Pegasus International Holdings Limited

All figures US$'000, audited, HKFRS, from FY2022, FY2024 and FY2025 annual results announcements (FY2023 figures as presented as comparatives in FY2024 AR Ann.). Operating income (EBIT) is analyst-derived as profit before tax plus finance costs. EBITDA adds depreciation of PPE and right-of-use assets (note 4).

Per-share data

No dilutive instruments exist (FY2025 AR Ann. note 7). DPS: FY2022 interim 1 HK cent; FY2023 interim 1 + final 1 HK cent; FY2024 final 1 HK cent only; FY2025 nil. 1H2026 interim of 1 HK cent declared (1H26 Ann.).

Margins and growth

Gross margins are management-reported for FY2021–FY2025 and match analyst calculation.

Commentary — income statement. Three forces explain the five-year arc. First, mix: as low-margin OEM footwear shrank and high-margin rent became dominant, gross margin rose from 31.8% (FY2021) to 62.1% (FY2024). Second, revaluation: investment-property fair-value changes swung from +US$561k (FY2022) to -US$4,390k (FY2025), and these non-cash marks determined the sign of net profit in three of five years. Stripping them out, EBIT was positive in FY2022–FY2024 (US$0.9–1.3m) and only turned negative in FY2025 (-US$0.9m) once the anchor tenant left. Third, a sticky cost base: G&A has stayed in a US$2.6–3.1m range regardless of revenue, so it consumed 105% of FY2025 revenue. 1H2026 G&A of US$2,002k was 19% higher than 1H2025, an adverse inflection given flat-to-lower revenue. The FY2025 tax credit (US$1,097k) arises from deferred-tax release on the fair-value decline, cushioning the reported loss.

Balance sheet

Goodwill and intangibles: none recognised on the face of the balance sheet in any year. FY2022 balances are as originally reported in the FY2022 announcement.

Latest interim balance sheet (30 June 2026, unaudited, US$'000): investment properties 59,217; PPE 20,784; ROU 1,736; total non-current assets 81,876; current assets 14,017 (cash 7,424; pledged deposits 2,912; time deposits 146; FVTPL 1,374; receivables 2,161); current liabilities 4,400 (including bank borrowings 2,412, now all due within one year); deferred tax 15,280; total equity 75,495; total assets 95,893. Equity rose by US$2.07m in 1H2026 mainly due to a US$2.24m RMB translation gain (1H26 Ann.).

Commentary — balance sheet. The Group is asset-rich and cash-adequate relative to its size. Property (investment properties plus PPE) represents ~83% of total assets. Equity has eroded from US$79.6m to US$73.4m over four years — US$6.2m — through cumulative losses, ~US$3.8m of dividends paid FY2022–FY2025, and FX translation, partly offset by building revaluation gains. The FY2025 bank loan (US$2.58m at 3%) is fully collateralised by a pledged deposit of greater value; this looks like an RMB/HKD/US$ currency-matching or relationship-banking arrangement rather than a funding need, but note that it moved entirely into current liabilities by 30 June 2026, lowering the current ratio to 3.2x. The deferred tax liability of ~US$15m (largely on revaluation surpluses) is a material item for any NAV-based valuation: it would crystallise only on disposal.

Cash flow

Capex: MD&A states no capex on plant and machinery in FY2022 and FY2024, no material capex in FY2023, and US$109k in FY2025; FY2021 capex not captured. Dividends paid are the amounts recognised as distributions (FY2022, FY2024, FY2025 AR Ann. note 6). No buybacks in any year (each announcement confirms no purchase, sale or redemption of listed shares). The 2023 profit warning stated year-end FY2023 cash was expected to be ~15% above FY2022, consistent with the reported 14.8% increase.

Commentary — cash. Cash has been remarkably stable at US$7.9–9.9m despite the revenue decline, because (i) the leasing business is cash-generative before G&A, (ii) footwear working capital was released as inventory ran down from US$1.37m to nil, and (iii) capex is minimal. However, after FY2024 the combination of lower rent, the US$943k annual dividend and flat G&A has begun to draw down cash (FY2025: -US$0.72m; 1H2026: -US$0.51m excluding the pledged deposit).

Ratios

All analyst-derived except current ratio (management-reported, matches calculation). FY2021 ROE/ROA/asset turnover use closing rather than average balances. Net debt/EBITDA is n.m. (net cash every year). Interest coverage is n.m. in loss years and shown for completeness. Invested capital = equity + bank debt + leases − cash − time and pledged deposits.

Commentary — ratios. Returns have never exceeded ~2% on equity in the post-pivot era, even in the best year; the asset base (~US$94m) is far larger than the income it produces (net rent ~US$2.2–4.0m). The deterioration in DSO to 120–136 days in FY2024–FY2025 is a warning signal: operating-lease receivables of US$1,674k gross at end-FY2025 were entirely more than 60 days overdue, prompting a US$700k credit-loss allowance — tenants are paying slowly. At 30 June 2026, US$1,027k of US$1,341k trade receivables were again more than 60 days old.

Management guidance

No quantitative guidance. Qualitatively, management expects the export environment to remain extremely severe in 2026, footwear production stays suspended pending a one-to-two-year review, and the leasing business will be supported by two new Q2 2026 tenancies contributing from 2H2026, ongoing negotiations for factory units, dormitories and vacant land, and strict cost control (FY2025 AR Ann.; 1H26 Ann.).

Consensus

None available.

Bull case

1. Asset backing exceeds what the market implies for the risk: the share price (~HK$1.00) sits near adjusted NAV (~HK$0.97 before deferred tax) with ~HK$0.10/share of net cash, so investors buy >340,000 sqm of GBA industrial property with no leverage.

2. Leasing trough may be in: FY2025's 40% rent decline traces to one tenant; two new leases in Q2 2026 and active pipeline could lift rent back toward the FY2022–FY2024 US$4.2–4.4m level, at which the business was EBIT-positive before valuation changes.

3. Shareholder-friendly controlling family: dividends were paid even in loss-making FY2024, and the interim dividend was reinstated in August 2026, indicating confidence in liquidity and a possible path to privatisation or asset realisation.

Bear case

1. Structural decline, not a trough: revenue has fallen 72% since FY2022, and 1H2026 leasing revenue still slipped 5.2% YoY while G&A rose 19%; the cost base is unsustainable at current rent.

2. Valuation risk on PRC industrial property: US$7.9m of cumulative fair-value losses over three years, a 4.5% gross yield on book value, and rising receivable arrears suggest book values could fall further — eroding the NAV argument.

3. Governance and liquidity discount: ~64% family control, 3 of 8 independent directors, thin trading, no coverage, and limited operational disclosure (no occupancy or lease-expiry data) justify a persistent discount to NAV for minority holders.

Catalysts and monitorables (next 12 months)

Analyst verdict

Pegasus International is no longer a footwear company in any economic sense. It is a family-controlled holding company whose value lies almost entirely in one industrial estate in Nansha, Guangzhou, plus roughly US$11 million of cash, deposits and securities. The financial record since the 2020 pivot shows that the estate, when well-let, produces net rent of around US$4 million a year at very high margins — but that this has never been enough to earn more than a low-single-digit return on ~US$75 million of equity, because the asset base is large, the corporate cost base is sticky, and valuations of PRC industrial property have been sliding.

FY2025 exposed the fragility of the model: losing a single tenant cut revenue by 40%, receivables aged badly, and a US$4.4 million valuation loss pushed the Group to its deepest post-pivot loss. The 1H2026 results show stabilisation rather than recovery: the loss narrowed to US$171k, two new tenancies were signed, and the interim dividend returned, but rent still edged down and overheads rose.

For a minority investor, the stock is best framed as an illiquid NAV play rather than an earnings story. At ~HK$1.00, the shares trade at about 1.2x reported book and close to book value before deferred tax. That is not a deep discount for a single-asset, family-controlled, thinly traded entity exposed to a weak PRC industrial-property market. The upside case requires either a demonstrable re-letting of the estate toward FY2022–FY2024 rental levels with G&A held flat, or a corporate event (asset sale, redevelopment partnership, or privatisation) that crystallises property value.

Absent such evidence, the balance of risks — valuation drift, tenant credit stress, cost rigidity, and governance and liquidity discounts — argues for a cautious stance. The next two catalysts that matter most are FY2026 leasing revenue and the year-end property valuation, both due around March 2027.

• Year-end employee headcount for FY2021, FY2022, FY2024, FY2025

• Per-director remuneration detail and full biographies for four directors

• Occupancy rate, rent per sqm, lease expiry profile, property valuer and valuation methodology

• Peer financial benchmarks (left blank rather than estimated)

• Exact dates of the c. 2016–2020 restructuring / distribution-in-specie / lapsed sale agreement episode

• FY2024–FY2025 ESG metrics; third-party ESG ratings

• Live share price (aggregator snapshots vary between HK$0.90 and HK$1.00)