Analogue Holdings Limited (1977) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Thank you for joining the 2026 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 Q&A. [Operator Instructions] Before we start, let me introduce the management team to you. Today, we have 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, everyone. Thank you for joining us for our 2026 Interim Results Investor Presentation. I will begin with an overview of our company before handing over to other members of the team who will go over our financial and operational highlights. I will then return to conclude with our growth opportunities. For those joining us for the first time, let me briefly introduce our company. Analogue Holdings Limited is a leading provider of electrical and mechanical engineering solutions and information and communications technology services for smart cities. The company has a legacy of trusted partnerships spanning 49 years. Headquartered in Hong Kong, we have operations across the Chinese Mainland, Macau, the U.S., the U.K., Germany, Singapore and Malaysia. We provide comprehensive one-stop E&M services for a wide range of sectors, including Building Services for buildings, Data Centers and Infrastructure as well as Environmental Engineering, Information, Communications and Building Technologies or ICBT in short, and Lifts and Escalators. Through our commitment to technical excellence and research and development, we have built a strong culture of innovation, which has resulted in 61 international patents and designs. Over the years, we have successfully achieved sustainable business growth and maintained a high level of contracts-in-hand. Sustainability is also a core part of our business. Through our ESG initiatives, we aim to create shared value for the community. Our pursuit of excellence has been recognized through numerous accolades over the years. We have been recognized for our excellence in AI adoption, Building Information Modeling, or BIM, ESG innovation, carbon neutrality and talent development. These achievements reflect our commitment to excelling in every area. With AI now transforming industries around the world, I'm particularly proud to say we have been proactively integrating AI into our operations. These efforts were recently acknowledged at the Construction Industry Council Inaugural AI Award 2026, where we won 4 awards, including the Gold Award in AI Research and Development for Total Lifecycle Management. These achievements are not just trophies, they reflect our culture of continuous improvement, our dedication to sustainability and our ability to harness cutting-edge technology to deliver real value. Let's now turn to our key highlights. As at the 30th of June 2026, we continue to make substantial progress across our business. Leveraging the agility of our diverse business base, we are pleased to report another record high interim contracts-in-hand. We maintained a strong order intake and high recurring revenue streams, providing a solid foundation for our business over the next 3 years and beyond. Our strong cash position also gives us the flexibility to pursue valuable market opportunities. By integrating our own AI-driven R&D with extensive project experience, our engineering solutions enhance quality, efficiency and workflows. We have successfully seized a variety of business opportunities to drive our business forward. The accelerating development of the Northern Metropolis supported by the national 15th 5-year plan and Hong Kong as our government's first 5-year plan has created a key growth engine, and we have already secured projects in Fanling, Kwu Tung and other areas with a healthy pipeline of further opportunities. By leveraging our multidisciplinary capabilities and innovative technologies, we have integrated resources across our business units to pursue opportunities across Asia and Europe while working with partners in different collaboration models to advance growth. Meanwhile, our Lifts and Escalators segment continue to advance its end-to-end vertical integration business model, further enhancing its competitiveness and supporting its strategic expansion in the U.K., the U.S. and other international markets. Our commitment to AI R&D and adoption remains unwavering. We have maintained our industry leadership in AI, Digital Twins, Design for Manufacturing and Assembly or DfMA and advanced E&M innovations by combining our extensive project experience with our own research and development. Together, these innovations are helping us to advance smart buildings, construction technology and infrastructure. We have also expanded the adoption of MiMEP to boost project quality, safety and productivity while reducing construction time, waste and carbon emissions. At the same time, we have integrated AI into our operations to streamline workflows and enhance overall efficiency and performance. As I mentioned earlier, these efforts have been recognized through a number of industry awards. Our intelligent headquarters, ATAL Tower brings all our operating units together under one roof, enhancing synergy and efficiency of our teams. It also serves as a practical platform for developing, testing and showcasing innovative technologies. The digital infrastructure at ATAL Tower enables real-time coordination between our MiMEP Design and Manufacturing Centre and our high productivity research center in Zhuhai as well as real-time monitoring in Hong Kong, thereby enhancing MiMEP adoption and stakeholder benefits. The ATAL Design, and Research and Training Centre located in ATAL Tower has become an innovation hub, bringing together stakeholders to develop new ideas and co-create cutting-edge solutions. With that, now I'd like to hand over to our CFO, Peter, who will present our financial performance for the first half of 2026. Thank you.

Thank you, Dr. Mak, and good afternoon, everyone. During this reporting period, the first half of 2026, the group interim contract-in-hand hit another record high of HKD 17.6 billion, up nearly 35% year-on-year, with order intake remaining strong at over HKD 2.8 billion. Revenue was reported at over HKD 3 billion with profit attributable to owners of the company at HKD 152 million. We also maintain a strong financial position with bank balances and cash of over HKD 1.2 billion and a low gearing ratio of 9.2%. Now let's take a closer look at some of the key financial data. Our revenue increased nearly 6% year-on-year to over HKD 3 billion. This top line growth was primarily driven by steady project execution in the Business Services and Environmental Engineering segment. Gross profit was HKD 388 million. For the first half of 2026, profit attributable to owners of the company was up 88% to HKD 152 million. The increase was partly attributable to the disposal of approximately 3% of equity stake in Nanjing CANATAL Data Centre Environmental Technology Company Limited. Basic earnings per share was recorded at HKD 0.11, and the Board has declared an interim dividend of HKD 0.049 per share. In terms of revenue breakdown by segment, our Building Services segment remain our main source of revenue, contributing over 54% of total revenue. Revenue from other segments, namely Environmental Engineering, ICBT, and Lifts and Escalators remained at a similar level. By project type, contracting work continued to be our primary source of revenue. The group's overall balance sheet remains sound. The gearing ratio fell to 9.2% from 10.1%, mainly reflecting the mortgage payment of ATAL Tower during the period. Our return on equity for the period was 6.4%. Overall, the group has maintained a healthy balance sheet with a strong cash position and adequate committed bank facilities to finance future growth and development. The Board has declared an interim dividend of $0.049 per share for the first half of 2026. Returning value to our shareholders remains a key priority, and we are committed to maintaining a stable and sustainable dividend policy. Before I hand over to Brian, I just want to summarize the 3 points from the financial segment. We have -- the group has a strong order book at $17.7 billion at record high. And we have sufficient financial resources to deliver these orders. And finally, to show appreciation to our shareholders' support, we declared $0.049 per share dividend an 88% increase year-on-year. And over to you, Brian.

Thank you, Peter. In the first half of 2026, the Building Service segment achieved record high interim contract-in-hand of HKD 7.9 billion with an increase of 15.3%. This provides a solid business foundation for the next 3 years and beyond for the Building Service segment, which continues to be the group's main source of revenue. Segment revenue reached HKD 1.6 billion in the first half of 2026, an increase of 5.4%. Our leadership in advanced construction technologies such as MiMEP has helped us to further enhance our competitiveness. We have developed our own MiMEP methodologies and solutions to streamline production and management. The well-established modern manufacturing facilities at the MiMEP Design and Manufacturing Centre and the MiMEP High Productivity Research Centre in Zhuhai and other MiMEP manufacturing sites in Hong Kong have been set up. We are also leveraging AI to transform MiMEP Design and Construction, enhancing efficiency, quality, safety and creating greater value for customers. To ensure quality and facilitate seamless coordination across the regions, a real-time high-resolution remote monitoring system has been set up across our manufacturing process to ensure high precision and standards. Our leadership in MiMEP continues to deliver tangible results. One notable achievement was securing a landmark MiMEP package contract for a Grade A office building at Caroline Hill Road in Causeway Bay. The project features an MiMEP application rate of 85%, the highest ever achieved for a commercial development in Hong Kong. By applying our systematic decision-making approach and robust quality assurance [ technologies ], we are able to ensure win-win benefits for various stakeholders while improving quality and productivity. More importantly, MiMEP helps address many of long-standing challenge facing the local construction industry such as tight schedules, difficult site environments and demanding work hours. Our comprehensive capability across diverse areas such as hospital, infrastructure, data centers, public and private housing, universities and commercial development allows us to benefit from changing market trends. Among our varied projects in this segment, we secured public housing projects across Hong Kong that address community needs in many districts, including Kwun Tung North, Fanling, Southern District and Kwai Chung. There are more public housing projects across Hong Kong, including those at Kai Tak and Tung Chung. As for hospital, we were award contracts to work on The Elderly Home Development of Pok Oi Hospital and expansion of buildings at a major hospital in Lai King and North Districts. We have also been awarded a diverse range of commercial developments, including 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, Whampoa and Wan Chai. In addition, we have delivered engineering service for resident, student, hospital and academic building at various universities and Hong Kong International Airport's Three Runway System for the modification of the North Runway. Across our regions, we have also been awarded a diverse range of projects, including a commercial development project in Hangzhou, a residential project in Jiangsu as well as a signature hotel project in Macau. I will now hand over to Raymond, who will present the performance of our other business segments. Raymond?

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. Interim contract-in-hand reached HKD 8.2 billion with an increase of 78%. Segment revenue reached HKD 840 million in the first half of 2026, an increase of 17.2%. Leveraging our own in-house design, research and talent development capabilities, we are continuously optimizing our environmental solutions through the use of advanced technologies. At the core of our innovation is our self-developed AI-enabled Digital Twin Solutions to AlgoWater Series, including AlgoWater, AlgoTunnel, AlgoOps and also our Stormwater Management System. Among this, AlgoWater applied AI algorithm to improve the stability, resource efficiency and also sustainability of water, wastewater and sewage treatment process through intelligent automation, predictive asset management and real-time optimization, it helps customers boost operational performance while reducing energy consumption. Beyond our Digital Twin Solutions, our dictated Business Development Unit, Smart Data Automation, SDA, is using AI and robotics across a wide range of infrastructure operations, including water, sewage, waste management, industrial facility, warehouse and also roads and tunnel. By combining AI, automation and robotics, we are delivering greater efficiency, reliability, safety and ultimate value to our customers. One of the signature projects of Environmental Engineering segment is a record value contract for relocation of Sha Tin sewage treatment work to caverns. Our sewage treatment project include Yuen Long's effluent polishing plant, Cheung Chau sewage treatment and disposal facilities and also sewage treatment works at San Shek Wan. The signature flood [indiscernible] project was the Barrage and Nullah improvement schemes in Yuen Long. Water treatment works project included the provisional project of Sha Tin Water Treatment Works and also the Tsuen Wan Water Treatment Works using ceramic membrane. In landfill site project, which include landfill 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 Territory Landfill Gas Power Plant Phase II Development Project. We 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 and also the supply and installation of an Automatic Storage and Transportation System for Hospital Authority Service Centre. In addition to contracting works, O&M projects contribute to our recurring revenues, including the Organic Resources Recovery Centre at O PARK1, the Food Waste Pre-treatment facility at Tai Po and also Sha Tin Sewage Treatment Work, and the Pillar Point, San Wan and Stonecutters Island Sewage Treatment Works. Our project in China Mainland include Wastewater Treatment Plant at Qingdao and also Combined Heat and Power Generation at Shanghai Chongming and also Qingpu. We also have wastewater treatment plant in Nepal and also in Croatia. Turning to our ICBT segment, interim contract-in-hand were HKD 830 million. Total revenue slightly decreased by 4.1% year-on-year to HKD 290 million. Our proprietary smart building management platform, [ DIGI FUSION ] integrates Digital Twin technology, data lake, AI-powered analytics and also IoT data to enable total life cycle building management from energy optimization and facility management to safety monitoring, [ DIGI FUSION ], health and ensure optimal operation performance. The value of these technologies is already being demonstrated through a number of real-world application. For example, [ DIGI FUSION ] have been deployed in more than 10 commercial buildings in Central, contributing efficiency to energy saving and lower operating costs. Our AI-powered energy analytic technology is also helping optimize the cooling efficiency of more than 30 chiller units. Meanwhile, our AI-powered video analytics platform cover thousands of video channels in Hong Kong's major shopping mall, helping optimize security management, market analysis and also customer service experience. To further strengthen our technology capability, we are actively cooperating with leading manufacturer in China Mainland and around the world. Looking ahead, our ICBT segment will maintain focus on innovation, building smarter, more connected urban environments and enhancing the way people live, work and interact with the world around them. We developed the Cloud-based Central Office for Property and Asset, what we call COPA platform to consolidate stand-alone system into a unified information network that integrates real-time IoT environment sensors for streamlined estate monitoring and data-driven decision-making. Our technical deployment capabilities are demonstrated by the supply and installation of a variety of advanced technologies in select projects, including North Lantau Hospital, Hong Kong's-Shenzhen Innovation and Technology Park for the supply and installation of BMS, ICT and Smart Systems and The University of Hong Kong. In addition, they work on the Design and Build project for the Major Data Centre in Tseung Kwan O and Public Hospital project, including North District Hospital Expansion Project. Moving on to our Lifts and Escalators segment. The interim contract-in-hand was HKD 658 million and the revenue from segment for the period was HKD 256 million. In Hong Kong, we provide maintenance service for a diverse range of buildings. This maintained our main revenue contributor, underpinned by stable recurring income. In the Chinese Mainland, our factory in Nanjing has streamlined manufacturing process, broadened the product portfolio and strengthened overall product quality. Meanwhile, our associate in the U.S. has continued to expand its footprint in the Southeastern region while securing significant project in New York. In U.K., we continue to strengthen our presence across London, Birmingham and also Manchester, laying a solid foundation for future growth. We have built a global distributor network enable us to reach customers in over 20 countries. Our Machine-Room-Less Lift MRL products continue to grow to gain significant market traction. The diverse projects we complete in Hong Kong include the Tin Shui Wai Hospital, West Kowloon Law Courts Building and also the private resident in Kowloon City. And there are joint-user government office building in Tseung Kwan O, universal Accessibility Facility at Footbridges, Elevated Walkways and Subways, and Public Housing Estate in Shatin. We have also extend our reach to the Automated Parking System and work on projects in Joint-user Government Office Building in Tseung Kwan O, Tsuen Wan and also in Kai Tak Inland Revenue Tower. Our diverse overseas project showcased our successful developments in U.K., U.S., Brazil and Mexico, including the [ icon ] 56-story luxury hotel-Skyscrapers on the border of Times Square in New York. Our maintenance service cover all 4 business segments. In the first half of 2026, the maintenance business generated strong revenue -- recurring revenue of HKD 569 million. This represents 19% of the group's total revenue. Some of the key contracts in Environmental Engineering segment include the contract for maintenance of mechanical installation and main power supply and distribution equipment at the Hong Kong Port and Hong Kong Link Road in Zhuhai Macau Beach. Integrated maintenance and project service for Castle Peak Power Station, Penny's Bay Power Station & Waste-to Energy Station, a term contract for maintenance of the facility in Stonecutters Island Sewage Treatment Work, a term contract for mechanical and electrical work in Hong Kong Island District and New Territory East for the Water Supply Department, and also the term contract for maintenance of Phase 2 of the On-site Chlorine Generation of the Water Supply Department. Other key contract in Building Service segment, maintenance contract with the Hong Kong Housing Authority, [ our core ] multi-districts, maintenance contract for Cooling Tower at MTR Station, and the term contract for EMSD for operation and maintenance service across various Disciplined Service Department and Independent Commission Against Corruption ICAC in the New Territory Region, a term contract for maintenance and repair service for Health Service Building in New Territory Regions. Key contract in ICBT segments include maintenance service for Automatic Vehicle Clearance Support System at [ Zhuhai Macao Bridge ]. Some other notable contracts in the Lifts and Escalators Escalator segment include management operation and maintenance contract for the central to mid-level escalator and walkway system. And the maintenance for the Lifts and Escalators system at Ocean Park and Hong Kong Science Park. And the maintenance of the lift system at the Kowloon East region headquarter and also operational base cum Ngau Tau Kok divisional Police Station. I will now hand over to Kin, who will present the market outlook and our growth strategy to you.

Thank you, Raymond. As a comprehensive service provider with a global outlook, strong cross-disciplinary capabilities and a proven record of innovation, we are well positioned to capture opportunities across our wide business portfolio. As demand for AI-enabled solutions continues to grow, we are well positioned to capture this trend while continuously enhancing our smart technologies through ongoing investment in R&D. Continuous improvement and operational excellence enable us to navigate market shifts and capture value opportunities. Our O&M contracts across diverse sectors generate recurring maintenance revenue, while our strong cash position provides strategic advantage in working capital, project expansion, future growth initiatives and other value-enhancing opportunities. We have established a leading position in advanced construction technologies, including MiMEP, DfMA and BIM with our proprietary methodologies and extensive project experience. These enable us to create distinct value for customers while helping to drive transformation of the industry. We also continue to champion advanced technologies, Digital Twins and Green building solutions while enhancing our factory production line to enhance quality and delivery and to support rollout of next-generation product initiatives. To strengthen our long-term capability and competitiveness, we remain committed to attracting, developing and retaining talent. Looking ahead, our strategy remains focused on capturing valuable opportunities across the markets in which we operate. In Hong Kong, the outlook remains positive with government capital works alone expected to reach HKD 128 billion. We are staying agile to capitalize on these opportunities across our diverse sectors, including health care, data centers, the Northern Metropolis projects, asset enhancement and life cycle expansion projects as well as operations and maintenance services. Our competitiveness is continuously enhanced through advanced construction technologies. As an early adopter of AI and a developer of proprietary technologies, the group is driving smart city innovation and transformation. In the Chinese Mainland, the overall economy continues to show resilience supported by technological advancement, steady GDP and ongoing policy support. We have integrated our resources across business units and regions, including project teams, design capabilities and manufacturing assets. This enables us to respond more effectively to the market and streamline project delivery. Our intelligence headquarters ATAL Tower is seamlessly connected with our other facilities in the Chinese Mainland and Hong Kong, enabling real-time collaboration, consistent quality assurance across regions and stronger support for opportunities across the Greater Bay Area. Overseas, we are continuing to expand in the southeastern part of the United States and further considering consolidating our expanded operations in the U.K. Leveraging our solid foundation in these markets, we are broadening our overseas market offering beyond Lifts and Escalators to include Engineering Services. We're also seeking project and technical services opportunities in Europe and Asia. At the same time, we will pursue potential synergistic partnerships to enhance our position in both the local and global markets. This concludes our presentation. I will hand over to our MC for the Q&A session. Thank you very much.

Thanks management for the presentation. [Operator Instructions]. Now the first question comes from [ Jeffrey Chan ]. The question is, Hong Kong's annual construction output is projected to reach HKD 305 billion to HKD 364 billion by 2030 and 2031. What opportunities does the group see from the Northern Metropolis Development Bill? If the labor importation quota will remain kept at 12,000, how will the group manage labor tightness while scaling up the Northern Metropolis?

The Northern Metropolis supported by the National 15th 5-year plan as well as the Hong Kong government's first 5-year plan targets 70,000 housing units and 1 million square meter of economic floor space over the next 5 years. Now this provides an incredibly supportive policy framework and market foundation for the industry. And it will, in fact, be an important engine for the growth of Hong Kong. We welcome the Northern Metropolis Development Bill, which simplifies statutory and planning procedures and will accelerate project delivery time lines, unlocking massive demand for infrastructure, advanced facilities and E&M works. Now this initiative, coupled with government's capital works expenditure already announced at $120 billion will provide substantial opportunities. Now with the group's comprehensive capabilities, solid track record and strong cash position, we are in an extremely strong position to capture these emerging opportunities. We have already secured public housing projects, for example, in the [ North Fanling ] and Kwu Tung and other areas, and there will be more to follow, including infrastructure, data center, universities and so on. Regarding labor supply, the government's approach is a balanced one, combining local training with labor importation scheme. This will help the industry stabilize manpower supply, I'm sure skill gaps in the local market field and will support local employment. And in the meantime, we're also scaling up the application of advanced technologies, including MiMEP and DfMA. This will significantly improve quality, safety and delivery time as we have explained, but it will also help us maintain our cost effectiveness. Thank you.

Thank you, Dr. Mak. Here is another question. Regarding the Environmental Engineering segment, the segment recorded a record high level of contracts-in-hand. How much are the contract sums? And how long do these projects last? When will the contribution from these projects to revenue and profits be recognized in the P&L? Is the growth momentum of this segment sustainable? Please also provide an update on different markets.

Okay. Thank you for your question. The Environmental Engineering segment achieved record high interim contract-in-hand, about HKD 8.1 billion, HKD 8.2 billion as a record high up to end of June 2026. It's around 78% year-on-year, providing a solid foundation for the business in the coming 3 years and beyond. The strong contract-in-hand position were supported by the commencement and progress of major environmental engineering projects, including the landmark engineering contract for the provision of a [indiscernible] plant from existing Sha Tin Sewage Treatment Works to a Cavern as well as a new term contract for switch and M&E system under the segment's recurring operation, maintenance and also facility management service. Given the nature of Environmental Engineering projects, the project cycle is generally longer and revenue and profit contribution will vary according to the project phasing. In Hong Kong, we remain positive about the segment medium-term outlook with tendering activities continues to be active. Thanks to different initiatives such as infrastructure developments associated with Northern Metropolis, we have identified a healthy pipeline of potential projects over the coming 2 to 3 years, which we expect to be underlying the segment's sustainability goals. Beyond Hong Kong, the group also continues to pursue project opportunity with partners in Chinese Mainland as well as different parts of Asia and also Europe, particularly in water and wastewater treatment business, leveraging our extensive project experience, proven execution capabilities and also advanced technologies in Hong Kong, we are well positioned to pursue these opportunities while working with suitable local partner where appropriate. Thank you.