stable. If it's more stable, then the operating cost will be less and then our loss will be less. So we are in the process of doing some trial to improve the performance of the plant in order to net future operation year less loss.

And so we take food waste and other organic waste, I mean grass cuttings or something and then what do we do at this plant? We separate it from something else? Or do we burn it and create electricity?

Okay. I think here is that, first of all, the plant was designed for organic waste, so it's kitchen waste mainly. Then the objective of the plant is to take that waste in, sort it and then using a bio process to create a methane, I think, a carbon gas that we then generate electricity and sell it back to the grid. And then the other byproduct, the composts from the organic waste. So organic waste goes in through a biodegradable bio process, generates gas for generating electricity and the other product is compost. I hope that's a simple, obviously nontechnical terms.

Okay. So I'm now looking at the web page of the EPD, which -- actually, it's a website called organicwastetreatmentfacilities-phasei.com.hk. Only the government could have a domain name that long. And they don't mention any generating capability. They're just producing gas from it. Do we have an offtake agreement with a gas company, the gas company perhaps? Otherwise, we can't sell what we're producing from it. And how does this also relate or conflict to the incinerator project out on Shek Kwu Chau, which supposedly was going to burn organic waste and actually is a waste-to-energy plant. It's going to be connected to the CLP grid. So is our project kind of obsolete by that measure? Or do we have someone to buy the gas and do something with it? We don't have a generator, as you suggested.

So first of all, I think here is that the plants that we're talking about, OBJV, there is a requirement for us to produce a certain amount of electricity, et cetera. Now the plants, I'm not sure you're talking about, is it the O PARK2 or et cetera? So Raymond, would you be able to help, please?

Our project is at O PARK1, not O PARK2. The O PARK1 in the present moment, in the original design, we use the organic waste to do the anaerobic digestion and then generate the gas. We didn't sell the gas. We use the gas to generate electricity to supply the electricity to the plant itself and then the extra electricity will export to the CLP network.

Okay. So we do have an offtake, they will buy it from us.

Yes.

Right. Okay. So you don't really -- I mean, it's just that this is becoming quite a big bleed on our profits. And I'm wondering how much worse it will get if it's going to run until 2033, and we have contractual obligations and unlimited liability as a JV partner along with the other partner, which seems to be something like Ros Roca, I can't quite see it here. This could actually get a lot worse, couldn't it? We could be running bigger losses for another 8 years or so from here.

As Peter and Raymond explained, this is part of the renewal of equipment to improve the process.

I can chip in on this project. It is a new process -- very much new process to Hong Kong. And when we got this contract, we knew there's a certain element of risk involved in the coming of the waste. We still take on this risk because of the fact that in the -- you may know that food waste is a major, major problem in China to the extent that recently the government prohibit -- government officials to go to banquets or in banquets...

I think that was for corruption reasons actually, but go on.

So my understanding of the situation is that there is -- this is a pilot plant and it's a new technology, but we have made some -- we had some problem initially, and now we are rectifying the problems to extent that we would have great opportunities in China to use this technology, to develop the market in China and also in other parts of the world. For example, I was in England -- I just came back from England this morning. And the food waste is not only a problem for Hong Kong, China and also in Britain and other parts of Europe. So I think we should take this project as a pilot plant to test the technology. And hopefully, that will give us more business as a good source of technology to supply to different parts of the world.

I think the JV partner is providing the technology, Ros Roca, is it?

Yes.

Yes. So it's not our technology as such. We're licensing it from them. Are they taking license fees out of the JV?

No. No, I think our original partner for this project had -- was very, very difficult. They went into receivership and we have to change the technology partner. So the technology, as we derive from our joint venture partner, was not perfect, and as of which that's all this upgrading what we are doing. So to really make it more efficient, more reliable plant that could sell in Hong Kong and in China and other parts of the world.

Okay. I hope it works out, but it seems to me that we may be overtaken by the incinerator and the same in other markets that if you can simply burn the organic waste and liberate the energy back into the grid that way without converting it to biogas using anaerobic production and so on, you saved one step. You can just go straight from food waste-to-energy through burning it, which is what's happening at Shek Kwu Chau and may make this project rather redundant. That's my concern because the government is involved in both projects and Shek Kwu Chau is a much bigger one. Their intention seems to be waste-to-energy directly, not by making biogas. And our project was contracted in 2015, probably before they got started on Shek Kwu Chau.

For the Shek Kwu Chau project, it's not to treat the organic waste. Organic waste is the kitchen waste. It's different than the home garbage. It's totally different so that the organic waste must be treated in the world by this anaerobic digestion to generate gas is the common practice all around the world. The main issue in this project in Hong Kong is that this is the first one and the characteristic or the type of the organic waste is different than the other area. Different cities, they have different type of organic waste. So in the past, we identified the problem of this plant already so that we use some power plant to prove it, and then we will upgrade it later on.

So you could not take kitchen waste and put it through the incinerator after it's tried out?

Well, no people will put the kitchen to the incinerator. It wastes energy because kitchen waste can generate electricity.

That's what I mean, Raymond. That is what the incinerator will do at Shek Kwu Chau. It will take organic waste. It won't get much energy out of burning other stuff, but people's rubbish will get sent by a boat to the island, and it will generate electricity straight into the grid without being converted to biogas first, which obviously takes extra energy.

In the present moment, environmental protection department, they separate the organic waste and the other traditional solid waste to treat in different method.

Yes. I think maybe we need to talk offline about that. But yes, they're separating it, but they still are going to put organic waste through the incinerator. That is the whole point. It's high carbon when you have food waste, when you have tree cuttings or whatever, all of that generates electricity in the incinerator. And I think that's probably overtaken this Bioenergy project.

Thank you, Mr. Webb for your question. We have another question from Eva. Any opportunities for lift replacement demand in Hong Kong, given growing number of aging buildings in Hong Kong? If so, how can company capture such opportunities?

Okay. Let me answer this question. In fact, for the Lift and Escalator business, there are 2 types -- 2 sectors. One is building a new lift and escalator in the new building. And second is to replace the existing old lift and escalator. And in here, you mentioned the replacement of the old lift. In fact, our [indiscernible] factory is strong in tailor-made project, tailor-made lift and escalator to replace the old lift and escalator to the old building. So I consider this will give us more opportunity in our future tailor-made projects.

As there is no further question, 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 SPRG for coordination. Once again, thanks for your participation today. You may now disconnect. See you next time.

Thank you very much.