Elite Client Idea #6

Sundart Holdings Limited (HKEX ticker: 1568; Price HK$ 0.38)

[A financially strong cigar-butt thrown out with Chinese property distress]

Sundart (‘company’) is one of the leading integrated fitting-out contractors in Hong Kong (HK). It provides these services to residential and commercial buildings, and hotels; in HK (28% of latest six-month revenues), Macau (23%), and mainland China (49%).

The business was impacted by covid-related lockdowns in all three markets. The gross value of construction work decreased in HK, tourism/gambling revenues were down in Macau, and normal economic growth slowed in mainland China. All of this directly affected demand for interior fitting-out services.

The company reported TTM revenues of HK$ 5.3b (FY20: $5.9b), ebitda of $388.5m (FY20: $546.5m), and net profits of $311.7m (FY20: $406.5m).

Latest six-month revenues ($2b) were down 17%, and net profits ($96m) were down 38% over the prior period. This included a $21.5m impairment charge on receivables (Prior period: $3.4m).

The balance sheet (as at June 30th) was strong with net cash of nearly $1.3b and a net current asset value of $2.5b. This largely comprised receivables of $2.8b and contract assets of $1.2b. Receivables over 60 days (credit period) amounted to only $422m.

The equity is currently selling for $820m, which is one-third of net current asset value and 2.6x depressed ttm earnings.

The key question is the collectability of receivables and contract assets. While cash balances were down $527m since December 31st, receivables and contract assets were actually lower – which doesn’t indicate a significant problem with revenue collections. The cash decline appears to be a result of payable reductions and dividend payments ($151m).

Moreover, the company appears to partner with a diverse group of reputable HK developers on relatively high-value contracts (>$50m). There doesn’t appear to be significant credit risk.

As for prospects, the company currently has 65 projects in hand with $6b in outstanding work. The HK government appears committed to increase the housing supply, and the Macau government is intent on developing its tourism/leisure industry via events/festivals. All of this should bode well for fitting-out services.

Furthermore, the company intends to partner with well-known HK developers in high-end projects for malls, commercial buildings, and hotels in mainland China.

Management paid dividends exceeding $150m in the last two years, which yields 18% at market.

Considering the above track record, financial position, and prospects - the current price appears very cheap for the equity – and the investor is paid handsomely while invested.

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Update (originally published Aug 20, 2022)

Sundart was a net‑cash fitting‑out contractor priced for China property‑driven bad‑debt fears. The key bet was that receivables/contract assets would prove largely collectible and that post‑COVID activity would normalise. Since then, the stock has roughly doubled (HK$0.38 → ~HK$0.8 in early Feb 2026).

On the fundamentals, FY24 revenue was HK$6.0bn and profit attributable to owners was HK$320.8m; year‑end cash and cash equivalents rose to HK$1.70bn. The order book remained sizeable, with outstanding works of HK$6.69bn at Dec‑2024 and HK$6.83bn at Jun‑2025, and projects on hand rising from 196 to 206 across Hong Kong, Macau, Singapore and the PRC.

The latest interim period (1H25) was softer: revenue down 17.5% YoY to HK$2.28bn and profit attributable to owners down 19% to HK$135m.

Even so, the main return drivers were (1) balance‑sheet de‑risking becoming evident in reported results and (2) capital returns, including a one‑off special dividend of HK$0.14 per share paid in June 2025.

What hasn’t gone away is PRC settlement timing: the company continues to flag delayed collections in mainland projects.