HIP21050004e Project Omega Re-AP

The following discussion and analysis should be read in conjunction with the auditedconsolidated financial information of our Group for FY2018, FY2019, FY2020 and 8M2021 and theaccompanying notes (“Financial Information”) included in the Accountants’ Report. The FinancialInformation and the consolidated financial information of our Group have been prepared inaccordance with the basis of presentation and preparation set out in notes 2.2 and 3 to theAccountants’ Report and the accounting policies which conform with HKFRSs issued by theHKICPA. Potential [REDACTED] should read the whole of the Accountants’ Report and should notrely merely on the information contained in this section.

The discussion and analysis set out in this section contains forward-looking statements thatinvolve risks and uncertainties. Our actual results may differ significantly from those projected.Factors that might cause our future results to differ significantly from those projected in theforward-looking statements include, but are not limited to, those discussed below and elsewherein this document, particularly in the section headed “Risk Factors” in this document.

OVERVIEW

We are an established subcontractor of formwork works and associated reinforcement bar fixingworks and/or concreting works for construction projects in Hong Kong. We focus on project managementfor each construction project we undertake and are responsible for formwork planning, labourscheduling, project implementation and quality assurance to ensure the concrete structures can meetour customers’ requirements. Our business can be traced back to the 1990s, when Houng KeeConstruction and Engineering Limited was incorporated and provided formwork works and associatedreinforcement for fixing works and/or concreting works for construction projects as subcontractors.Throughout our operating history, we have participated in and provided formwork works and associatedreinforcement for fixing works and/or concreting works for a number of infrastructure projects includingTin Shui Wai Station, Wan Chai Ferry Pier, Whampoa Station and Central – Wanchai Bypass. Webelieve our participation in various projects and quality of our works enable us to gain recognition withour customers. For FY2018, FY2019, FY2020 and 8M2021, our revenue was approximately HK$271.9million, HK$248.8 million, HK$274.6 million and HK$142.7 million, respectively, whilst our net profit wasapproximately HK$15.8 million, HK$27.6 million, HK$23.3 million and HK$9.3 million, respectively.During the Track Record Period, our business is undertaken by our operating subsidiaries, namelyHoung Kee (Asia) and Houng Kee Development.

BASIS OF PREPARATION

Our Company was a limited company incorporated in the Cayman Islands on 29 August 2017.Pursuant to the corporate reorganisation as explained in the section headed “History, Development andReorganisation – Reorganisation” in this document, our Company has become the holding company ofthe subsidiaries of our Group. Our Company and its subsidiaries have been under the common controlof Mr. Chan throughout the Track Record Period or since their respective dates of incorporation, wherethere is a shorter period, and the control is not transitory. The Reorganisation has been accounted for asa restructuring under common control in a manner similar to pooling of interests. Accordingly, thefinancial information has been prepared using the principles of merger accounting, as if the currentgroup structure as at the date of this document had been in existence throughout the Track RecordPeriod.

Under merger accounting, net assets of the combining entities are consolidated using the existingbook values from the controlling parties’ perspective. No amount is recognised in respect of goodwill orany gain on bargain purchase at the time of common control combination, to the extent of thecontinuation of the controlling party or parties interest.

FINANCIAL INFORMATION

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE. THE INFORMATION IN THIS DOCUMENT MUST BEREAD IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT

The consolidated statements of comprehensive income include the results of each of thecombining entities from the earliest date presented or since the date when the combining entities firstcame under the common control, where this is a shorter period, regardless of the date of the commoncontrol combination. All significant intra-group balances and transactions within our Group areeliminated on combination.

The consolidated statements of comprehensive income, consolidated statements of changes inequity and consolidated statements of cash flows for the Track Record Period, which include the results,changes in equity and cash flows of the subsidiaries of our Group, have been prepared as if the currentgroup structure had been in existence throughout the Track Record Period, or since their respectivedates of incorporation for companies incorporated within the Track Record Period. The consolidatedstatements of financial position as at 30 June 2018, 2019, 2020 and 28 February 2021 have beenprepared to present the assets and liabilities of the subsidiaries of our Group as if the current groupstructure had been in existence as at those dates, taking into account the respective dates ofincorporation, where applicable, using their existing book values.

SIGNIFICANT FACTORS AFFECTING OUR RESULTS OF OPERATIONS AND FINANCIALCONDITION

Our financial condition, results of operations have been and will continue to be affected by anumber of factors, some of which may be beyond our control, including those set out below and in thesection headed “Risk Factors” in this document:

Market demand for construction service

We principally derive our revenue from construction projects in Hong Kong. The market demand forour services may vary according to a number of factors, including the amount of the Governmentexpenditure, the demand for infrastructure, private and public buildings projects, demographic changesand overall economic condition.

The fluctuation in the demand for construction projects would therefore affect the demand of ourservices and hence our business. If the number of construction projects in Hong Kong decline in thefuture, it may adversely and materially affect our business and our results of operations.

Pricing and budgeting of our project

Our pricing policy is crucial to our business operation. Although we determine our project pricesbased on a cost-plus approach with reference to the time and costs estimated to be involved in a project,the actual time and costs involved in completing our projects may be adversely affected by a number ofuncontrollable or unforeseen factors, including shortage and cost escalation in materials and labour,adverse weather conditions and changes in rules, regulations and policies introduced by theGovernment. Actual site condition may be significantly different from our original expectation andtechnical issues could arise from time to time, both of which could adversely affect the total cost incompleting our works. In addition, our unit prices and rates stated in the contract with our customers ingeneral do not contain a price fluctuation adjustment mechanism; and therefore, we must bear the riskof subsequent variation of the unit cost of our works, including any inflation, abrupt shortage of labourand materials, etc.

The price of each construction contract is determined with reference to our tender submissions andagreed at the time when a project is awarded. In order to determine the tender price, we need to estimatethe time and costs involved in a project. However, we may be unable to accurately estimate costs forcompletion of the project. The actual amount of total costs incurred in completing a project may beadversely affected by many factors, such as adverse weather conditions, accidents, unforeseen siteconditions and fluctuations in the price of construction materials. If the costs for a project exceed thecontracted price in the relevant contract, we may achieve lower-than-expected profits or even incurlosses, which could materially and adversely affect our financial performance and results of operations.


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Subcontracting charges and cost of construction materials

Our cost of services mainly comprises (i) subcontracting charges; (ii) cost of constructionmaterials; and (iii) rental expenses. For FY2018, FY2019, FY2020 and 8M2021, subcontracting charges,cost of construction materials and rental expenses accounted for approximately 97.4%, 98.1%, 97.1%and 94.3% of our total cost of services for the respective years/period. For further details of ourcomponents of cost of services, please refer to the paragraph headed “Principal components ofconsolidated statements of comprehensive income – Cost of services” in this section.

To perform the formwork works, we primarily purchase timber and metal formworks. The steel barsand concrete we used are specified by our customers and are usually purchased by the main contractoron our behalf. Depends on project, the costs of the purchased steel bars and concrete may be settled viacontra-charge arrangement. We usually subcontract formwork works, reinforcement bar fixing worksand concreting works to our subcontractors, so that we can focus on project planning and management.

The following sensitivity analyses illustrate the hypothetical impact of fluctuation in subcontractingcharges and cost of construction materials on our profits before tax during the Track Record Period,assuming all other variables remained stable.

Hypothetical fluctuations insubcontracting charges -15% -10% -5% +5% +10% +15%

Increase/(Decrease) inprofit before income tax HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

FY2018 25,884 17,256 8,628 (8,628) (17,256) (25,884)FY2019 20,134 13,423 6,711 (6,711) (13,423) (20,134)FY2020 20,855 13,923 6,962 (6,962) (13,923) (20,885)8M2021 14,189 9,460 4,730 (4,730) (9,460) (14,189)

Hypothetical fluctuations incost of constructionmaterials -15% -10% -5% +5% +10% +15%

Increase/(Decrease) inprofit before income tax HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

FY2018 3,960 2,640 1,320 (1,320) (2,640) (3,960)FY2019 7,299 4,866 2,433 (2,433) (4,866) (7,299)FY2020 8,624 5,749 2,875 (2,875) (5,749) (8,624)8M2021 2,390 1,594 797 (797) (1,594) (2,390)

Recoverability and timing of collection of our accounts receivable and retention moniesreceivables

We generally submit interim payment applications to our customers monthly according to the valueof our works done which are subsequently certified by our customers. A portion of such payment,generally 5.0% to 10.0% of each interim payment and subject to a ceiling of 2.5% to 5.0% of total contractsum (including variation orders) is usually withheld by our customers as retention monies, and suchretention monies will generally be released to our Group in stages as follows: (i) 50% upon completionof the relevant subcontract works or the main contract works; and (ii) the remaining 50% upon expiry ofdefects liability period of the relevant subcontract works or the main contract works. As at 30 June 2018,2019, 2020 and 28 February 2021, our net retention monies receivables amounted to approximatelyHK$20.4 million, HK$28.8 million, HK$31.1 million and HK$30.1 million respectively, were retained byour customers and our accounts receivable amounted to approximately HK$70.4 million, HK$105.0million, HK$57.2 million and HK$44.1 million, respectively. Any late payment, whether arising from ourcustomers’ payment practice or due to delay in project completion may adversely affect our liquidityposition and increase our working capital needs.


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SIGNIFICANT ACCOUNTING POLICIES

We have identified certain accounting policies that are significant to the preparation of our financialinformation. These significant accounting policies are important for an understanding of our financialconditions and results of operations and are set out in note 4 to the Accountants’ Report set out inAppendix I to this document. Some of the accounting policies involve subjective assumptions andestimates, as well as complex judgment relating to the accounting items such as assets, liabilities,income and expenses. We base our estimates on various factors, including historical experience andother assumptions which our management believes to be reasonable under the circumstances. Thefollowing paragraphs discuss, among others, certain significant accounting policies applied in preparingour financial information:

Timing of revenue recognition and presentation of contract assets and liabilities

Our Group has applied HKFRS 15, which is effective for the accounting periods beginning on orafter 1 January 2018. HKFRS 15 superseded HKAS 18 “Revenue”, HKAS 11 “Construction Contracts”and the related interpretations.

Our Group has applied HKFRS 15 retrospectively with the cumulative effect of initially applying thisstandard recognised at the date of initial application, i.e. 1 July 2018. Any difference at the date of initialapplication is recognised in the opening retained earnings and comparative information has not beenrestated. Accordingly, certain information for the financial periods after 1 July 2018 may not becomparable to information for FY2018, as such information was prepared under HKAS 18 “Revenue”and HKAS 11 “Construction Contracts” and the related interpretations. For further details, please referto notes 3, 4 and 5 to the Accountants’ Report set out in Appendix I to this document.

(i) Since 1 July 2018

Under HKFRS 15, our Group recognises revenue when (or as) a performance obligation issatisfied, i.e. when “control” of the goods or services underlying the particular performance obligation istransferred to our customer.

A performance obligation represents a good or service (or a bundle of goods or services) that isdistinct or a series of distinct goods or services that are substantially the same.

Control is transferred over time and revenue is recognised over time by reference to the progresstowards complete satisfaction of the relevant performance obligation if one of the following criteria ismet:

• our customer simultaneously receives and consumes the benefits provided by our Group’sperformance as our Group performs;

• our Group’s performance creates and enhances an asset that our customer controls as ourGroup performs; or

• our Group’s performance does not create an asset with an alternative use to our Group andour Group has an enforceable right to payment for performance completed to date.

Otherwise, revenue is recognised at a point in time when our customer obtains control of thedistinct good or service.


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A contract asset represents our Group’s right to consideration in exchange for goods or servicesthat our Group has transferred to a customer but is not yet unconditional. It is assessed for impairmentin accordance with HKFRS 9. In contrast, a receivable represents our Group’s unconditional right toconsideration, i.e. only the passage of time is required before payment of that consideration is due.

A contract liability represents our Group’s obligation to transfer goods or services to a customer forwhich our Group has received consideration (or an amount of consideration is due) from our customer.

A contract asset and a contract liability relating to a contract are accounted for and presented ona net basis.

Over time revenue recognition: measurement of progress towards complete satisfaction of aperformance obligation

A contract with a customer is classified by our Group as a construction contract when the contractrelates to work on construction assets under the control of our customer and therefore our Group’sconstruction activities create or enhance an asset under our customer’s control.

When the outcome of a construction contract can be reasonably measured, revenue from thecontract is recognised progressively over time using the cost-to-cost method, i.e. based on theproportion of the actual costs incurred relative to the estimated total costs. Our Directors consider thatthis input method is an appropriate measure of the progress towards complete satisfaction of theseperformance obligations under HKFRS 15.

Our Group becomes entitled to issue an invoice to customers for construction works based onachieving a series of subcontractors’ payment certificates or approved variation order applications.When a particular stage is reached, our customer is sent a relevant statement of work signed by a thirdparty assessor and an invoice for the related milestone payment. Our Group will have previouslyrecognised a contract asset for any works performed. Any amount previously recognised as a contractasset is reclassified to accounts receivable at the point at which it is invoiced to our customer. If themilestone payment exceeds the revenue recognised to date under the cost-to-cost method, then ourGroup recognises a contract liability for the difference. It is not considered to be a significant financingcomponent in construction contracts with customers as the period between the recognition of revenueunder the cost-to-cost method and the milestone payment is always less than one year.

The likelihood of our Group earning contractual bonuses for early completion or sufferingcontractual penalties for late completion are taken into account in making these estimates, such thatrevenue is only recognised to the extent that it is highly probable that a significant reversal in the amountof cumulative revenue recognised will not occur.

Where the outcome of the contract cannot be reasonably measured, revenue is recognised only tothe extent of contract costs incurred that are expected to be recovered.

If at any time the costs to complete the contract are estimated to exceed the remaining amount ofthe consideration under the contract, then a provision is recognised.

Variable consideration

For contracts that contain variable consideration, our Group estimates the amount of considerationto which it will be entitled using either (a) the expected value method or (b) the most likely amount,depending on which method better predicts the amount of consideration to which our Group will beentitled.


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The estimated amount of variable consideration is included in the transaction price only to theextent that it is highly probable that such an inclusion will not result in a significant revenue reversal inthe future when the uncertainty associated with the variable consideration is subsequently resolved.

At the end of each reporting period, our Group updates the estimated transaction price (includingupdating its assessment of whether an estimate of variable consideration is constrained) to representfaithfully the circumstances present at the end of the reporting period and the changes in circumstancesduring the reporting period.

Costs to fulfil a contract

Our Group incurs costs to fulfil a contract in its construction activities. Our Group first assesseswhether these costs qualify for recognition as an asset in terms of other relevant standards, failing whichit would recognise these costs as an asset only if they meet all of the following criteria:

(a) the costs relate directly to a contract or to an anticipated contract that our Group canspecifically identify;

(b) the costs generate or enhance resources of our Group that will be used in satisfying (or incontinuing to satisfy) performance obligations in the future; and

(c) the costs are expected to be recovered.

The asset so recognised is subsequently amortised to profit or loss on a systematic basis that isconsistent with the transfer to our customer of the goods or services to which the assets relate. The assetis subject to impairment review.

(ii) Prior to 1 July 2018

Revenue is measured at the fair value of the consideration received or receivable. Revenue isrecognised when it is probable that the economic benefits will flow to our Group and when the revenuecan be measured reliably, as follows:

Revenue from construction contracts, on the percentage of completion basis, as further explainedin the accounting policy for “Construction contracts” in note 4.8 to the Accountants’ Report set out onAppendix I to this document.

For further details, please refer to notes 3, 4 and 5 to the Accountants’ Report set out in AppendixI to this document.

Impairment of financial assets

(a) HKFRS 9 Financial Instruments

HKFRS 9 Financial Instruments replaces HKAS 39 Financial Instruments: Recognition andMeasurement. It sets out the requirements for recognising and measuring financial assets, financialliabilities and some contracts to buy or sell non-financial items.

Our Group has applied HKFRS 9 to items that existed as at 1 July 2018 in accordance with thetransition requirements. The comparative information is not restated and continues to be reported underHKAS 39.


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Further details of the nature and effect of the changes to previous accounting policies and thetransition approach are set out below:

(i) Classification of financial assets and financial liabilities

HKFRS 9 categories financial assets into three principal classification categories: measuredat amortised cost, at fair value through other comprehensive income (“FVTOCI”) and at fair valuethrough profit or loss (“FVTPL”). These supersede HKAS 39’s categories of held-to-maturityinvestments, loans and receivables, available-for-sale financial assets and financial assetsmeasured at FVTPL. The classification of financial assets under HKFRS 9 is based on the businessmodel under which the financial asset is managed and its contractual cash flow characteristics.

Under HKFRS 9, the classification for all our Group’s financial assets and financial liabilitiesmeasured at amortised cost remain the same as that under HKAS 39. The carrying amounts for allfinancial liabilities as at 1 July 2018 have not been impacted by the initial application of HKFRS 9.

(ii) Credit losses

HKFRS 9 replaces the “incurred loss” model in HKAS 39 with the “expected credit loss”(“ECL”) model. The ECL model requires an ongoing measurement of credit risk associated with afinancial asset and therefore recognises ECLs earlier than under the “incurred loss” accountingmodel in HKAS 39.

Our Group applies the new ECL model to the following items:

– financial assets measured at amortised cost (including accounts and other receivablesand cash and cash equivalents); and

– contract assets as defined in HKFRS 15.

Under HKFRS 9, our Group recognises a loss allowance for ECL on financial assets which aresubject to impairment. The amount of ECL is updated at each reporting date to reflect changes incredit risk since initial recognition.

Lifetime ECL represents the ECL that will result from all possible default events over theexpected life of the relevant instrument. In contrast, 12-month ECL (“12m ECL”) represents theportion of lifetime ECL that is expected to result from default events that are possible within 12months after the reporting date. Assessment are done based on our Group’s historical credit lossexperience, adjusted for factors that are specific to the debtors, general economic conditions andan assessment of both the current conditions at the reporting date as well as the forecast of futureconditions.

Our Group always recognises lifetime ECL for accounts receivable and retention moniesreceivables under contract assets. The ECL on these assets are assessed individually. For allother instruments, our Group measures the loss allowance equal to 12m ECL, unless when therehas been a significant increase in credit risk since initial recognition.

For further details, including the accounting policies for the impairment of financial assets forthe Track Record Period, please refer to notes 3, 4 and 5 to the Accountants’ Report set out inAppendix I to this document.


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Leases

Our Group has applied HKFRS 16, effective for the periods beginning on or after 1 July 2019.HKFRS 16 superseded HKAS 17 Leases and the related interpretations.

Under HKFRS 16, our Group assesses whether a contract is or contains a lease based on thedefinition under HKFRS 16. A contract is, or contains, a lease if the contract conveys the right to controlthe use of an identified asset for a period of time in exchange for consideration. Our Group has electedthe practical expedient to apply HKFRS 16, and therefore, our Group has not reassessed contractswhich already existed prior to the date of initial application. For contracts entered into or modified on orafter 1 July 2019, our Group applies the definition of a lease in accordance with the requirements set outin HKFRS 16 in assessing whether a contract contains a lease.

Upon the adoption of HKFRS 16, our Group recognises lease liabilities and right-of-use assets atthe commencement date of the lease. Lease liabilities are measured at the present value of leasepayments that are unpaid. Right-of-use assets are measured at cost, less any accumulated depreciationand impairment losses, and adjusted for any remeasurement of lease liabilities.

The impact of adoption of HKFRS 16 using the modified retrospective approach on theconsolidated statements of cash flows for FY2020 is set out below.

For FY2020 Adjustment

Withoutadopting

HKFRS 16 forillustrative

purpose

HK$’000 HK$’000 HK$’000

Operating profit before working capitalchanges 25,394 (579) 24,815

Payment of lease liabilities 579 – 579

For further details, including the accounting policies and effects arising from initial application ofHKFRS 16 “Leases”, please refer to notes 3 and 4 to the Accountants’ Report set out in Appendix I to thisdocument.


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RESULTS OF OPERATIONS OF OUR GROUP

The following consolidated statements of comprehensive income of our Group for FY2018,FY2019, FY2020 and 8M2021 are extracted from, and should be read in conjunction with, the auditedconsolidated statements of comprehensive income, together with the accompanying notes, in theAccountants’ Report set out in Appendix I of this document.

FY2018 FY2019 FY2020 8M2020 8M2021

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000(unaudited)

Revenue 271,940 248,767 274,613 196,614 142,665Cost of services (221,903) (204,218) (231,037) (162,169) (125,823)

Gross profit 50,037 44,549 43,576 34,445 16,842Other income 4,840 1,339 3,882 3,639 4,710Administrative expenses (10,107) (11,174) (11,469) (7,831) (8,684)Other gain and loss, net (7,743) (28) 1,630 1,409 (136)[REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]Finance costs (219) (321) (135) (77) (144)

Profit before income tax 21,788 33,080 29,232 24,727 10,930Income tax expense (5,962) (5,522) (5,980) (4,993) (1,586)

Profit for the year/period 15,826 27,558 23,252 19,734 9,344

Other comprehensiveincome for the year/period – – – – –

Total comprehensiveincome for the year/period 15,826 27,558 23,252 19,734 9,344


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PRINCIPAL COMPONENTS OF CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Revenue

Our revenue was principally derived from provisions of formwork works and associatedreinforcement bar fixing works and/or concreting works for construction projects in Hong Kong. Duringthe Track Record Period, we recognised revenue from 26 construction projects of which nine wereongoing as at the Latest Practicable Date. In addition, we also provided other services such asassignments in connection with coordination of the review of calculations and drawings relating toformwork and falsework designs. The following table sets out a breakdown of our revenue by types ofprojects during the Track Record Period:

FY2018 FY2019 FY2020 8M2020 8M2021

ProjectRevenue

generated

Percentageof total

revenueRevenue

generated

Percentageof total

revenueRevenue

generated

Percentageof total

revenueRevenue

generated

Percentageof total

revenueRevenue

generated

Percentageof total

revenue

HK$’000 (%) HK$’000 (%) HK$’000 (%) HK$’000 (%) HK$’000 (%)(unaudited)

Infrastructure projects 157,097 57.8 160,086 64.4 260,887 95.0 184,380 93.8 63,151 44.3Building projects 113,578 41.8 87,648 35.2 11,894 4.3 11,149 5.7 78,272 54.9Others (Note) 1,265 0.4 1,033 0.4 1,832 0.7 1,085 0.5 1,242 0.8

Total 271,940 100.0 248,767 100.0 274,613 100.0 196,614 100.0 142,665 100.0

Note: Others refer to assignments such as coordination of the review of calculations and drawings relating tothe design of formwork and falsework, A&A works and consultancy services for construction works.

For FY2018, FY2019 and FY2020, in terms of revenue contribution, we were more focused oninfrastructure projects while we generated more revenue from building projects for 8M2021. In terms ofthe number of projects, we have a mix of infrastructure projects and building projects. In terms ofrevenue, we recorded a higher portion of infrastructure project for FY2018, FY2019 and FY2020 mainlydue to our participation in several sizable infrastructure projects which we recognised a largerpercentage of the relevant contract sums as revenue. Infrastructure projects generally have relativelylarger contract sum and longer duration than that of building projects. Hence, taking up sizableinfrastructure projects for FY2018, FY2019 and FY2020 increased its proportion in our project portfolioin terms of revenue contribution. The decrease in revenue contribution of infrastructure projects for8M2021 was mainly due to the decrease in revenue recognised in Project 14, Project 15 and Project 16in aggregate from approximately HK$169.1 million for 8M2020 to approximately HK$42.2 million for8M2021 as the substantial portion of such projects was completed in FY2020 while we generated morerevenue from new building projects, Project 19, Project 20, Project 21, Project 23 and Project 24, whichcommenced in 8M2021.


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The table below sets forth the details of our infrastructure and building projects that have generatedrevenue during the Track Record Period:

Projectno.

Particulars ofthe project

Projectsector

Major servicesprovided

(Expected)project period

Contractsum

Revenue recognised during theTrack Record Period

Gross profit/(loss) recognisedduring the Track Record Period Gross profit/(loss) margin Estimated

Overall GrossProfit MarginFY2018 FY2019 FY2020 8M2021 FY2018 FY2019 FY2020 8M2021 FY2018 FY2019 FY2020 8M2021

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 % % % % %

(Note 1) (Note 2) (Note 3)

A Infrastructureproject inartificialisland nearHong KongInternationalAirport(Note 4)

Public Formwork September2016 toMay 2017

17,803 – – 339 – – – (578) – – – (170.5) – 30.7

0 Buildingproject inYuen Long(Note 5)

Public Formwork October 2014 toJanuary 2017

31,638 1,638 – – – 1,383 – – – 84.4 – – – 16.3

1 Infrastructureproject inHeung YuenWai (Note 6)

Public Formwork andassociatedreinforcementbar fixing andconcreting

January 2015 toAugust 2017

119,001 9,958 – – – (1,481) – – – (14.9) – – – 7.7

2 Infrastructureproject inWan Chai(Note 7)


January 2016 toAugust 2017

79,498 1,497 – – – (1,804) – – – (120.5) – – – 20.1

3 Building projectin Oil Street,North Point(Note 8)

Private Formwork May 2016 toOctober 2017

33,175 2,397 – – – 1,132 – – – 47.2 – – – (8.3)

4 Building projectin Area 36CShatin(Note 9)

Public Formwork andassociatedreinforcementbar fixing

August 2016 toSeptember2019

152,667 99,310 5,881 1,128 – 14,984 (4,208) 887 – 15.1 (71.6) 78.6 – 11.9

5 Infrastructureproject inHeung YuenWai (Note10)


November2016 toMarch 2018

48,712 34,070 1,915 2,654 – 6,140 793 (408) – 18.0 41.4 (15.4) – 14.4



December 2016to October2017

97,286 28,870 – – – 14,076 – – – 48.8 – – – 30.6

7 Building projectin TongTsuen Road,Sai Kung

Private Formwork March 2017 toOctober 2017

3,142 660 – – – 4 – – – 0.6 – – – 3.9

8 Infrastructureproject inNorth Point(Note 12)

Public Formwork andassociatedreinforcementbar fixing

August 2017 toJuly 2018

111,802 75,189 36,098 515 – 12,643 17,717 515 – 16.8 49.1 100.0 – 27.9

9 Infrastructureproject inHeung YuenWai (Note13)


December 2017to August2018

14,673 6,714 7,321 638 – 1,124 969 (527) – 16.8 13.2 (82.8) – 10.7

10 Building projectin Pak TinEstate, ShamShui Po

Public Formwork May 2018 toOctober 2018

12,347 5,315 7,032 – – 532 856 – – 10.0 12.2 – – 16.1

11 Building projectin Sze ShanStreet, YauTong(Note 14)

Private Formwork May 2018 toJuly 2019

49,408 2,017 39,765 7,626 – 189 1,554 1,891 – 9.4 3.9 24.8 – 7.4

12 Building projectin ShousonHill RoadWest andWong ChukHang Path(Note 15)

Private Formwork May 2018 toAugust 2019

39,689 2,241 34,970 2,478 – 244 1,119 330 – 10.9 3.2 13.3 – 4.3



June 2018 toJanuary 2019

8,222 799 7,423 – – 128 2,144 – – 16.0 28.9 – – 27.6

14 Infrastructureproject inHong KongInternationalAirport(Note 17)

Public Formwork andassociatedconcreting

June 2018 toMarch 2020

50,086 – 16,961 33,021 66 – 2,739 113 4 – 16.2 0.3 6.1 5.7


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Projectno.

Particulars ofthe project

Projectsector

Major servicesprovided

(Expected)project period

Contractsum

Revenue recognised during theTrack Record Period

Gross profit/(loss) recognisedduring the Track Record Period Gross profit/(loss) margin Estimated

Overall GrossProfit MarginFY2018 FY2019 FY2020 8M2021 FY2018 FY2019 FY2020 8M2021 FY2018 FY2019 FY2020 8M2021

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 % % % % %

(Note 1) (Note 2) (Note 3)

15 Infrastructureproject inAndersonRoad, KwunTong


November 2018to June 2021

201,091 – 61,301 112,965 24,587 – 15,325 27,483 6,040 – 25.0 24.3 24.6 24.4

16 Infrastructureproject inTseungKwan O(Note 18)


December 2018to May 2021

111,557 – 29,067 62,911 17,547 – 4,682 3,307 15 – 16.1 5.3 0.1 7.2

17 Infrastructureproject for atheme parkin HongKong(Note 19)

Private Formwork andassociatedreinforcementbar fixing andconcreting

October 2019to September2021

72,941 – – 47,844 20,285 – – 9,195 162 – – 19.2 0.8 13.7

18 Building projectin Lai ChoRoad, KwaiChung

Public Formwork May 2020 toAugust 2021

12,549 – – 662 7,289 – – 62 676 – – 9.3 9.3 9.3

19 Building projectin Pak TinEstate, ShamShui Po

Public Formwork September 2020to March 2022

22,000 – – – 4,283 – – – 435 – – – 10.2 10.1

20 Building projectin AndersonRoad, KwunTong


October 2020 toMay 2021

67,708 – – – 39,266 – – – 6,144 – – – 15.6 15.6

21 Buildingproject for auniversity inHo Man Tin


December 2020to March 2022

61,013 – – – 16,044 – – – 2,168 – – – 13.5 13.5

22 Infrastructureproject inAndersonRoad, KwunTong

Public Structuralsteelwork

November 2020to December2020

666 – – – 666 – – – 194 – – – 29.2 29.2

23 BuildingProject inArea 99,Tung Chung


February 2021to July 2021

67,220 – – – 10,961 – – – 1,200 – – – 11.0 11.0

24 BuildingProject inMa Sik Road,Fanling

Private Reinforcementbar fixing

February 2021to August2021

16,500 – – – 429 – – – 43 – – – 10.0 10.0

Total 270,675 247,734 272,781 141,423 49,294 43,690 42,270 17,081

Notes:

1. This refers to the sector (i.e. public or private) to which our project employer belongs.

2. (Expected) project period refers to the period from the (expected) date of first interim payment application tothe (expected) date of our last works done sets out in the last consecutive interim payment application wesubmitted to our customers or the (expected) completion date of the relevant project sets out in our record orbased on our Director’s judgement as to the practicable commencement or completion of each project. Theproject period refers to the period that we are involved in the project for our works and not the entireconstruction project.

3. Contract sum refers to the contract value as stated in the original contract (and amended between the partiesthereto, where applicable), which may be subject to adjustments due to variation orders and prolongation ofthe project period, which may in turn affect the amount of revenue we can recognise in each year/period.

4. The gross loss of Project A of approximately HK$0.6 million was recorded in FY2020 mainly attributable to theadditional contra-charges incurred and such amount were agreed in the final account.

5. The gross profit margin of Project 0 of approximately 84.4% in FY2018 was mainly due to revenue fromvariation orders of approximately HK$1.3 million performed in FY2017 were excluded in the total contract sumas at 30 June 2017 for the calculation of revenue in FY2017 as our Directors considered that such revenuederived from the variation orders, if recorded in FY2017, will be highly probable to reverse subsequently, giventhat (a) we had been instructed by Chun Wo to commence the relevant variation works before the confirmationof the prices in accordance to the contract terms; (b) the negotiation of variation orders generally takes arelatively longer time to reach an mutual agreement; and (c) our negotiation in the area of the quantity of works,materials consumed and the required labour cost incurred in the variation orders were on-going and the resultswere uncertain as at 30 June 2017. In FY2018, the said variation orders of approximately HK$1.3 millionperformed was confirmed by Chun Wo and added to the total contract sum used for the calculation of therevenue. As such, the gross profit margin of Project 0 was increased to approximately 84.4% in FY2018.


– 176-A –


6. The gross loss of Project 1 of approximately HK$1.5 million was recorded in FY2018 mainly attributable to theadditional contra-charges incurred and such amount were deducted from our final account, which was settledduring the year.

7. The gross loss of Project 2 of approximately HK$1.8 million was recorded in FY2018 mainly attributable to theadditional contra-charges incurred and such amount were deducted from our final account, which was settledduring the year.

8. The gross profit margin of Project 3 of approximately 47.2% in FY2018 was mainly due to (a) the reassessmentof the total contract sum (including variation orders) recognised and total costs incurred upon completion asat 30 June 2018 and (b) the total costs incurred were reassessed in FY2018 and reduced by approximatelyHK$1.1 million compared to our total budgeted cost upon completion, resulting in a higher gross profit margin.

The variation orders of approximately HK$0.1 million were not included in the total contract sum in FY2017 asour Directors considered that such revenue derived from the variation orders, if recorded in FY2017, will behighly probable to reverse subsequently, given that (a) we commenced the variation works before weconfirmed the relevant prices with Customer H, which is not uncommon in the construction industry; (b) ourGroup’s negotiation with Customer H on the amount of variation orders were still uncertain as the 30 June 2017as the relevant prices for variation works were still in negotiation with them, specifically in relation to thequantity of works, materials consumed and the required labour cost incurred in the variation orders; and (c) thenegotiation for variation orders generally takes a relatively longer time to reach a mutual agreement which theresult was uncertain at that stage of the negotiation.

After the completion of Project 3, we were in the progress of negotiating the final accounts with Customer Hwhile we were notified by Customer H that they did not agree with the actual amount of work done applied byus based on their remeasurement of our works performed as stated in the draft final accounts in July 2018.Accordingly, we made a provision for the impairment on amounts due from customers for contract work inProject 3 from Customer H of approximately HK$6.0 million for FY2018, based on the aggregated amounts ofapproximately HK$31.9 million certified by Customer H as at 30 June 2018. As a result, we incurred a net lossfor Project 3 due to provision for impairment of amounts due from customers for contract work and retentionmonies receivables.

9. The gross profit margin of Project 4 decreased from approximately 15.1% in FY2018 to approximately (71.6)%in FY2019. The decrease in gross profit margin was mainly due to a gross loss of approximately HK$4.2 millionfor FY2019 as (a) additional costs were used on remedial works in FY2019 and (b) reassessment of the totalcontract sum (including variation orders) recognised and total costs incurred upon completion as at 30 June2019. The variation orders of approximately HK$0.8 million were excluded from the total contract sum as at 30June 2019 for the calculation of revenue in FY2019 as our Directors considered that such revenue derived fromthe variation orders, if recorded in FY2019, will be highly probable to reverse subsequently, given that (i) wecommenced the variation works before we confirmed the relevant prices with Chun Wo, which is notuncommon in the construction industry; (ii) our Group’s negotiation with Chun Wo on the amount of variationorders were still uncertain as at 30 June 2019 as the relevant prices for variation works were still in negotiationwith them, specifically in relation to the quantity of works, materials consumed and the required labour costincurred in the variation orders; and (iii) the negotiation for variation orders generally takes a relatively longertime to reach a mutual agreement which the result was uncertain at that stage of the negotiation. In FY2020,the variation orders of approximately HK$0.8 million confirmed with Chun Wo and therefore the total contractsum used for calculation of the revenue of Project 4 for FY2020 had increased. As such, the gross profit marginof Project 4 increased to approximately 78.6% for FY2020.

10. The gross profit margin of Project 5 increased from approximately 18.0% in FY2018 to approximately 41.4%in FY2019. Certain revenue from variation orders of approximately HK$0.6 million performed in FY2018 wereexcluded in the total contract sum as at 30 June 2018 for the calculation of revenue in FY2018 as our Directorsconsidered that such revenue derived from the variation orders, if recorded in FY2018, will be highly probableto reverse subsequently, given that (a) we had been instructed by Customer C to commence the relevantvariation works before the confirmation of the price in accordance to the contract terms; and (b) the negotiationof variation orders generally takes a relatively longer time to reach an mutual agreement and our negotiationin the area of the quantity of works, materials consumed and the required labour cost incurred for the relevantvariation works were on-going and the results were uncertain as at 30 June 2018. In FY2019, certain part ofvariation orders of approximately HK$0.6 million performed in FY2018 was confirmed by Customer C andadded to the total contract sum used for the calculation of the revenue. As such, the gross profit margin ofProject 5 was increased to approximately 41.1% in FY2019. The gross loss of Project 5 of approximatelyHK$0.4 million was recorded in FY2020 representing the additional contra-charges agreed with Customer Cin the final account.

11. The gross profit margin of Project 6 of approximately 48.8% in FY2018 was mainly due to reassessment of thetotal contract sum (including variation orders) recognised and total costs incurred upon completion as at 30June 2018. The variation orders of approximately HK$6.6 million were excluded from the total contract sum forthe calculation of revenue in FY2017 as our Directors considered that such revenue derived from the variationorders, if recorded in FY2017, will be highly probable to reverse subsequently, given that (a) we had beeninstructed by Customer D to commence the relevant variation works before the confirmation of the prices inaccordance to the contract terms; and (b) the negotiation of variation orders generally takes a relatively longertime to reach a mutual agreement and our negotiation for the price of relevant variation works such asadditional screeding and buttress works and change in reinforcement works and the results were uncertain asat 30 June 2017. In FY2018, the variation orders were confirmed with Customer D and therefore additionalrevenue was recognised in FY2018.


– 176-B –


12. The gross profit margin of Project 8 recorded approximately 49.1% in FY2019 mainly because Customer Binstructed us to expedite the project progress and therefore our Group was entitled to acceleration costspursuant to the acceleration agreement. The gross profit margin of Project 8 recorded approximately 100.0%in FY2020 mainly due to the reassessment of the total contract sum (including variation orders ofapproximately HK$0.5 million) recognised as at 30 June 2020. The variation orders were excluded from thetotal contract sum as at 30 June 2019 for the calculation of revenue in FY2019 as our Directors considered thatsuch revenue derived from the variation orders, if recorded in FY2019, will be highly probable to reversesubsequently, given that (a) we had commenced the variation works before the confirmation of the relevantprices with Customer B; and (b) our negotiation on the relevant variation works such as providing rectificationworks for Customer B and modification of existing structures were on-going and the result was uncertain as at30 June 2019. In FY2020, the variation orders were confirmed with Customer B and therefore additionalrevenue was recognised in FY2020.

13. The gross loss of Project 9 of approximately HK$0.5 million was recorded in FY2020 representing theadditional contra-charges agreed with Customer C in the final account.

14. The gross profit margin of Project 11 decreased from approximately 9.4% in FY2018 to approximately 3.9% inFY2019. Such decrease was mainly due to the increase in budgeted cost during FY2019 with reference to theincrease in actual cost incurred. Also, the variation orders of approximately HK$0.2 million were excluded fromthe total contract sum as at 30 June 2019 for calculation of the revenue in FY2019 as our Directors consideredthat such revenue derived from the variation orders will be highly probable to reverse subsequently given that(a) as we were instructed to commence the variation works before we were able to confirm the relevant priceswith Customer E; (b) our Group’s negotiation with Customer E on the amount of variation orders were stilluncertain as the 30 June 2019 as the relevant prices for variation works were still in negotiation with them,specifically in relation to the quantity of works, materials consumed and the required labour cost incurred in thevariation orders; and (c) the negotiation for variation orders generally takes a relatively longer time to reach amutual agreement which the result is uncertain at that stage of the negotiation. In FY2020, parts of thevariation orders of approximately HK$0.2 million were confirmed with Customer E and therefore the totalcontract sum used for calculation of the revenue of Project 11 for FY2020 has increased. In addition, as wehave successfully implemented cost-saving measures for the project which led to the unused budgeted costsand the total budgeted cost were reassessed upon completion in FY2020. As a result, the gross profit marginincreased to approximately 24.8% in FY2020.

15. The gross profit margin of Project 12 decreased from approximately 10.9% in FY2018 to approximately 3.2%in FY2019. Such decrease was mainly due to the increase in budgeted cost during FY2019 with reference tothe additional costs for design changes. Subsequently in FY2020, we had successfully implementedcost-saving measures for the project which led to the unused budgeted costs and the total budgeted cost werereassessed upon project completion in FY2020, resulting in an increase in gross profit margin to approximately13.3% for FY2020.

16. The gross profit margin of Project 13 recorded approximately 28.9% in FY2019 mainly attributable to higherrevenue and gross profit generated from variation works than the original contract.

17. The gross profit margin of Project 14 decreased from approximately 16.2% in FY2019 to approximately 0.3%in FY2020. Such decrease was mainly due to (a) the extra cost used on remedial works during FY2020 and (b)part of the variation orders with expected value of approximately HK$6.4 million were excluded from the totalcontract sum as at 30 June 2020 for the calculation of revenue in FY2020 as our Directors considered that suchrevenue derived from the variation orders, if recorded in FY2020, will be highly probable to reversesubsequently, given that (i) we had been instructed by Customer G to commence the relevant variation worksbefore the confirmation of the relevant prices in accordance to the contract terms; and (ii) the negotiation onvariation orders generally takes a relatively longer time to reach a mutual agreement and our negotiation in thearea of the quantity of works, materials consumed and the required labour cost incurred for the relevantvariation works were on-going and the results were uncertain as at 30 June 2020.

18. The gross profit margin of Project 16 recorded approximately 5.3% in FY2020 mainly attributable to a lowergross profit margin of variation works which accounted for a large portion of revenue recognised in FY2020.The gross profit margin of Project 16 decreased to approximately 0.1% for 8M2021 which was mainly due toextra transportation costs for barge charges because of the delay of project.

19. The decrease in gross profit margin of Project 17 for 8M2021 was mainly due to the increase in budgeted costarising from the unexpected extra costs incurred for the delay of project.

For details of the circumstances that led to the variation orders, please refer to the section headed“Business – Our Projects – Contract sum and variation orders” in this document.


– 176-C –


The projects undertaken by us were originated from both public sector projects (which comprisedof projects where the project employers were the Government departments, public transport operatorsand/or statutory bodies) and private sector projects (which mainly comprised of projects where theproject employers were property developers and land owners). The following table sets out a breakdownof our revenue by public and private sectors during the Track Record Period:

FY2018 FY2019 FY2020 8M2020 8M2021

SectorRevenue

generated

Percentageof total

revenueRevenue

generated

Percentageof total

revenueRevenue

generated

Percentageof total

revenueRevenue

generated

Percentageof total

revenueRevenue

generated

Percentageof total

revenue


Public sector 263,360 96.8 172,999 69.5 214,833 78.2 170,780 86.9 120,709 84.6Private sector 8,580 3.2 75,768 30.5 59,780 21.8 25,834 13.1 21,956 15.4

Total 271,940 100.0 248,767 100.0 274,613 100.0 196,614 100.0 142,665 100.0

During the Track Record Period, our revenue was mainly derived from formwork works. Upon therequest of our customers and having considered our and our subcontractors’ capacity and capability, wealso provide associated reinforcement bar fixing works and/or concreting works to our customers. We donot provide reinforcement bar fixing works and/or concreting works to our customers without providingformwork works. The following table sets out a breakdown of our services provided in our projects duringthe Track Record Period.

FY2018 FY2019 FY2020 8M2020 8M2021

Revenuegenerated

Percentageof total

revenueRevenue

generated

Percentageof total

revenueRevenue

generated

Percentageof total

revenueRevenue

generated

Percentageof total

revenueRevenue

generated

Percentageof total

revenue


Formwork andassociatedreinforcement barfixing and/orconcreting 256,407 94.3 165,967 66.7 261,676 95.3 185,507 94.4 129,422 90.7

Formwork only 14,268 5.2 81,767 32.9 11,105 4.0 10,022 5.1 11,573 8.1Others (Note) 1,265 0.5 1,033 0.4 1,832 0.7 1,085 0.5 1,670 1.2

Total 271,940 100.0 248,767 100.0 274,613 100.0 196,614 100.0 142,665 100.0

Note: Others refer to assignments such as coordination of the review of calculations and drawings relating to thedesign of formwork and falsework, reinforcement bar fixing and A&A works as well as consultancy servicesfor construction works.


– 177 –


Cost of services

Our cost of services comprises subcontracting charges, cost of construction materials, rentalexpenses for machineries, equipment and metal scaffolds, direct labour and other costs. The followingtable sets out a breakdown of our cost of services during the Track Record Period:

FY2018 FY2019 FY2020 8M2020 8M2021

HK$’000 % HK$’000 % HK$’000 % HK$’000 % HK$’000 %

(unaudited)

Subcontractingcharges 172,559 77.8 134,225 65.8 139,234 60.3 104,828 64.6 94,595 75.2

Cost of constructionmaterials 26,402 11.8 48,660 23.8 57,493 24.9 28,532 17.6 15,936 12.7

Rental expenses 17,208 7.8 17,461 8.5 27,534 11.9 22,275 13.7 8,147 6.4Direct labour 2,662 1.2 2,485 1.2 1,738 0.8 1,442 0.9 4,919 3.9Others 3,072 1.4 1,387 0.7 5,038 2.1 5,092 3.2 2,226 1.8

Total 221,903 100.0 204,218 100.0 231,037 100.0 162,169 100.0 125,823 100.0

Subcontracting charges

Subcontracting charges accounted for the largest portion of our cost of services during the TrackRecord Period. It represents payments to our subcontractors, who mainly provide services includingformwork works, reinforcement bar fixing works and concreting works to us.

Cost of construction materials

Cost of construction materials mainly represents purchase cost for construction materials that aredirectly attributable to our construction works, including timber, plywood, metal panels and materials,steel bars, concrete and accessories.

Rental expenses

Rental expenses represents payment for renting machineries, equipment and metal scaffolds.

Direct labour

Direct labour represents salaries and benefits provided to our staff who are directly involved in thesupervision of the construction works performed by our subcontractors.

Others

Miscellaneous expenses include transportation and travelling expenses, disposal fees andconsumables used on the construction sites.

As we focus on project planning and management and we outsource labour intensive work to oursubcontractors, our direct labour only accounted for a small portion of our total cost of services, andsubcontracting charges constitutes the largest portion of our cost of services during the Track RecordPeriod.


– 178 –


Gross profit and gross profit margin

The following table sets out our gross profit and gross profit margin by (i) project types and (ii)project sectors during the Track Record Period:

FY2018 FY2019 FY2020 8M2020 8M2021

ProjectGrossprofit

Grossprofit

margin

Grossprofit/(loss)

Grossprofit/(loss)

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

margin

HK$’000 % HK$’000 % HK$’000 % HK$’000 % HK$’000 %(unaudited)

Infrastructure projects 30,826 19.6 44,369 27.7 39,100 15.0 30,386 16.5 6,416 10.2Building projects 18,468 16.3 (679) (0.8) 3,170 26.7 3,101 27.8 10,192 13.0Others (Note 1) 743 58.7 859 83.2 1,306 71.3 958 88.3 234 18.8

Total/Overall 50,037 18.4 44,549 17.9 43,576 15.9 34,445 17.5 16,842 11.8

FY2018 FY2019 FY2020 8M2020 8M2021

SectorGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

margin


Public sector 47,725 18.1 41,017 23.7 30,854 14.4 29,377 17.2 16,403 13.6Private sector 2,312 26.9 3,532 4.7 12,722 21.3 5,068 19.6 439 2.0

Total/Overall 50,037 18.4 44,549 17.9 43,576 15.9 34,445 17.5 16,842 11.8


– 179 –


The following table sets out a breakdown of gross profit and gross profit margin by types of workswe provided during the Track Record Period:

FY2018 FY2019 FY2020 8M2020 8M2021

WorksGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

margin


Formwork andassociatedreinforcement barfixing and/orconcreting (Note 2) 45,812 17.9 40,161 24.2 40,565 15.5 31,272 16.9 15,929 12.3

Formwork only 3,482 24.4 3,529 4.3 1,705 15.4 2,215 22.1 636 5.5Others (Note 3) 743 58.7 859 83.2 1,306 71.3 958 88.2 277 16.6

Total/Overall 50,037 18.4 44,549 17.9 43,576 15.9 34,445 17.5 16,842 11.8

Notes:

1. Others refer to assignments such as coordination of the review of calculations and drawings relating to thedesign of formwork and falsework, A&A works and consultancy services for construction works.

2. Gross profit margin for each type of the works cannot be presented separately as the final amount certified byour customers may not contain a detailed breakdown for the amounts of each type of service we provided.

3. Others refer to assignments such as coordination of the review of calculations and drawings relating to thedesign of formwork and falsework, reinforcement bar fixing and A&A works as well as consultancy services forconstruction works.

For FY2018, FY2019, FY2020 and 8M2021, our overall gross profit was approximately HK$50.0million, HK$44.5 million, HK$43.6 million and HK$16.8 million respectively, and our overall gross profitmargin was approximately 18.4%, 17.9%, 15.9% and 11.8%, respectively. During the Track RecordPeriod, our gross profit margin varied from project to project. Our gross profit and gross profit margin aredependent on a number of factors, including the nature and complexity of the project, duration and scaleof project, relationship with our customers, our cost control and management, timing and recognition ofcost and revenue in different construction stages and the outcome of the negotiation on the value ofvariation orders or final accounts with our customers. Hence, our gross profit margin in any particularfinancial year might not be indicative to our gross profit margin for the subsequent year.

Infrastructure projects

Gross profit margin for the infrastructure projects was approximately 19.6%, 27.7%, 15.0% and10.2%, respectively during FY2018, FY2019, FY2020 and 8M2021.

The gross profit margin for the infrastructure projects recorded an increase of approximately 8.1percentage points from FY2018 to FY2019. Such gross profit margin increase was mainly due to (i)higher gross profit margin of Project 8 for FY2019 as Customer B instructed us to expedite the projectprogress and therefore our Group was entitled to acceleration costs pursuant to the accelerationagreement; and (ii) higher gross profit margin of Project 15 for FY2019 where our Group was parachutedto carry out the uncompleted works done by another subcontractor to catch up with the tight completionschedule, and therefore our Group set a higher price when tendering for such project.


– 180 –


The gross profit margin recorded a decrease of approximately 12.7 percentage points from FY2019to FY2020. Such gross profit margin decrease was mainly resulted from relatively lower gross profitmargin of Project 14 and Project 16 as well as the gross loss of Project 5 and Project 9 incurred inFY2020, as detailed under the paragraph headed “Principal components of consolidated statements ofcomprehensive income – Revenue” in this section. The gross profit margin of infrastructure projectsdecreased to approximately 10.2% for 8M2021 as compared to that of approximately 16.5% for 8M2020.Such decrease was mainly attributable to the decrease in gross profit margin of Project 16 due to extratransportation costs for barge charges because of the delay of project and the decrease in gross profitmargin of Project 17 due to the increase in budgeted cost arising from the unexpected extra costsincurred for the delay of project.

Building projects

Gross profit margin for building projects was approximately 16.3%, -0.8%, 26.7% and 13.0%,respectively during FY2018, FY2019, FY2020 and 8M2021.

We have gross loss margin of approximately 0.8% for FY2019. The significant drop in gross profitmargin for FY2019 was mainly contributed by (i) the significant drop in gross profit margin recorded inProject 4 mainly due to the variation orders of Project 4 recorded a gross loss of approximately HK$4.2million for FY2019 as additional costs were used on remedial works in FY2019; and (ii) the lower grossprofit margin of Project 11 and Project 12. The gross profit margin of Project 11 decreased fromapproximately 9.4% in FY2018 to approximately 3.9% in FY2019. Such decrease was mainly due to theincrease in budgeted cost during FY2019 with reference to the increase in actual cost incurred. Thegross profit margin of Project 12 decreased from approximately 10.9% in FY2018 to approximately 3.2%in FY2019. Such decrease was mainly due to the increase in budgeted cost during FY2019 withreference to the additional costs for design changes.

The gross profit margin of building projects improved to approximately 26.7% for FY2020 mainlydue to the significant increase of gross profit margin of Project 4 and Project 11 in FY2020. The grossprofit margin of building projects decreased to approximately 13.0% for 8M2021 as compared to that ofapproximately 27.8% for 8M2020. Such decrease was mainly due to (i) Project 4 and Project 11 werecompleted in FY2020 which had a higher gross profit margin in FY2020 and (ii) additional contra-chargesof approximately HK$0.5 million incurred for a project which was completed in March 2016 and suchamount was agreed in the final account during 8M2021. For details of Project 4 and Project 11, pleaserefer to the paragraph headed “Principal components of consolidated statements of comprehensiveincome – Revenue” in this section.

In general, our gross profit margins for building projects were lowered than that of our infrastructureprojects. Our Directors are of the view that based on our experience, infrastructure projects resulted inrelatively higher gross profit margin than building projects due to a number of reasons, including (i)infrastructure projects are generally more complex which set up a higher barrier for our competitors toenter, (ii) infrastructure projects usually involve more uncertainties that lead to subsequent variationorders, and (iii) infrastructure projects usually have longer duration and are exposed to higher risk andthus higher risk premium is required. Hence, when tendering for infrastructure projects, our Directors willfactor in a relatively higher margin in regarding to the aforesaid reasons.


– 181-A –


Public Sector

The gross profit margin for public sector projects increased to approximately 23.7% for FY2019mainly contributed by (i) the higher gross profit margin of Project 8, as explained under the paragraphheaded “Principal components of consolidated statements of comprehensive income – Gross profit andgross profit margin – Infrastructure projects” set out in this section; (ii) the higher gross profit margin ofProject 15, as explained under the paragraph headed “Principal components of consolidated statementsof comprehensive income – Gross profit and gross profit margin – Infrastructure projects” set out in thissection; and partially offset by (i) the significant drop on gross profit margin of Project 4, as explainedunder the paragraph headed “Principal components of consolidated statements of comprehensiveincome – Gross profit and gross profit margin – Building projects” set out in this section.

For FY2020, the gross profit margin for public sector projects decreased to approximately 14.4%mainly contributed by (i) the lower gross profit margin of Project 14 and Project 16 of approximately 0.3%and 5.3% in FY2020, respectively in FY2020 and (ii) the gross loss margin of approximately 15.4% and82.8% for Project 5 and Project 9, respectively in FY2020. For details of the lower gross profit marginderived from Project 14 and Project 16 and the gross loss margin of Project 5 and Project 9, please referto the paragraph headed “Principal components of consolidated statements of comprehensive income –Revenue” in this section.

The gross profit margin for public sector projects decreased to approximately 13.6% for 8M2021 ascompared to that of approximately 17.2% for 8M2020. Such decrease was mainly due to (i) the decreasein gross profit margin of Project 16 due to extra transportation costs for barge charges because of thedelay of project, (ii) Project 4 completed in FY2020 which had a higher gross profit margin in FY2020 and(iii) additional contra-charges of approximately HK$0.5 million incurred for a project which wascompleted in March 2016 and such amount was agreed in the final account during 8M2021.

Private Sector

The gross profit margin for private sector projects decreased to approximately 4.7% for FY2019primarily due to (i) the decrease of gross profit margin of Project 11 from approximately 9.4% in FY2018to approximately 3.9% in FY2019 and (ii) the decrease of gross profit margin of Project 12 fromapproximately 10.9% in FY2018 to approximately 3.2% in FY2019, as explained under the paragraphheaded “Principal components of consolidated statements of comprehensive income – Gross profit andgross profit margin – Building projects” set out in this section.


– 181-B –


The improvement of the gross profit margin for private sector to approximately 21.3% was mainlycontributed by a relative higher gross profit margin of Project 17, which was a new private sector projectinvolving irregular building structure commenced in FY2020. The gross profit margin for private sectorprojects decreased to approximately 2.0% for 8M2021 as compared to that of approximately 19.6% for8M2020 mainly due to the decrease in gross profit margin of Project 17 due to the increase in budgetedcost arising from the unexpected extra costs incurred for the delay of project.

Formwork and associated reinforcement bar fixing and/or concreting works

Gross profit margin for the formwork and associated reinforcement bar fixing and/or concretingworks was approximately 17.9%, 24.2%, 15.5% and 12.3%, respectively during FY2018, FY2019,FY2020 and 8M2021.

The gross profit margin for formwork and associated reinforcement bar fixing and/or concretingworks increased to approximately 24.2% for FY2019. The increase was mainly contributed by (i) thehigher gross profit margin of Project 8; and (ii) the higher gross profit margin of Project 15, as explainedunder the paragraph headed “Principal components of consolidated statements of comprehensiveincome – Gross profit and gross profit margin – Infrastructure projects” in this section, which werepartially offset by the significant drop on gross profit margin of Project 4 from approximately 15.1% inFY2018 to a gross loss margin of approximately 71.6% in FY2019.

For FY2020, the gross profit margin for formwork and associated reinforcement bar fixing and/orconcreting works decreased to approximately 15.5%, which was mainly contributed by the lower grossprofit margin recorded in Project 14 and Project 16, as detailed under the paragraph headed “Principalcomponents of consolidated statements of comprehensive income – Revenue” in this section.

The gross profit margin for the formwork and associated reinforcement bar fixing and/or concretingworks decreased to approximately 12.3% for 8M2021 as compared to that of approximately 16.9% for8M2020. Such decrease was mainly attributable to the decrease in gross profit margin of Project 16 dueto extra transportation costs for barge charges because of the delay of project and the decrease in grossprofit margin of Project 17 due to the increase in budgeted cost arising from the unexpected extra costsincurred for the delay of project.

Formwork works only

Gross profit margin for the formwork only works was approximately 24.4%, 4.3%, 15.4% and 5.5%,respectively during FY2018, FY2019, FY2020 and 8M2021.

The gross profit margin for formwork only works decreased to approximately 4.3% for FY2019. Thiswas mainly contributed by the fluctuation of the gross profit margin of Project 11 and Project 12, asexplained under the paragraph headed “Principal components of consolidated statements ofcomprehensive income – Gross profit and gross profit margin – Building projects” in this section.

For FY2020, the gross profit margin for formwork only works increased to approximately 15.4%,which was primarily contributed by a higher gross profit margin of Project 11, as detailed under theparagraph headed “Principal components of consolidated statements of comprehensive income –Revenue” in this section. The gross profit margin for the formwork works only decreased toapproximately 5.5% for 8M2021 as compared to that of approximately 22.1% for 8M2020. Suchdecrease was mainly attributable to (i) Project 11 with a higher gross profit margin for FY2020 has beencompleted and (ii) additional contra-charges of approximately HK$0.5 million incurred for a project whichwas completed in March 2016 and such amount was agreed in the final account during 8M2021.


– 182-A –


Other income

Other income for FY2018, FY2019, FY2020 and 8M2021 mainly represented one-off concessionobtained from our suppliers for the settlement of outstanding rental charges of equipment, wagesubsidies from the Government and refund of medical expenses of injured staff. The table below set outa breakdown of our other income during the Track Record Period:

FY2018 FY2019 FY2020 8M2020 8M2021


– Waiver of accountspayables 3,156 67 2,889 2,899 788

– Reimbursement of medicalexpense – 640 660 660 139

– Wages subsidies of theEmployment SupportScheme – – 170 – 675

– Recovery of bad debtswritten off – – – – 3,000

– Subsidy of ConstructionIndustry Anti-epidemicFund – – – – 108

– Sundry income 1,684 632 153 80 –

4,840 1,339 3,882 3,639 4,710

During the Track Record Period, our other income was approximately HK$4.8 million, HK$1.3million, HK$3.9 million and HK$4.7 million, respectively, of which wavier of accounts payables, whichrepresented one-off concession obtained from each of the suppliers as an incentive for the finalisationand settlement of long outstanding balance with regards to rental charges of equipment after lengthynegotiation between the parties, amounted to approximately HK$3.2 million, HK$67,000, HK$2.9 millionand HK$0.8 million for the respective years/period. Reimbursement of medical expenses amounted toapproximately HK$0.6 million, HK$0.7 million and HK$0.1 million for FY2019, FY2020 and 8M2021,respectively, representing refund of medical expenses of injured staff in construction sites. Sundryincome amounted to approximately HK$1.7 million, HK$0.6 million, HK$0.2 million and nil during theTrack Record Period, respectively, mainly representing sales of scrap materials. For 8M2021, wereceived HK$3.0 million which we had made bad debts provision previously, and we recognized suchamount as bad debts recovery related to impairment on amounts due from customers for contract workand retention monies receivables in prior years.

Administrative expenses

Administrative expenses mainly comprise salaries and benefits for our administrative and backoffice staff (including directors’ remuneration), legal and professional fees, entertainment and travellingexpenses, and rent, rates and management fees. The table below sets out a breakdown of ouradministrative expenses during the Track Record Period:

FY2018 FY2019 FY2020 8M2020 8M2021


Staff costs, includingdirectors’ remuneration 7,298 8,462 8,502 5,751 6,750

Depreciation 100 69 555 371 365Legal and professional fees 751 859 578 359 374Entertainment and travelling

expenses 922 887 1,447 1,040 982Rent, rates and management

fees 459 424 – – –Others 577 473 387 310 213

10,107 11,174 11,469 7,831 8,684


– 182-B –


During the Track Record Period, our administrative expenses were approximately HK$10.1 million,HK$11.2 million, HK$11.5 million and HK$8.7 million, representing approximately 3.7%, 4.5%, 4.2% and6.1% of our revenue for the respective years/period.

Other gain and loss, net

For FY2018, our other losses comprise provision for impairment of amounts due from customersfor contract work and retention monies receivables of approximately HK$6.0 million and HK$1.7 millionrespectively. Please refer to the paragraphs headed “Description of selected items of the consolidatedstatements of financial position – Accounts and other receivables – Retention monies receivables” and“Description of selected items of the consolidated statements of financial position – Amounts due fromcustomers for contract work and contract assets” in this section for further details. For FY2020, werecorded the other gain of approximately HK$1.6 million, representing a credit balance of the netallowance for ECLs on accounts receivable and contract assets. Please refer to the paragraph headed“Description of selected items of the consolidated statements of financial position – Accounts and otherreceivables – Accounts receivable” in this section for details.

[REDACTED]

Our [REDACTED] represented expenses in connection with the [REDACTED].

Finance costs

Our finance costs mainly comprise of interest charges on our interest-bearing bank borrowings.


– 182-C –


Income tax expense

We derived all of our revenue in Hong Kong, and therefore our Group was subject to profits tax inHong Kong. Provision for Hong Kong profit tax was provided at the statutory profits tax rate of 16.5%.

The Inland Revenue (Amendment) (No.3) Ordinance 2018 which introduced the two-tiered profitstax rate regime was gazetted on 29 March 2018 and had been effective from the year of assessment2018/19 (i.e. on or after 1 April 2018).

Under the two-tiered profits tax rates regime, the first HK$2,000,000 of profits of corporation wouldbe taxed at 8.25%, and profits above HK$2,000,000 would be taxed at 16.5%. However, only one entityamong our Group’s connected entities can apply to enjoy the concessionary profits tax rate for a year ofassessment.

The two-tiered profits tax rates regime was applicable to Houng Kee (Asia) for the Track RecordPeriod. For Houng Kee Development, Hong Kong profits tax has been provided at the rate of 16.5% onthe estimated assessable profit for the Track Record Period.

The effective tax rate of our Group for each of FY2018, FY2019, FY2020 and 8M2021 wasapproximately 27.4%, 16.7%, 20.5% and 14.5%, respectively. The effective tax rate for the FY2018,FY2019 and FY2020 was higher than that of the statutory tax rate mainly due to non-deductible[REDACTED].

Pursuant to the laws and regulations of the Cayman Islands and BVI, we are not subject to anyincome tax under these jurisdictions during the Track Record Period.

During the Track Record Period, no adjustment had been made to the statutory audited accountsof our subsidiaries in arriving at the figures currently shown in the Accountants’ Report set out inAppendix I in this document.

Prior to the Track Record Period, Houng Kee (Asia), our operating subsidiary, did not timely informthe Inland Revenue Department about its chargeability to profits tax pursuant to the Inland RevenueOrdinance for the five years ended 30 June 2016. For Houng Kee Development, it did not inform theInland Revenue Department about its changeability to tax on time for the years ended 30 June 2010,2011, 2013 and 2016. Since there were unutilised tax losses, Houng Kee (Asia) did not have any taxpayable for the three years ended 30 June 2014 and Houng Kee Development did not have any taxpayable up to year ended 30 June 2017. The tax payable of Houng Kee (Asia) for the years ended 30June 2015 and 2016 amounted to approximately HK$3.2 million and HK$7.0 million, respectively, andthe tax payable had been provided in the consolidated financial statements. On 4 January 2018, theInland Revenue Department issued the profit tax assessments to our Group in respect of the tax payableof approximately HK$10.2 million for the two years ended 30 June 2016. Pursuant to the profit taxassessments, we have paid a total of approximately HK$17.2 million on 19 January 2018, including thetax payables of approximately HK$10.2 million for the two years ended 30 June 2016 and the provisionaltax of approximately HK$7.0 million for the year ended 30 June 2017. The tax payments were settled bybanking facilities of our Group. As at the Latest Practicable Date, the Inland Revenue Department hadnot imposed any penalty actions in connection with our failure to inform the Inland Revenue Departmentabout chargeability to profits tax on time. We have engaged an independent tax adviser, Mazars TaxServices Limited, to opine on the possible consequence as a result of such lateness of informingchargeability. Given that the potential tax penalty estimated by the independent tax adviser isapproximately HK$0.3 million, our Directors consider that the amount of potential tax penalty isimmaterial, and therefore no provision for such amount has been made to the consolidated financialstatements of our Group during the Track Record Period and as at the Latest Practicable Date.

Save as those disclosed, our Directors confirm that our Group is not aware of any disputes orpotential disputes with the tax authorities in Hong Kong as at the Latest Practicable Date.


– 183-A –


PERIOD TO PERIOD COMPARISON OF RESULTS OF OPERATIONS

8M2021 compared with 8M2020

Revenue

Our revenue decreased by approximately 27.4% from approximately HK$196.6 million for 8M2020to approximately HK$142.7 million for 8M2021. Such decrease in revenue was mainly due to thedecrease in revenue recognised in Project 14, Project 15 and Project 16 in aggregate fromapproximately HK$169.1 million for 8M2020 to approximately HK$42.2 million for 8M2021 as thesubstantial portion of such projects was completed in FY2020 and partly offset by the increase inrevenue of approximately HK$71.6 million recognised in new projects, Project 19, Project 20, Project 21,Project 22, Project 23 and Project 24, which commenced in 8M2021.

Cost of services

Our cost of services decreased by approximately 22.4% from approximately HK$162.2 million for8M2020 to approximately HK$125.8 million for 8M2021. The decrease in cost of services was mainly dueto the decrease in revenue as disclosed above.


Our overall gross profit decreased by approximately 51.1% from approximately HK$34.4 million for8M2020 to approximately HK$16.8 million for 8M2021, and our overall gross profit margin decreasedfrom approximately 17.5% for 8M2020 to approximately 11.8% for 8M2021. The decrease in our grossprofit was mainly due to the decrease in revenue as disclosed above while the decrease in our grossprofit margin was mainly due to the gross profit margin of infrastructure projects decreased toapproximately 10.2% for 8M2021 as compared to that of approximately 16.5% for 8M2020. Suchdecrease was mainly attributable to the decrease in gross profit margin of Project 16 due to extratransportation costs for barge charges because of the delay of project and the decrease in gross profitmargin of Project 17 due to the increase in budgeted cost arising from the unexpected extra costsincurred for the delay of project.

Other income

Our other income increased by approximately 29.4% from approximately HK$3.6 million for8M2020 to approximately HK$4.7 million for 8M2021. Such increase in other income for 8M2021 wasmainly attributable to the bad debts recovery of HK$3.0 million and increase in wages subsidies from theGovernment of approximately HK$0.7 million and partly offset by the decrease in wavier of accountspayables of approximately HK$2.1 million.


Our administrative expenses increased by approximately 10.9% from approximately HK$7.8million for 8M2020 to approximately HK$8.7 million for 8M2021. The increase in administrative expensefor 8M2021 was mainly attributable to the increase in staff costs including directors’ remuneration byapproximately HK$1.0 million.

[REDACTED]

We incurred [REDACTED] of approximately HK$[REDACTED] and HK$[REDACTED] which hasbeen charged to profit or loss for 8M2020 and 8M2021, respectively.

Finance cost

We incurred finance costs of approximately HK$77,000 and HK$144,000 for 8M2020 and 8M2021,respectively.


– 183-B –


Income tax expense

Our income tax expenses decreased by approximately 68.2% from approximately HK$5.0 millionfor 8M2020 to approximately HK$1.6 million for 8M2021. The effective tax rates for 8M2020 and 8M2021were approximately 20.2% and 14.5% respectively. The effective tax rate for 8M2020 was higher thanthat of the statutory tax rate mainly due to non-deductible [REDACTED] of approximatelyHK$[REDACTED] incurred for 8M2020. The decrease in income tax expense for 8M2021 was mainlyattributable to the decrease in revenue for such period as mentioned above.

Profit and total comprehensive income for the period

Due to abovementioned reasons, our profit and total comprehensive income for the perioddecreased by approximately 52.7% from approximately HK$19.7 million for 8M2020 to approximatelyHK$9.3 million for 8M2021.

FY2020 compared with FY2019

Revenue

Our revenue increased by approximately 10.4% from approximately HK$248.8 million for theFY2019 to approximately HK$274.6 million for FY2020. Such increase in revenue was mainly due to


– 183-C –


(i) our Group was awarded with Project 17 during FY2020 and recognised revenue of approximatelyHK$47.8 million during FY2020; and (ii) the increase in revenue recognised from Project 14, Project 15and Project 16 of approximately HK$208.9 million in aggregate as a result of the greater portion of worksperformed during FY2020, comparing with an aggregate revenue of approximately HK$107.3 millionduring FY2019, which partially offset the decrease in revenue recognised in Project 11 and Project 12due to the project completion during the first half of FY2020.

Cost of services

Our cost of services increased by approximately 13.1% from approximately HK$204.2 million forFY2019 to approximately HK$231.0 million for FY2020. The increase in cost of services was slightlyhigher than our increase in revenue. Our costs of services mainly include subcontracting charges, costof construction materials, rental expenses and direct labour costs. Each of these costs may vary fromproject to project depending on various factors, including but not limited to, the scope of works andobligations agreed with our customers, the method and sequence of construction, necessary equipmentand machineries and stages of the construction.

Such increase in cost of services for FY2020 was primarily attributable to (i) the increase of rentalexpenses of approximately HK$10.1 million which was mainly due to the use of the barge cranes andrelated machineries during the construction of the marine viaducts in Project 16; (ii) the increase of costof construction materials of approximately HK$8.8 million; and (iii) the increase of subcontractingcharges of approximately HK$5.0 million, mainly resulted from the increase in amount of worksoutsourced to subcontractors as a result of the increase in our revenue for FY2020 as disclosed above.


Our overall gross profit decreased by approximately 2.2% from approximately HK$44.5 million forFY2019 to approximately HK$43.6 million for FY2020, and our overall gross profit margin decreasedfrom approximately 17.9% for FY2019 to approximately 15.9% for FY2020. The decrease in our grossprofit was mainly due to the decrease in gross profit margin of Project 14 and Project 16 as explainedunder the paragraph headed “Principal components of consolidated statements of comprehensiveincome – Gross profit and gross profit margin – Infrastructure projects” set out in this section, whichpartially offset (i) the increase in gross profit margin of Project 11, as explained under paragraph headed“Principal components of consolidated statements of comprehensive income – Gross profit and grossprofit margin – Building projects” in this section; and (ii) the higher gross profit margin of Project 17, asexplained under paragraph headed “Principal components of consolidated statements ofcomprehensive income – Gross profit and gross profit margin – Private sector” in this section.

Other income

Our other income increased by approximately 189.9% from approximately HK$1.3 million forFY2019 to approximately HK$3.9 million for FY2020. Such increase in other income for FY2020 wasmainly attributable to the increase of wavier of accounts payables by approximately HK$2.8 million.


Our administrative expenses increased by approximately 2.6% from approximately HK$11.2million for FY2019 to approximately HK$11.5 million for FY2020. For FY2019 and FY2020, ouradministrative expenses were relatively stable and represented approximately 4.5% and 4.2% of ourrevenue for the respective years.

Other gain and loss, net

Our other losses recorded approximately HK$28,000 for FY2019 and we recorded an other gain ofapproximately HK$1.6 million for FY2020, respectively. Our other gain recorded for FY2020 was mainlyattributable to the credit balance of net allowances for expected credit loss on accounts receivable andcontract assets. Please refer to the paragraphs headed “Description of selected items of theconsolidated statements of financial position – Accounts and other receivables – Retention moniesreceivables” and “Description of selected items of the consolidated statements of financial position –Amounts due from customers for contract work and contract assets” in this section for details.


– 184-A –


[REDACTED]

We incurred [REDACTED] of approximately HK$[REDACTED] during FY2019, which has beencharged to profit or loss for FY2019. We incurred [REDACTED] of approximately HK$[REDACTED]during FY2020, of which approximately HK$[REDACTED] has been charged to profit or loss for FY2020.

Finance cost

We incurred finance costs of approximately HK$0.3 million and HK$0.1 million during FY2019 andFY2020, respectively mainly for the bank borrowings.

Income tax expense

Our income tax expenses increased by approximately 8.3% from approximately HK$5.5 million forFY2019 to approximately HK$6.0 million for FY2020. The effective tax rates for FY2019 and FY2020were approximately 16.7% and 20.5% respectively. The effective tax rate for FY2019 and FY2020 washigher than that of the statutory tax rate mainly due to non-deductible [REDACTED] of approximatelyHK$[REDACTED] and HK$[REDACTED] incurred for FY2019 and FY2020 respectively. The increase inincome tax expense was mainly attributable to the increase in profit before non-deductible [REDACTED]and income tax.

Profit and total comprehensive income for the period

Due to abovementioned reasons, our profit and total comprehensive income for the perioddecreased by approximately 15.6% from approximately HK$27.6 million for FY2019 to approximatelyHK$23.3 million for FY2020.


– 184-B –


FY2019 compared with FY2018

Revenue

Our revenue decreased by approximately 8.5% from approximately HK$271.9 million for FY2018to approximately HK$248.8 million for FY2019. Such decrease in revenue was primarily because lowerrevenue was recognised from Project 4, Project 5, Project 6 and Project 8 in FY2019, as compared toFY2018. We derived an aggregate revenue of approximately HK$237.4 million from aforesaid projectsduring FY2018 mainly as a result of the greater portion of works performed, comparing with an aggregaterevenue of approximately HK$43.9 million during FY2019. After these projects were completed, wedeployed our resources to other new projects including Project 14, Project 15 and Project 16. Therevenue contribution of these new projects were not yet fully reflected in FY2019 mainly due to its earlystage of the new projects.

Cost of services

Our cost of services decreased by approximately 8.0% from approximately HK$221.9 million forFY2018 to approximately HK$204.2 million for FY2019. The decrease in cost of services was generallyin line with our decrease in revenue. Our cost of services mainly include subcontracting charges, cost ofconstruction materials, rental expenses and direct labour costs. Each of these costs may vary fromproject to project depending on various factors, including but not limited to, the scope of works andobligations agreed with our customers, the method and sequence of construction, necessary equipmentand machineries and stages of the construction.

Such decrease in cost of services for FY2019 was primarily attributable to the decrease ofsubcontracting charges of approximately HK$38.3 million, mainly resulted from the decrease in amountof works outsourced to subcontractors as a result of the decrease in our revenue for FY2019 asdisclosed above, partially offset by the increase of cost of construction materials of approximatelyHK$22.3 million, mainly resulted from (i) the cost of rebar and concrete for Project 8 and Project 15contra-charged to us by our customers; and (ii) the use of the metal formwork in Project 11 and Project16.


Our overall gross profit decreased by approximately 11.0% from approximately HK$50.0 million forFY2018 to approximately HK$44.5 million for FY2019, and our overall gross profit margin decreasedfrom approximately 18.4% for FY2018 to approximately 17.9% for FY2019. The decrease in gross profitwas mainly due to the decrease of revenue as mentioned above. The decrease in gross profit marginwas mainly due to one of our building projects, Project 4, recorded a gross loss of approximately HK$4.2million for FY2019, as explained in the paragraph headed “Principal components of consolidatedstatements of comprehensive income – Gross profit and gross profit margin – Building projects” in thissection; and partially offset by (i) the higher gross profit margin of Project 8, as explained underparagraph headed “Principal components of consolidated statements of comprehensive income – Grossprofit and gross profit margin – Infrastructure projects” set out in this section; and (ii) the higher grossprofit margin of Project 15, as explained under the paragraph headed “Principal components ofconsolidated statements of comprehensive income – Gross profit and gross profit margin –Infrastructure projects” set out in this section.


Our administrative expenses increased by approximately 10.6% from approximately HK$10.1million for FY2018 to approximately HK$11.2 million for FY2019. The increase in our administrativeexpenses was mainly due to increase in staff costs.


– 185-A –


Other losses

Our other losses were approximately HK$7.7 million and HK$28,000 for FY2018 and FY2019,respectively. Provision for impairment of retention monies receivables and provision for impairment ofamounts due from customers for contract work in Project 3 amounted to approximately HK$1.7 millionand HK$6.0 million, respectively, during FY2018. Please refer to the paragraphs headed “Description ofselected items of the consolidated statement of financial position – Accounts and other receivables –Retention monies receivables” and “Description of selected items of the consolidated statements offinancial position – Amounts due from customers for contract work and contract assets” in this section forfurther details.

[REDACTED]

We incurred [REDACTED] of approximately HK$[REDACTED] and HK$[REDACTED] duringFY2018 and FY2019, respectively, which was charged to profit or loss for the respective years.

Finance cost

Our finance cost remained stable at approximately HK$0.2 million and HK$0.3 million for FY2018and for FY2019 respectively.

Income tax expense

Our income tax expenses decreased by approximately 7.4% from approximately HK$6.0 million forFY2018 to approximately HK$5.5 million for FY2019. The effective tax rates for FY2018 and FY2019were approximately 27.4% and 16.7%, respectively. The decrease in income tax expenses was mainlyattributable to the decrease in revenue for FY2019. The effective tax rates for FY2018 and FY2019 werehigher than that of the statutory tax rate mainly due to the non-deductible [REDACTED]. Our lowereffective tax rate for FY2019 was mainly due to lower non-deductible [REDACTED] incurred ofapproximately HK$[REDACTED] for FY2019 when compared to approximately HK$[REDACTED] forFY2018.


– 185-B –


Profit and total comprehensive income for the year

Due to abovementioned reasons, our profit and total comprehensive income for the year increasedby approximately 74.1% from approximately HK$15.8 million for FY2018 to approximately HK$27.6million for FY2019.

NET CURRENT ASSETS

As at 30 JuneAs at

28 FebruaryAs at

31 March

2018 2019 2020 2021 2021


Current assetsAccounts and other

receivables 91,974 106,049 60,941 51,094 14,379Contract assets – 50,953 94,767 154,718 177,268Amounts due from

customers for contractwork 35,208 – – – –

Cash and bank balances 4,536 2,503 15,946 3,515 7,887

131,718 159,505 171,654 209,327 199,534

Current liabilitiesAccounts and other payables 39,483 47,854 37,133 67,108 54,521Bank borrowings 10,083 4,310 3,365 5,111 4,320Tax payable 4,318 4,167 4,457 1,028 2,045Lease liabilities – – 410 31 –

53,884 56,331 45,365 73,278 60,886

Net current assets 77,834 103,174 126,289 136,049 138,648

Our current assets mainly comprises, among others: (i) accounts and other receivables;(ii) contract assets; (iii) amounts due from customers for contract work; and (iv) cash and bank balances.Our current liabilities mainly comprises, among others: (i) accounts and other payables; (ii) bankborrowings; and (iii) tax payable. As at 30 June 2018, 2019, 2020 and 28 February 2021, our Groupmaintained a net current assets position.

Our net current assets increased by approximately 32.6% from approximately HK$77.8 million asat 30 June 2018 to approximately HK$103.2 million as at 30 June 2019. Such increase was mainlyattributable to (i) the increase in contract assets of approximately HK$51.0 million; (ii) increase inaccounts and other receivables of approximately HK$14.1 million; (iii) decrease in bank borrowings ofapproximately HK$5.8 million; and partially offset by (i) decrease in amounts due from customers forcontract work of approximately HK$35.2 million and the (ii) increase in accounts and other payables ofapproximately HK$8.4 million, as detailed under the paragraph headed “Description of selected items ofthe consolidated statements of financial position” in this section.

Our net current assets increased by approximately 22.4% from approximately HK$103.2 million asat 30 June 2019 to approximately HK$126.3 million as at 30 June 2020. Such increase was mainlyattributable to (i) the increase in contract assets of approximately HK$43.8 million; (ii) increase in cashand bank balances of approximately HK$13.4 million; (iii) decrease in accounts and other payables ofapproximately HK$10.7 million; and (iv) decrease in bank borrowings of approximately HK$0.9 million,partially offset by the decrease in accounts and other receivables of approximately HK$45.1 million, asdetailed under the paragraph headed “Description of selected items of the consolidated statements offinancial position” in this section.


– 186-A –


Our net current assets increased by approximately 7.7% from approximately HK$126.3 million asat 30 June 2020 to approximately HK$136.0 million as at 28 February 2021. Such increase was mainlyattributable to the increase in contract assets of approximately HK$60.0 million, partially offset by (i) theincrease in accounts and other payables of approximately HK$30.0 million; (ii) the decrease in cash andbank balances of approximately HK$12.4 million; and (iii) decrease in account and other receivables ofapproximately HK$9.8 million.

Our net current assets remained stable at approximately HK$138.6 million as at 31 March 2021.


– 186-B –


DESCRIPTION OF SELECTED ITEMS OF THE CONSOLIDATED STATEMENTS OF FINANCIALPOSITION

ACCOUNTS AND OTHER RECEIVABLES

Our accounts and other receivables consist of (i) accounts receivable; (ii) net retention moniesreceivables; and (iii) deposits and prepayments and other receivables. The table below sets out abreakdown of our accounts and other receivables as at the respective year/period end dates indicated:

As at 30 JuneAs at

28 February

2018 2019 2020 2021

HK$’000 HK$’000 HK$’000 HK$’000

Accounts receivable 70,444 105,035 57,202 44,097Retention monies receivables, net 20,768 – – –Deposits and prepayments and

other receivables 762 1,014 3,739 6,997

91,974 106,049 60,941 51,094

Accounts receivable

Our accounts receivable represent those works performed by us with the payment applicationswhich were certified by our customers before the end of the reporting period, but were not yet settled byour customers. In general, we submit an interim payment application to our customers monthly inaccordance with the amount of works done, which may include variation works and claims, if any,undertaken for our projects. Our customers will then review our works and return us with the paymentcertificates including details such as certified works done, payment amount, retention monies balanceand contra-charge amount. Generally, the credit term we granted to our customers generally rangesfrom 30 to 45 days from the date of our payment application.

The following table sets out our ageing analysis of accounts receivable, presented based on thedates of interim payment certificates issued by our customers at each of the respective year/period enddates:

As at 30 JuneAs at

28 February

2018 2019 2020 2021

HK$’000 HK$’000 HK$’000 HK$’000

1-30 days 4,380 30,221 10,386 29131-90 days 38,178 7,455 17,075 6,00091-180 days 15,252 10,484 – 14,520181-365 days 12,634 46,554 14,636 10,070Over 1 year – 11,877 15,362 13,300Less: Provision for impairment/

allowance for ECL – (1,556) (257) (84)

70,444 105,035 57,202 44,097

We seek to monitor closely our outstanding receivables to minimise the credit risk. All overduebalances are followed up by our finance staff and will be brought to our management’s attention if thesituation persists.


– 187 –


We usually grant our customers a credit period generally ranging from 30 to 45 days from the dateof our interim payment application during the Track Record Period. The following table sets forth theageing analysis of accounts receivable that are not impaired:

As at 30 JuneAs at

28 February

2018 2019 2020 2021

HK$’000 HK$’000 HK$’000 HK$’000

Neither past due nor impaired 1,036 22,957 10,386 –Less than 30 days past due 1,338 12,617 – –31 to 90 days past due 33,137 9,779 – 291Over 90 days past due 34,933 61,238 47,073 43,890Less: Allowance for ECL – (1,556) (257) (84)

70,444 105,035 57,202 44,097

An aggregate carrying amount of approximately HK$69.4 million, HK$83.6 million, HK$47.1 millionand HK$44.2 million which were past due as at 30 June 2018, 2019, 2020 and 28 February 2021respectively for which our Group has not provided for impairment loss. Our Group does not hold anycollateral over these balances. As at 30 June 2018, accounts receivable that were neither past due norimpaired related to a number of independent customers for whom there was no recent history of default.Accounts receivable that were past due but not impaired related to a number of independent customersthat had a good track record with our Group. Based on past experience, we were of the opinion that noprovision for impairment under HKAS 39 was necessary in respect of these balances as there was noobjective evidence of impairment for the year ended 30 June 2018.

Our Group estimates ECL based on the probability of default model (the “PD Model”), by usingsimplified approach or a provision matrix, as appropriate, with appropriate groupings and are adjustedfor forward-looking information such as multiple macro-economic data and external credit benchmark,where available. Our Group has assessed the allowance for ECLs on accounts receivable on anindividual and/or collectively basis grouped by combined effect of external and internal credit rating andageing, past due status and repayment history of these balances, tenor information, the change in thecredit qualities of certain past due accounts receivable and therefore, in our opinion, recognised anallowance for ECLs on accounts receivable of approximately HK$1.6 million, HK$0.3 million and HK$0.1million as at 30 June 2019 and 2020 and 28 February 2021, respectively.

Upon the adoption of HKFRS 9, an opening adjustment was made to recognise ECL on accountsreceivable as at 1 July 2018. Details are set out in Note 3(a) to the Accountants’ Report in Appendix I tothis document. The Directors considered that the increase in the percentage of accounts receivableswhich were over 90 days past due as at 30 June 2020 and 28 February 2021 was mainly due to (i) ourcustomer in public sector projects generally take longer time to settle the receivables because public orinfrastructure projects, in particular those with significant portion of variation orders, are usually subjectto funding approval from Legislative Council, which has been recently delayed by the outbreak ofCOVID-19 and social unrest in 2019 and 2020 and (ii) the project employer adopted variousprecautionary measures for COVID-19 such as work from home and flexible working hours arrangementso as to minimise the risk of cross infection in the workplace, therefore, the project employer needs alonger time to approve the payment applications of our customers, which in turn, our customers wouldrequire a longer time to process our payment applications.

Our Group has taken the following control measures and actions taken in recovering longoutstanding debts: Our project in-charge, together with our finance department, will monitor thesettlement and payment status of the project in accordance with the terms of the contract. If it is notedthat our customers have failed to settle the outstanding payments pursuant to the terms of the contract,our project in-charge will remind our customers to make payment, find out the reason for the delay andinquire an expected settlement and payment schedule where necessary. After considering the reasonfor the delay and the expected settlement and payment schedule provided by our customers, ourmanagement and finance department will follow-up on whether there is further abnormal delay insettlement and, if necessary, report the situation to our Board for approval of subsequent actions torecover the outstanding payment, i.e. whether our project in-charge shall continue to chase the paymentby visiting our customers’ office, suspend the project, commence legal proceedings for recovery of theoutstanding payment, and/or make provisions thereof.


– 188-A –


As at the Latest Practicable Date, approximately 82.5% of our Group’s accounts receivable ofapproximately HK$36.4 million as at 28 February 2021 has been subsequently received, details of thesubsequent settlement are as follows.

Accountsreceivable as at

28 February 2021

Approximatepercentage

of subsequentsettlement as at

the LatestPracticable Date

HK$’000 %

Neither past due nor impaired – –Less than 30 days past due – –31 to 90 days past due 291 100.0Over 90 days past due 43,890 82.3Less: Provision for impairment/allowance for ECL (84) –

44,097 82.5

Accountsreceivable as at

28 February 2021

Approximatepercentage of

subsequentsettlement as at

the LatestPracticable Date

HK$’000 %

1-30 days 291 100.031-90 days 6,000 –91-180 days 14,520 95.0181-365 days 10,070 89.4Over 1 year 13,300 100.0Less: Provision for impairment/allowance for ECL (84) –

Total 44,097 82.5

Among the accounts receivable of approximately HK$44.1 million as at 28 February 2021,approximately HK$7.7 million had not yet been subsequently settled by our customers up to the LatestPracticable Date.


– 188-B –


The table below sets out the average accounts receivable turnover days for the year/periodindicated:

For the year ended 30 June

Eightmonths

ended28 February

2018 2019 2020 2021

days days days days

Average accounts receivableturnover days(Note 1) 58.7 128.7 108.1 86.3

Average accounts receivable,retention monies receivables,amounts due from customers forcontract work and contract assetsturnover days(Note 2) 150.0 206.4 205.2 298.7

Notes:

1. Average accounts receivable turnover days equal to the average of the opening and closing balances ofnet accounts receivable of the relevant year/period divided by revenue of the relevant year/period andmultiplied by number of days in the relevant year/period.

2. For illustration purpose only, average accounts receivable, retention monies receivables, amounts duefrom customers for contract work and contract assets turnover days is calculated as the sum of (i) theaverage of the opening and closing balances of net accounts receivable for the year/period; (ii) theaverage of the opening and closing balance of net contract assets; (iii) the average of the opening andclosing balances of net retention monies receivables; and (iv) the average of the opening and closingbalances of net amounts due from customers for contract work, divided by the revenue for thatyear/period, multiplied by the number of days in the relevant year/period.

Our average accounts receivable turnover days increased from approximately 58.7 days forFY2018 to approximately 128.7 days for FY2019, primarily due to the increase in average accountsreceivable and decrease in revenue for FY2019. Our average accounts receivable turnover daysdecreased to approximately 108.1 days for FY2020, mainly due to the decrease in portion of averageaccounts receivable to the revenue and increase in revenue for FY2020. Our average accountsreceivable turnover days decreased to approximately 86.3 days for 8M2021, mainly due to the decreasein accounts receivable as at 28 February 2021.

Our average accounts receivable, retention monies receivables, amounts due from customers forcontract work and contract assets turnover days were approximately 150.0 days, 206.4 days, 205.2 daysand 298.7 days for FY2018, FY2019, FY2020 and 8M2021 respectively.

The increase in average accounts receivable, retention monies receivables, amounts due fromcustomers for contract work and contract assets turnover days from approximately 150.0 days forFY2018 to approximately 206.4 days for FY2019 was mainly attributable to (i) the increase in averageaccounts receivable for FY2019 and (ii) decrease in revenue for FY2019.

The average accounts receivable, retention monies receivables, amounts due from customers forcontract work and contract assets turnover days slightly decreased to approximately 205.2 days forFY2020, which was relatively stable as compared to that of FY2019 of approximately 206.4 days. Ouraverage accounts receivable, retention monies receivables, amounts due from customers for contractwork and contract assets turnover days increased significantly to approximately 298.7 days for 8M2021,mainly due to the decrease in revenue for 8M2021 and the increase in the balance of the unbilledrevenue under contract assets due to the commencement of new projects, Project 19, Project 20, Project21, Project 22, Project 23 and Project 24, during the eight months ended 28 February 2021 but not yetcertified by the relevant customers.


– 189-A –


Retention monies receivables

The table below sets out the breakdown of our net retention monies receivables as at 30 June 2018:

As at30 June

2018

HK$’000

Retention monies receivables 22,468Less: Provision for impairment (1,700)

Retention monies receivables, net 20,768

Notes:

1. Upon the adoption of HKFRS 15 on 1 July 2018, retention monies receivables are included in contractassets on a net basis for a single contract with our customer.

2. As at 30 June 2018, the amounts of our Group’s retention monies receivables expected to be settledafter more than twelve months were approximately HK$14.5 million, based on estimated timelines forcompletion of the contracts to which the retention monies relate. As the amounts are within our Group’snormal operating cycle, the amounts are classified as current assets.

Our net retention monies receivables represented the amounts retained by our customers tosecure our Group’s due performance of the contracts. The terms and conditions in relation to theamounts of retention monies and release of retention monies vary from contract to contract. An amountgenerally range from 5% to 10% of each payment and subject to a ceiling of 2.5% to 5.0% of total contractsum (including variation orders) is usually withheld by our customers as retention monies, and suchretention monies will generally be released to our Group in stages as follows: (1) 50% upon completionof the relevant subcontract works or the main contract works; and (2) the remaining 50% upon expiry ofdefects liability period of the relevant subcontract works or the main contract works.

Our net retention monies receivables as at 30 June 2018 was neither past due nor impaired.


– 189-B –


The movements in the provision for impairment of retention monies receivables during the yearended 30 June 2018 are as follows:

FY2018

HK$’000

At the beginning of year 2,401Impairment loss recognised 1,700Written off as bad debts (2,401)

At the end of year 1,700

Impairment losses on retention monies receivables of approximately HK$2.4 million and HK$1.7million were recognised for FY2017 and FY2018 respectively. Our Directors assessed the recoverabilityof the amounts was in doubt and such amount of approximately HK$2.4 million was fully provided as at30 June 2017. Such amount of approximately HK$2.4 million was written off for FY2018 as there wereno significant progress in the negotiation even our Group resumed our business relationship with thecustomer and our Directors considered that there was no reasonable expectations of recovery. Theimpairment loss recognised during FY2018 was mainly due to there were no significant progress in thenegotiation between our Group and Customer H on the settlement of retention monies receivables andthere was no ongoing business relationship at that point of time. Impairment loss on retention moniesreceivables of approximately HK$1.7 million was therefore recognised for FY2018.

Deposits and prepayments and other receivables

The table below sets out a breakdown of our deposits and prepayments as at the respectiveyear/period end dates:

As at 30 JuneAs at

28 February

2018 2019 2020 2021

HK$’000 HK$’000 HK$’000 HK$’000

Deposits 717 744 827 781Prepayments 45 270 32 2,752Prepaid [REDACTED] – – [REDACTED] [REDACTED]Other receivables – – 566 566

762 1,014 3,739 6,997

Deposits mainly comprise deposits paid for rent of equipments and scaffolds as well as rent ofoffice premises. Our deposits increased by approximately 3.8%, from approximately HK$717,000 as at30 June 2018 to approximately HK$744,000 as at 30 June 2019, primarily due to the increase in depositpaid for the rent of equipment for use in our projects. Our deposits slightly increased to approximatelyHK$0.8 million as at 30 June 2020 and remained stable at approximately HK$0.8 million as at28 February 2021. Our prepayment increased by approximately HK$2.7 million from approximatelyHK$32,000 as at 30 June 2020 to approximately HK$2.8 million as at 28 February 2021, primarily dueto the prepayment paid for the purchase of equipment for use in our projects.

Prepaid [REDACTED] of approximately HK$[REDACTED] and HK$[REDACTED] as at 30 June2020 and 28 February 2021, respectively, represented the deferred expenses incurred in connectionwith the [REDACTED] which are expected to be charged directly to equity upon the completion of the[REDACTED].


– 190-A –


AMOUNTS DUE FROM CUSTOMERS FOR CONTRACT WORK AND CONTRACT ASSETS

Our Group normally submits payment applications to our customers on a monthly basis inaccordance with the value of works which may include variation works, if any.

The level of amounts due from customers for contract work and contract assets as at a givenreporting date is mainly affected by the duration between our submission of interim payment applicationsand receipt of interim payment certificates from our customers. The billing and payment certification forvariation orders would normally take longer as they are usually subject to a process of negotiation. Asa result, such balances vary from period to period.


– 190-B –


(i) Prior to 1 July 2018

The following table sets forth a breakdown of our amounts due from/to customers for contract workas at the dates indicated:

As at30 June

2018

HK$’000

Contracts in progress at the end of the reporting periods:Contract costs incurred plus recognised profits less recognised losses 523,896Less: Progress billing (488,688)

Amounts due from customers for contract work 35,208

Where the contract costs incurred to date plus recognised profits less recognised losses exceedthe progress billings, the surplus is shown as amounts due from customers for contract work. Forcontracts where progress billings exceed contract costs incurred to date plus recognised profits lessrecognised losses, the surplus is shown as amounts due to customers for contract work. Amountsreceived before the related works is performed are included in the consolidated statements of financialposition, as liabilities as advances received from customers. Amounts billed for works performed but notyet paid by our customer are included in the consolidated statements of financial position underaccounts receivable.

(ii) Since 1 July 2018

Upon the adoption of HKFRS 15 since 1 July 2018, amounts due from customers for contract workwere reclassified as contract assets as, while amounts due to customers for contract work werereclassified as contract liabilities. Contract assets represent our Group’s right to consideration inexchange for goods or services that our Group has transferred to a customer that is not yetunconditional. Contract asset is assessed for impairment in accordance with HKFRS 9. Contractliabilities represent our Group’s obligation to transfer goods or services to a customer for which ourGroup has received consideration from the customer.

The movements in the provision for impairment/allowance of amounts due from customers forcontract work/unbilled revenue under contract assets during the years ended 30 June 2018, 2019 and2020 and eight months ended 28 February 2021 are as follows:

Year ended 30 June

Eightmonths

ended28 February

2018 2019 2020 2021

HK$’000 HK$’000 HK$’000 HK$’000

At the beginning of year/period(as previously reported) – 6,043 328 286

Impact on adoption of HKFRS 9 – 636 – –At the beginning of year/period

(as restated) – 6,679 328 286


– 191-A –


Year ended 30 June

Eightmonths

ended28 February

2018 2019 2020 2021

HK$’000 HK$’000 HK$’000 HK$’000

Impairment loss recognised/netallowance for ECL 6,043 (308) (42) (49)

Written off as bad debts – (6,043) – –

At the end of year/period 6,043 328 286 237

After the completion of Project 3, we were in progress to negotiate the final accounts with thecustomer while we were notified by the customer that they did not agree with the actual amount of workdone applied by us based on their remeasurement of our works performed as stated in the draft finalaccounts in July 2018. Accordingly, we made a provision for the impairment on amounts due fromcustomers for contract work of HK$6.0 million for FY2018.


– 191-B –


The following table sets forth a breakdown of our contract assets as at 1 July 2018, 30 June 2019and 2020 and 28 February 2021:

As at1 July

2018

As at30 June

2019

As at30 June

2020

As at28 February

2021

HK$’000 HK$’000 HK$’000 HK$’000(as restated)

Unbilled revenue 41,251 22,468 63,994 124,848Less: Provision for impairment/

allowance for ECL (6,679) (328) (286) (237)

Total Unbilled revenue 34,572 22,140 63,708 124,611

Retention monies receivables 22,468 29,240 31,198 30,164Less: Provision for impairment/


Total retention monies receivables,net 20,393 28,813 31,059 30,107

54,965 50,953 94,767 154,718

The following table sets out our Group’s ageing analysis of unbilled revenue under contract assets,based on the date of its recognition, as at 30 June 2018, 2019, 2020 and 28 February 2021:

As at30 June

2018

As at30 June

2019

As at30 June

2020

As at28 February

2021

HK$’000 HK$’000 HK$’000 HK$’000

1-30 days 17,686 (10,592) 28,128 42,56931-60 days 4,438 12,362 14,722 9,67061-90 days 8,027 4,378 4,202 21,71691-180 days 4,257 1,982 15,584 29,305Over 180 days 6,843 14,338 1,358 21,588Less: Provision for impairment/


Total34,572 22,140 63,708 124,611

Our contract assets decreased by approximately HK$12.4 million from approximately HK$34.6million as at 30 June 2018 to approximately HK$22.1 million as at 30 June 2019 mainly due to thenegative balance of unbilled revenue under contract assets of approximately HK$21.9 million for Project15 which was arisen when progress billings exceeds costs incurred plus recognised profits. As at 30June 2020, our unbilled revenue increased to approximately HK$64.0 million mainly due to (i) the effectof the negative balance of unbilled revenue under contract assets for Project 15 as at 30 June 2019 asmentioned above and (ii) the increase in variation works undertaken by the Group for Project 14, Project15, Project 16 and Project 17 but yet to be certified by the relevant customers. As at 28 February 2021,our unbilled revenue increased to approximately HK$124.6 million mainly due to the commencement ofnew projects, Project 19, Project 20, Project 21, Project 22, Project 23 and Project 24, during the eightmonths ended 28 February 2021 but not yet certified by the relevant customers.


– 192-A –


As at 30 June 2019, the ageing of the unbilled revenue with over 180 days was mainly due tovariation orders undertaken by our Group but yet to be certified by the relevant customers since thepayment certification for variation orders by our customers generally take a longer time than for theoriginal contracts, as the measurement of works done for variation orders presented by us may differfrom the initial instructions given by our customers and reconciliation could be time consuming. OurDirectors consider that the slow progress in certification for unbilled revenue as at 30 June 2020 and28 February 2021 was mainly due to (i) the impact of the COVID-19 pandemic where the projectemployer who adopted various precautionary measures for COVID-19 such as work from home andflexible working hours arrangement so as to minimise the risk of cross infection in the workplace,therefore, the project employer needs a longer time to approve the payment applications of ourcustomers, which in turn, our customers would require a longer time to process our payment applicationsand so do the payment certifications and (ii) the increase in the aggregate variation works for Project 14,Project 15, Project 16 and Project 17 but yet to be certified by the relevant customers as at 30 June 2020which generally take a longer process time as mentioned above.

As at the Latest Practicable Date, approximately HK$41.4 million, or 33.2%, of the unbilled revenueas at 28 February 2021 was subsequently certified, of which HK$25.7 million had been subsequentlysettled.

The following table sets out our Group’s ageing analysis of unbilled revenue under contract assets,based on the date of its recognition, as at 28 February 2021 and their respective amounts which weresubsequently certified and settled as at the Latest Practicable Date:

Unbilled revenueunder contract

assets as at28 February 2021

Amounts whichwere subsequently

certified as atthe Latest

Practicable Date

Amounts whichwere subsequently

settled as atthe Latest

Practicable Date

HK$’000 HK$’000 HK$’000

1-30 days 42,569 2,730 –31-60 days 9,670 2,212 –61-90 days 21,716 10,768 56591-180 days 29,305 14,510 14,061Over 180 days 21,588 11,175 11,094Less: Provision for

impairment/ allowancefor ECL (237) – –

Total 124,611 41,395 25,720

The following table sets out our ageing analysis of net retention monies receivables at each of therespective year end dates:

As at30 June

2019

As at30 June

2020

As at28 February

2021

HK$’000 HK$’000 HK$’000

Neither past due nor impaired 25,047 26,848 27,164Within one year 4,193 4,350 411Over one year – – 2,589Less: Provision for impairment/

allowance for ECL (427) (139) (57)

28,813 31,059 30,107


– 192-B –


The movements in the provision for impairment of retention monies receivables under contractassets during FY2019 and FY2020 are as follows:

FY2019 FY2020

HK$’000

At the beginning of year 1,700 –Written off as bad debts (1,700) –

At the end of year – –

As aforementioned, after the completion of Project 3, we were in progress to negotiate the finalaccounts with the customer while we were notified by the customer that they did not agree with the actualamount of work done applied by us in July 2018 based on their remeasurement of our works performedas stated in the draft final account. Accordingly, impairment losses on retention monies receivables ofapproximately HK$1.7 million were recognised for FY2018, as our Directors assessed the recoverabilityof the amounts was in doubt since FY2018 as aforementioned. Such amounts were fully provided as at30 June 2018 and written off for FY2019.

Our net retention monies receivables increased from approximately HK$20.8 million as at 1 July2018 to approximately HK$29.2 million as at 30 June 2019 and further increased to approximatelyHK$31.2 million as at 30 June 2020. Such increase was mainly due to the accumulation of retentionmonies attributable to our ongoing projects.

The retention monies receivables as at 28 February 2021 that were past due were mainly arisingfrom projects with Customer D, a joint venture of Chun Wo in which the release of the retention monieswas subject to 12 months after completion of works and to the satisfaction of Customer D. The Directorsconsider that the delay in payment of the retention monies receivables was mainly due to the practice ofCustomer D to release the retention monies upon the satisfaction of the project employer, which is agovernment department which is generally subject to more stringent inspection procedures andapproval.


– 192-C –


As at Latest Practicable Date, approximately HK$7.2 million, or 23.9%, of the net retention moniesas at 28 February 2021 was subsequently settled. The net retention monies receivables as at LatestPracticable Date were relating to 11 projects. In view of the nature of retention monies receivables, pastpayment records and our collection experience with these customers, our Directors consider that theoutstanding balances of retention monies receivables are collectible.

The table below sets out the average amounts due from customers for contract work and unbilledrevenue turnover days for the year/period indicated:


Eightmonths

ended28 February

2018 2019 2020 2021

days days days days

Average amounts due fromcustomers for contract work andunbilled revenue turnoverdays(Note) 68.0 41.6 57.2 160.4

Note: For illustration purpose, average amounts due from customers for contract work and unbilled revenueturnover days is equal to the average of the opening and closing balances of net amounts due fromcustomers for contract work and net unbilled revenue under contract assets of the relevant year/perioddivided by revenue of the relevant year/period and multiplied by number of days in the relevantyear/period.

Our average amounts due from customers for contract work and unbilled revenue turnover dayswere approximately 68.0 days, 41.6 days, 57.2 days and 160.4 days for FY2018, FY2019, FY2020 and8M2021 respectively.

The decrease in average amounts due from customers for contract work and unbilled revenueturnover days from approximately 68.0 days for FY2018 to approximately 41.6 days for FY2019 wasmainly attributable to the decrease in closing balance of unbilled revenue under contract assets as at 30June 2019, which was mainly resulted from certain amount of unbilled revenue at 30 June 2018 certifiedduring FY2019.

The increase in average amounts due from customers for contract work and unbilled revenueturnover days from approximately 41.6 days for FY2019 to approximately 57.2 days for FY2020 wasmainly attributable to the increase in closing balance of unbilled revenue under contract assets as at 30June 2020, mainly arising from the increase in aggregate variation orders of Project 14, Project 15,Project 16 and Project 17 but yet to be certified by the relevant customers as at 30 June 2020 since thepayment certification for variation orders by our customers generally take a longer time than for theoriginal contracts, as the measurement of works done for variation orders presented by us may differfrom the initial instructions given by our customers and reconciliation could be time consuming.

The average amounts due from customers for contract work and unbilled revenue turnover daysfurther increased to approximately 160.4 days for 8M2021 mainly due to the increase in our unbilledrevenue mainly due to the commencement of new projects, Project 19, Project 20, Project 21, Project 22,Project 23 and Project 24, during the eight months ended 28 February 2021 but yet to be certified by therelevant customers as at 28 February 2021 while our revenue significantly decreased for 8M2021.


– 193-A –


The table below sets out the average net retention monies receivables turnover days for theyear/period indicated:


Eightmonths

ended28 February

2018 2019 2020 2021

days days days days

Average net retention moniesreceivables turnover days(Note) 23.3 36.1 39.9 52.1

Note: For illustration purpose, average net retention monies receivables turnover days is equal to the averageof the opening and closing balances of net retention monies receivables of the relevant year/perioddivided by revenue of the relevant year/period and multiplied by number of days in the relevantyear/period.

Our average net retention monies receivables turnover days were approximately 23.3 days, 36.1days, 39.9 days and 52.1 days for FY2018, FY2019, FY2020 and 8M2021 respectively. The average netretention monies receivables turnover days increased from approximately 23.3 days for FY2018 toapproximately 36.1 days for FY2019 and further increased to approximately 39.9 days. Such increaseswere mainly attributable to the accumulation of retention monies from our ongoing projects. The averagenet retention monies receivables turnover days further increased to approximately 52.1 days 8M2021mainly due to our revenue significantly decreased for 8M2021.

ACCOUNTS AND OTHER PAYABLES

Our accounts and other payables consisted of (i) accounts payable; (ii) accrued [REDACTED]; and(iii) other payables and accruals. The table below sets out the breakdown of our accounts and otherpayables as at the respective year/period end dates indicated:

As at 30 JuneAs at

28 February

2018 2019 2020 2021

HK$’000 HK$’000 HK$’000 HK$’000

Accounts payable 34,447 44,115 28,863 56,991Accrued [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]Other payables and accruals 1,651 2,004 1,672 3,334

39,483 47,854 37,133 67,108

Accounts payable

Our accounts payable mainly represent payables for subcontracting charges, rental expenses andpurchases of construction materials.

Our accounts payable increased by 28.1%, from approximately HK$34.4 million as at 30 June 2018to approximately HK$44.1 million as at 30 June 2019.


– 193-B –


Our accounts payable decreased by approximately HK$15.3 million, from approximately HK$44.1million as at 30 June 2019 to approximately HK$28.9 million as at 30 June 2020. This is mainly due tothe settlement of certain payables during FY2020. Our accounts payable increased to approximatelyHK$57.0 million as at 28 February 2021. Our suppliers grant us a credit term of generally 30 days. Thefollowing table sets out our ageing analysis of accounts payable based on the invoice date as at therespective year/period end dates:

As at 30 JuneAs at

28 February

2018 2019 2020 2021

HK$’000 HK$’000 HK$’000 HK$’000

1-30 days 21,568 31,306 10,865 25,93431-90 days 999 2,594 1,098 13,30391-180 days 2,282 1,853 2,779 4,381181-365 days 6,557 3,661 10,933 5,543Over 365 days 3,041 4,701 3,188 7,830

34,447 44,115 28,863 56,991

As at the Latest Practicable Date, approximately 60.1% of our accounts payable as at 28 February2021 was subsequently settled.

The table below sets out the accounts payable turnover days for the year/period indicated:


Eightmonths

ended28 February

2018 2019 2020 2021

days days days days

Average accounts payableturnover days(Note) 59.5 70.2 57.8 82.9

Note: Average accounts payable turnover days equal to the average of the opening and closing balances ofaccounts payable of the relevant year/period divided by the total purchase of the relevant year/periodand multiplied by the number of days in the relevant year/period.

As our business is operated on a project-by-project basis and our projects are non-recurring innature, our cost of services mainly includes subcontracting charges, cost of construction materials andrental expenses incurred during the Track Record Period fluctuated subject to the size and progress ofour projects. As such, our accounts payable and accounts payable turnover days as at the respectiveyear/period end dates or during the financial year may be affected.

Our suppliers (including subcontractors) generally grant us a credit period of generally 30 days.Our accounts payable turnover days were 59.5 days, 70.2 days, 57.8 days and 82.9 days for FY2018,FY2019, FY2020 and 8M2021 respectively, which were longer than the credit periods granted by oursuppliers (including subcontractors) mainly due to certain balances with our certain suppliers have notyet been settled as at 30 June 2018, 2019, 2020 and 28 February 2021. Our Directors confirm thatcertain long outstanding accounts payable has not been settled as our Group is negotiating with thesuppliers on the finalisation and settlement of accounts payable and we do not have any materialdisputes with our suppliers or material default in payment of accounts payable.


– 194-A –


Accrued [REDACTED]

The respective balances as at 30 June 2018, 2019, 2020 and 28 February 2021 of approximatelyHK$[REDACTED], HK$[REDACTED], HK$[REDACTED] and HK$[REDACTED] represented theaccrued expenses in relation to the [REDACTED].


– 194-B –


Other payables and accruals

Other payables and accruals mainly comprises accrued salaries and accrued professional servicefees.

Our other payables and accruals increased by 21.4% from approximately HK$1.7 million as at 30June 2018 to approximately HK$2.0 million as at 30 June 2019, primarily attributable to the accrued auditfee which has not yet been settled. As at 30 June 2020, our other payables and accruals decreased toapproximately HK$1.7 million mainly attributable to the decrease of accrued salaries as at 30 June 2020.The other payables and accruals increased to approximately HK$3.3 million as at 28 February 2021.

LIQUIDITY AND CAPITAL RESOURCES

During the Track Record Period, our liquidity requirements primarily relate to our working capitalneeds as our business grow and our principal source of funds were mainly financed by working capitalgenerated internally from our operation and bank borrowings. During the Track Record Period, we didnot experience any material liquidity shortage. Upon the [REDACTED], our Directors expect our liquidityrequirement will be satisfied by our internal resources, [REDACTED] from the [REDACTED] and/orexternal financing.

PRINCIPAL COMPONENTS OF CONSOLIDATED STATEMENTS OF CASH FLOWS

As at 30 June 2018, 2019, 2020 and 28 February 2021, we had cash and cash equivalents ofapproximately HK$4.5 million, HK$2.5 million, HK$15.9 million and HK$3.5 million respectively. Thetable below sets out a summary of our cash flows during the Track Record Period:


Eight months ended

29 February 28 February

2018 2019 2020 2020 2021


Operating profit beforeworking capital changes 26,694 33,431 25,394 20,867 10,787

Change in working capital (31,890) (23,687) (4,898) (13,387) (19,477)Income tax paid (17,164) (5,677) (5,422) (5,015) (4,964)Net cash (used in)/generated

from operating activities (22,360) 4,067 15,074 2,465 (13,654)Net cash generated from

investing activities 11,295 – – – –Net cash generated

from/(used in) financingactivities 9,876 (6,100) (1,631) (147) 1,223

Net (decrease)/increase incash and cash equivalents (1,189) (2,033) 13,433 2,318 (12,431)

Cash and cash equivalents atthe beginning of year/period 5,725 4,536 2,503 2,503 15,946

Cash and cash equivalents atthe end of year/period 4,536 2,503 15,946 4,821 3,515

Net cash used in/generated from operating activities

During the Track Record Period, our cash inflows from operating activities are primarily generatedfrom formwork works and associated reinforcement bar fixing works and/or concreting works forconstruction projects. Our cash outflows for operating activities were primarily related to payment ofsubcontracting charges, purchase of construction materials and rental expenses. Our cash flow fromoperating activities was affected by a number of factors, which include the progress of our worksperformed, settlement of accounts receivable by our customers and settlement of accounts payable byour Group.


– 195 –


For FY2018, we had net cash used in operating activities of approximately HK$22.4 million, whichwas primarily attributable to our operating profit before working capital changes of approximatelyHK$26.7 million, as adjusted by income tax paid of approximately HK$17.2 million and utilisation ofworking capital of approximately HK$31.9 million, mainly attributable to the increase in accountsreceivable of approximately HK$53.6 million and partly offset by decrease in amounts due fromcustomers for contract work of approximately HK$25.4 million. The increase in accounts receivable wasmainly attributable to the increase in accounts receivable of approximately HK$39.9 million in aggregaterelated to Project 4 and Project 8 (the two largest projects in terms of revenue recognized duringFY2018) with total original contract sum of approximately HK$210.2 million, as majority of our workswere performed and certified during FY2018. The decrease in amounts due from customers for contractwork in Project 1 of approximately HK$28.6 million as our works completed in previous year werecertified in the final account settled during FY2018.

For FY2019, we had net cash generated from operating activities of approximately HK$4.1 million,which was primarily attributable to our operating profit before working capital changes of approximatelyHK$33.4 million, as adjusted by income tax paid of approximately HK$5.7 million and utilisation ofworking capital of approximately HK$23.7 million, mainly attributable to the increase in accountsreceivable of approximately HK$36.1 million and partly offset by decrease in contract assets ofapproximately HK$4.3 million and increase in accounts and other payables of approximately HK$8.4million. The increase in accounts receivable was mainly attributable to the net increase in accountsreceivable of approximately HK$36.1 million related to increase in accounts receivable by Project 15 andProject 8 of approximately HK$48.6 million in aggregate, in which the largest and third largest projectsin term of revenue recognized during FY2019, as majority of our works were performed during FY2019and partially offset by decrease in accounts receivable of Project 4 of approximately HK$15.5 million, asworks performed in FY2019 was less than in the FY2018.

For FY2020, we had net cash generated from operating activities of approximately HK$15.1million, which was primarily attributable to our operating profit before working capital changes ofapproximately HK$25.4 million and utilisation of working capital of approximately HK$4.9 millionprimarily comprising of the increase in contract assets of approximately HK$43.5 million and decreasein accounts and other payables of approximately HK$7.8 million for net settlement to our creditors, offsetby decrease in accounts and other receivables of approximately HK$46.4 million. The net increase incontract assets of approximately HK$43.5 million was mainly attributable to an increase of unbilledrevenue from Project 15 of approximately HK$50.8 million due to works performed that had not beencertified as at 30 June 2020. The decrease in accounts receivable of approximately HK$49.1 million wasmainly attributable to net collection from our customers of Project 8, Project 11 and Project 15 in FY2020.

For 8M2021, we had net cash used in operating activities of approximately HK$13.7 million, whichwas primarily attributable to our operating profit before working capital changes of approximatelyHK$10.8 million and utilisation of working capital of approximately HK$19.5 million primarily comprisingof the increase in contract assets of approximately HK$60.3 million and partly offset by the increase inaccounts and other payables of approximately HK$30.8 million and the decrease in accounts and otherreceivables of approximately HK$10.0 million. The net increase in contract assets was mainlyattributable to the increase in our unbilled revenue as a result of the commencement of new projects,Project 19, Project 20, Project 21, Project 22, Project 23 and Project 24, during the eight months ended28 February 2021 but yet to be certified by the relevant customers as at 28 February 2021.

Our Group has implemented the following measures to improve and monitor our cash flow position:

– obtaining different competitive quotations before each project commencement for betterbudget cost control;

– reviewing the project budget cost on a regular basis;

– maintaining receivables and payables ageing schedules including but not limited to theoutstanding amounts, invoices due dates and overdue days for monitoring the ageing status;

– following up the outstanding matters related to the aged accounts receivable and accountspayable on a monthly basis; and

– discussing the project status including the settlement status of accounts receivable andaccounts payable and follow-up action for cash flow management on a quarterly basis.


– 196-A –


Based on the above internal control measures adopted by our Group in May 2020, the SoleSponsor is of the view that the internal control measures on liquidity and cash flow management,particularly on the settlement of accounts receivable and payable during the Track Record Period iseffective.

Net cash generated from in investing activities

For FY2018, we had net cash generated from investing activities of approximately HK$11.3 million,which was primarily attributable to repayments from our Directors of approximately HK$12.2 million, ofwhich partially offset by the advances to our Directors of approximately HK$0.9 million.

For FY2019, FY2020 and 8M2021, cash was neither generated from nor used in investingactivities.

Net cash generated from/used in financing activities

For FY2018, we had net cash generated from financing activities of approximately HK$9.9 million,which was primarily attributable to proceeds from bank borrowings of approximately HK$17.2 million,which was partially offset by repayment of bank borrowings of approximately HK$7.1 million.

For FY2019, we had net cash used in financing activities of approximately HK$6.1 million, whichwas mainly due to repayment of bank borrowings of approximately HK$17.1 million, of which partiallyoffset by proceeds from bank borrowings of approximately HK$11.4 million.

For FY2020, we had net cash used in financing activities of approximately HK$1.6 million, whichwas mainly attributable to net repayment of bank borrowings of approximately HK$1.0 million.

For 8M2021, we had net cash generated from financing activities of approximately HK$1.2 million,which was mainly attributable to proceeds of bank borrowings of approximately HK$4.5 million andpartially offset by repayment of bank borrowings of approximately HK$2.7 million.


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Sufficiency of working capital

Our Directors confirm that, after due and careful enquiry and taking into consideration the financialresources presently available to us, including our cash flow generated from our operating activities,external financing and the estimated [REDACTED] from the [REDACTED], our Group has sufficientworking capital for our present requirements and for the next 12 months commencing from the date ofthis document.

INDEBTEDNESS

As at 31 March 2021, being the latest practicable date for the purpose of determining ourindebtedness, our Group had the following indebtedness. The following table also shows our Group’sindebtedness as at the respective reporting dates:

As at 30 JuneAs at

28 FebruaryAs at

31 March

2018 2019 2020 2021 2021


Current liabilitiesBank borrowings 10,083 4,310 3,365 5,111 4,320Lease liabilities – – 410 31 –

Total 10,083 4,310 3,775 5,142 4,320

As at 31 March 2021, save as disclosed in this sub-section headed “Indebtedness”, we did not haveany other outstanding mortgages, charges, pledges, debentures, loan capital, bank loans andoverdrafts, debt securities or other similar indebtedness, finance leases or hire purchase commitments,liabilities under acceptances (other than normal trade bills) or acceptance credits, guarantees or anymaterial contingent liabilities.

As at 31 March 2021 and up to the Latest Practicable Date, our Group did not have any unutilisedbanking facilities. The utilised banking facilities were secured by personal guarantees from Mr. Chan andMr. Leung, our Controlling Shareholders, and Mr. Lok Kam Wah, a director of Houng Kee (Asia). OurDirectors expect the guarantees will be released prior to the [REDACTED].

Our Directors confirm that we had neither experienced any difficulties on repaying, nor breachedany major covenant or restriction of our bank loans or other bank facilities during the Track RecordPeriod. As at 31 March 2021, there were no material covenants relating our outstanding debts that wouldmaterially limit our ability to undertake additional debt or [REDACTED]. Our Directors confirm that therehas not been any material changes in our indebtedness or contingent liabilities since 31 March 2021 andup to the date of this document. Our Directors confirm that as at 31 March 2021, we did not have anyimmediate plan for additional material external debt financing.

Contingent liabilities

As at 31 March 2021 and up to the Latest Practicable Date, we had no contingent liabilities and arenot a party to any litigation that is likely to have a material adverse effect on our business, results ofoperations or financial condition. Our Directors confirm that there was no material change in ourcontingent liabilities since 31 March 2021 and up to the Latest Practicable Date.


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OFF-BALANCE SHEET ARRANGEMENTS

Saved for disclosed in this document, as at 31 March 2021, being the latest date for the purpose ofdetermining our indebtedness, our Directors confirm that our Group have not entered into any materialoff-balance sheet commitments or arrangements.

CAPITAL EXPENDITURES

Our capital expenditures incurred amounted to approximately HK$6,000, nil, nil and nil for FY2018,FY2019, FY2020 and 8M2021, respectively, which primarily consisted of the purchase of property, plantand equipment.

CAPITAL AND LEASE COMMITMENTS

Capital commitments

As at 30 June 2018, 2019, 2020 and 28 February 2021 and as at 31 March 2021, being the latestdate for the purpose of determining our indebtedness, we did not have any material capitalcommitments.

Operating Lease Commitments

The total future minimum lease payments under non-cancellable operating leases in respect ofoffice premises are as follows:–

As at 30 June

2018 2019

HK$’000 HK$’000

Within one year 329 579In the second and fifth years, inclusive – 415

329 994

Our Group leases an office premises during Track Record Period under an operating lease. Thelease runs for an initial period of two years and does not include contingent rentals.

The operating lease commitments as at 30 June 2020 and 28 February 2021 are not set out aboveas these were recognised as lease liabilities upon the adoption of HKFRS 16.

PROPERTY INTERESTS AND PROPERTY VALUATION

As at 30 June 2018, 2019, 2020 and 28 February 2021, our Group did not own any properties.Please refer to the section headed “Business – Properties” in this document for further details.


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RELATED PARTY TRANSACTIONS

During the Track Record Period, we entered into certain related party transactions with ourControlling Shareholders, the details of which are set out in note 25 to the Accountants’ Report set outin Appendix I to this document.

In addition, Mr. Chan provided personal guarantees to our main contractors for project liabilities,the details of which are set out in note 25 to the Accountants’ Report set out in Appendix I to thisdocument. Our Group has received confirmations from the counterparties that they agree to release allthese personal guarantees prior to the [REDACTED].

[REDACTED]

Assuming the [REDACTED] is not exercised and assuming the [REDACTED] of HK$[REDACTED]per [REDACTED], being the mid-point of the indicative range of the [REDACTED] stated in thisdocument, the total [REDACTED], which are non-recurrent in nature, are expected to be approximatelyHK$[REDACTED]. The total [REDACTED] of approximately HK$[REDACTED] represented (i)[REDACTED] of approximately HK$[REDACTED] in relation to the previous [REDACTED] dated 7 May2018 on the Main Board of the Stock Exchange and (ii) estimated [REDACTED] of approximatelyHK$[REDACTED] (based on the mid-point of the indicative [REDACTED] range of HK$[REDACTED]per [REDACTED]) in relation to the [REDACTED], which represented approximately [REDACTED]% ofthe [REDACTED] from the [REDACTED].

Out of the HK$[REDACTED], approximately HK$[REDACTED] of our estimated [REDACTED] isdirectly attributable to the issue of the [REDACTED] and is to be accounted for as a deduction fromequity in accordance with the relevant accounting standard. The remaining amount of approximatelyHK$[33.0] million has been or will be reflected in the consolidated statements of comprehensive incomeof our Group. [REDACTED] of approximately HK$[REDACTED], HK$[REDACTED], HK$[REDACTED]and HK$[REDACTED] in relation to services already performed by relevant parties, were reflected in ourconsolidated statements of comprehensive income for FY2018, FY2019, FY2020 and 8M2021,respectively, and approximately HK$[REDACTED] of additional [REDACTED] are expected to berecognised in the consolidated statements of comprehensive income of our Group subsequent to theTrack Record Period.

The [REDACTED] stated above are our current estimation for reference purposes and the actualamount to be recognised is subject to adjustments based on audit and the then changes in variables andassumptions. Accordingly, prospective [REDACTED] should note that the financial performance of ourGroup for the year ending 30 June 2021 may be adversely affected by the [REDACTED] mentionedabove.


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SELECTED FINANCIAL RATIOS DISCUSSION

The table below sets out certain key financial ratios of our Group during the Track Record Period:

As at/for the year ended 30 June

As at/for theeight months

ended28 February

2018 2019 2020 2021

Return on total assets(Note 1) (%) 12.0 17.2 13.5 N/A(9)

Return on equity(Note 2) (%) 20.3 26.6 18.3 N/A(9)

Net profit margin(Note 3) (%) 5.8 11.1 8.5 6.5Current ratio(Note 4) (times) 2.4 2.8 3.8 2.9Quick ratio(Note 5) (times) 2.4 2.8 3.8 2.9Gearing ratio(Note 6) (%) 12.9 4.2 2.7 3.8Net debt-to-equity ratio(Note 7) (%) 7.1 1.7 Net cash 1.2Interest coverage(Note 8) (times) 100.5 104.1 217.5 76.9

Notes:

1. Return on total assets equals to profit for the year/period divided by the closing balance of total assetsand multiplied by 100%.

2. Return on equity equals to profit for the year/period divided by the closing balance of total equity andmultiplied by 100%.

3. Net profit margin equals to profit for the year/period divided by revenue for the year/period and multipliedby 100%.

4. Current ratio equals to total current assets divided by total current liabilities as at the year/period end.

5. Quick ratio equals to total current assets less inventories divided by total current liabilities as at theyear/period end.

6. Gearing ratio equals to total debt divided by total equity as at the year/period end and multiplied by100%. Total debt includes interest-bearing borrowings.

7. Net debt-to-equity ratio equals to net debt divided by total equity as at the year/period end and multipliedby 100%. Net debt includes bank borrowings, net of cash and bank balances.

8. Interest coverage is calculated by the profit before interest and income tax divided by the interest for theyear/period.

9. Such ratio is not applicable as the eight months net profit is not comparable to historical annual figures.


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Return on total assets

Our return on assets increased from approximately 12.0% for FY2018 to approximately 17.2% forFY2019. The higher return on assets for FY2019 was mainly due to the fact that the rate of increase innet profit exceeded the rate of increase in total assets. Our return on total assets decreased toapproximately 13.5% primarily attributable to the decrease of net profit for FY2020 mainly due todecrease in gross profit margin for FY2020 and increase in [REDACTED] of approximatelyHK$[REDACTED].

Return on equity

Our return on equity was approximately 20.3% and 26.6% for FY2018 and FY2019, respectively.The increase in our return on equity during FY2018 and FY2019 was mainly attributable to the rate ofincrease in net profit exceeded the rate of increase in shareholder’s equity. Our return on equitydecreased to approximately 18.3% primarily attributable to the decrease of net profit for FY2020 mainlydue to decrease in gross profit margin for FY2020 and increase in [REDACTED] of approximatelyHK$[REDACTED].

Net profit margin

Our net profit margin was approximately 5.8% and 11.1% for FY2018 and FY2019, respectively.The increase in our margins for FY2019 were primarily attributable to the decrease in our [REDACTED]incurred of approximately HK$[REDACTED] for FY2019. Our net profit margin decreased toapproximately 8.5% for FY2020. Such decrease was mainly due to the decrease in gross profit marginfor FY2020 and allowance for expected credit losses on accounts receivable incurred during FY2020.Our net profit margin decreased to approximately 6.5% for 8M2021. Such decrease was mainly due tothe decrease in gross profit margin for 8M2021.

Current ratio and quick ratio

Our current ratio was approximately 2.4 times and 2.8 times as at 30 June 2018 and 2019respectively. Our gradual increase in our current ratio reflects our improvement in our net current assetsposition mainly attributable to our net profits generated throughout the Track Record Period. Our currentratio increased to approximately 3.8 times as at 30 June 2020, mainly due to the increase in currentassets brought by the increase in cash and bank balances of approximately HK$13.4 million anddecrease in our bank borrowings of approximately HK$0.9 million. Our current ratio decreased toapproximately 2.9 times as at 28 February 2021 because the percentage of increase in current liabilitiesoutweighed the percentage of increase in current assets. As we did not hold any inventory, our quickratio was the same as our current ratio.

Gearing ratio

Our gearing ratio was approximately 12.9%, 4.2%, 2.7% and 3.8% as at 30 June 2018, 2019, 2020and 28 February 2021 respectively. The decrease in gearing ratio as at 30 June 2019 and 2020 was dueto our increase in total equity resulting from our increase in reserves that was due to our net profitgenerated for FY2019 and FY2020, whilst we reduced our bank borrowings using cash generating fromoperations.


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Net debt-to-equity ratio

Similar to the reason leading to our improvement of gearing ratios discussed above, our netdebt-to-equity ratio decreased from approximately 7.1% as at 30 June 2018 to approximately 1.7% as at30 June 2019, and our net debt-to-equity ratio as at 30 June 2020 was in net cash position. As at 28February 2021, our net debt-to-equity ratio increased to approximately 1.2% due to the decrease in ourcash and bank balances as at 28 February 2021.

Interest coverage

Our interest coverage increased from approximately 100.5 times for FY2018 to approximately104.1 times for FY2019. Such increase was mainly due to the increase in profit before interest andincome tax outweighing the increase in finance cost for FY2019. Our interest coverage further increasedto approximately 217.5 times mainly due to the decrease in finance cost outweighing the decrease inprofit before interest and income tax. Our interest coverage further decreased to approximately 76.9times mainly due to the decrease in profit before interest and income tax for 8M2021.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Our Group is exposed to various types of market risks in the ordinary course of its business,including interest rate risk, credit risk and liquidity risk. Our Group’s overall risk management programmefocuses on the unpredictability of financial markets and seeks to minimise potential adverse impact onour Group’s performance. Our Group’s financial risk management policy seeks to ensure that adequateresources are available to manage the above risks and to add value for our Group. During the TrackRecord Period and up to the Latest Practicable Date, our Group has not entered into any financialinstruments for hedging purpose.

For further details, please refer to Note 26 to the Accountants’ Report as set out in Appendix I to thisdocument.

DIVIDENDS

We declared dividends of approximately HK$14.2 million on 6 October 2017. As at the LatestPracticable Date, such declared dividends have been fully settled. No dividend has been paid ordeclared by our Group in FY2019, FY2020 and 8M2021.

We do not have any dividend policy. The declaration and payment of any future dividends after the[REDACTED] will depend on a number of factors, including our financial conditions, results of operation,level of cash, statutory and regulatory restrictions in relation thereto, future prospects, and other factorsthat our Directors may consider relevant. There can be no assurance that we will be able to declare ordistribute any dividend. Our historical dividend distribution record may not be used as a reference orbasis to determine the level of dividends that may be declared or paid by us in the future. Dividends maybe paid only out of our Company’s distributable reserves as permitted under the relevant laws.

DISTRIBUTABLE RESERVES

Our Company was incorporated in the Cayman Islands on 29 August 2017. As at 28 February 2021,the aggregate amount of distributable reserves available for distribution to our Shareholders wasapproximately HK$35.7 million.


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EVENTS AFTER THE TRACK RECORD PERIOD

Our Directors confirm that, save as disclosed in this document, there was no other significant eventrelevant to the business or financial performance of our Group that came to the attention of the Directorsafter the Track Record Period and up to the Latest Practicable Date.

[REDACTED] ADJUSTED NET TANGIBLE ASSETS

Please refer to the paragraph headed “A. [REDACTED] statement of adjusted net tangible assets”set out in Appendix II to this document for details.

DISCLOSURE REQUIRED UNDER RULES 17.15 TO 17.21 OF THE GEM LISTING RULES

Except as disclosed otherwise in this document, our Directors confirm that as at the LatestPracticable Date, they were not aware of any circumstances that would give rise to a disclosurerequirement under Rules 17.15 to 17.21 of the GEM Listing Rules.

FOR THE YEAR ENDING 30 JUNE 2021

We have prepared the following profit forecast for the year ending 30 June 2021.

[REDACTED] attributable to owners of ourCompany(1)

Not less than HK$[REDACTED]

Unaudited pro forma [REDACTED](2) Not less than HK$[REDACTED]

Notes:

1. The bases and assumptions on which the above profit forecast for the year ending 30 June 2021 havebeen prepared are summarized in the “Profit Forecast” in Appendix III to this document. Our forecastconsolidated profit attributable to owners of our Company for the year ending 30 June 2021, for whichour Directors are solely responsible, has been prepared by them based on (i) the audited consolidatedfinancial information of our Group for 8M2021 as set out in the Accountants’ Report in Appendix I to thisdocument; (ii) the unaudited consolidated results based on management accounts of our Group for theone month ended 31 March 2021; and (iii) a forecast of the consolidated results of our Group for theremaining three months ending 30 June 2021 taking into account the estimated total [REDACTED] ofapproximate HK$[REDACTED] for the year ending 30 June 2021, in the absence of unforeseencircumstances, and in particular the resurgence of the outbreak of COVID-19 in Hong Kong. Theforecast has been prepared on the basis of the accounting policies consistent in all material respectswith those currently adopted by our Group as summarised in the “Accountants’ Report” as set out inAppendix I to this document.

2. The calculation of the unaudited pro forma [REDACTED] for the year ending 30 June 2021 is based onthe forecast consolidated profit attributable to owners of our Company for the year ending 30 June 2021,assuming the [REDACTED] had been completed on 28 February 2021 and a total of [REDACTED]Shares were in issue during the entire year, taking no account of any Shares which may be issued uponthe exercise of the [REDACTED].


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MATERIAL ADVERSE CHANGE

The impact of the [REDACTED] on the profit and loss accounts has posted a material adversechange in the financial and trading position or prospect of our Group since 28 February 2021 (being thedate of our latest audited consolidated financial statements) and thus our results of operations for theyear ending 30 June 2021 would be adversely affected. Among the estimated total [REDACTED] ofHK$[REDACTED] (based on the mid-point of the indicative [REDACTED] range of HK$[REDACTED]per [REDACTED] and assuming the [REDACTED] is not exercised), approximately HK$[REDACTED] isexpected to be charged to the profit or loss for the eight months ending 30 June 2021. Please refer to theparagraph headed “[REDACTED]” in this section for further information.

Save as disclosed above and the disclosure in the paragraph headed “Summary – RecentDevelopment” in this document, our Directors confirm that since 28 February 2021, being the date of thelatest audited consolidated financial statements of our Group, and up to the Latest Practicable Date,there has been no material adverse change in our financial or trading position or prospects. OurDirectors also confirm that there has been no event since 28 February 2021 which would materially affectthe information shown in the Accountants’ Report in Appendix I to this document.


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HIP21050004e Project Omega Re-AP

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Transcript of HIP21050004e Project Omega Re-AP