Solomon Systech (International) Ltd.

Sources: FY2024–FY2025 from the FY2025 Annual Results Announcement (audited); FY2021–FY2023 from company results releases and S&P Global Market Intelligence data (StockAnalysis.com). Operating income uses the S&P definition (gross profit less R&D, S&D, G&A; excluding other income, FX and finance income). Where company-defined figures differ, both are shown.

Income statement: notes and sources

Notes: FY2021 and FY2022 EPS computed from net income and ~2.49 billion shares (FY2022 release cites equivalent of HK 8.6 cents, consistent with ~1.1 US cents). FY2021 DPS is the 1.0 HK cent final dividend converted at ~7.8. FY2025 company-reported "profit before finance income" was US$0.07M (FY2024: US$5.98M), which includes other income (FY2025: US$2.54M including a one-off US$2.0M collaboration-agreement amendment receipt and US$0.76M government grants). Craft.co reports FY2025 gross profit of US$38.4M, which conflicts with the audited US$32.65M; the audited figure is used. EBITDA differs materially between S&P and Craft owing to treatment of other income and interest; neither is company-reported.

Margins (%)

Revenue CAGR FY2021–FY2025: −13.7% per annum (US$168.1M → US$93.3M). From the FY2022 peak (US$190.8M), revenue has fallen 51% in three years.

Half-year income trend

Derived figures: 2H values computed as full-year less 1H; 1H2024 R&D derived from 1H2025 R&D of US$9.9M being +24.3% YoY. The half-year view reveals that profitability had already collapsed to break-even in 2H 2025 (net profit ≈US$0.03M) before the 1H 2026 loss — the gross-margin peak of 39.6% in 1H 2025 benefited from a US$2.2M inventory-provision reversal.

Balance sheet: notes and sources

Notes: FY2021–FY2022 "cash incl. deposits" derived from S&P cash plus other current assets (pledged/time deposits); FY2023–FY2025 company-reported "bank deposits and cash." At 30 June 2026: total assets US$164.1M, cash and equivalents US$108.0M, pledged deposits US$2.5M, inventories US$14.0M, equity US$139.2M, working capital US$129.9M, lease liabilities US$1.8M, no bank borrowings.

Cash flow: notes and sources

Source: S&P Global Market Intelligence via StockAnalysis.com; FY2023–FY2024 OCF corroborated by company (US$37.8M and US$20.0M). Note that S&P classifies interest income (~US$4M) within investing activities, depressing reported OCF relative to an "interest-in-operations" presentation. 1H 2026 capex was only US$0.12M (vs US$1.84M in 1H 2025), indicating capex retrenchment.

Key ratios

Ratios computed by analyst from the figures above (year-end balances). ROIC is not meaningful: invested capital (equity + debt − cash) has been negative or near zero since FY2023 because cash exceeds operating capital; on an operating-asset basis (equity less net cash ≈US$40M in FY2025), FY2025 after-tax operating return was negative. Net debt/EBITDA is negative throughout (net cash) and not meaningful for FY2025 given negative S&P EBITDA; FY2021–FY2024 values were −0.9x, −1.5x, −4.9x and −16.3x respectively.

Commentary on trends, inflections and drivers

Revenue: a three-year contraction driven by price, not volume. Shipments have been comparatively resilient — 395.7M units (FY2021), 312.9M (FY2022), ~335.9M (FY2023, derived from the −12.7% FY2024 decline), 293.2M (FY2024), and ~342M (FY2025, +16.7%). Implied blended ASP has fallen from ~US$0.61/unit in FY2022 to ~US$0.27/unit in FY2025 — a 55% erosion. Two forces explain this: mix (the collapse of higher-ASP mobile/game-controller and large-panel revenue and the rise of low-ASP ESL drivers) and like-for-like price competition (the FY2025 announcement attributes the revenue decline mainly to a "drop in average selling price"). FY2025 is the clearest example: shipments +16.7%, revenue −17.8%.

Gross margin: resilient through FY2025, broken in 2026. Margin troughed at 30.3% in FY2023 (destocking, inventory provisions; FY2022 carried a ~US$12M obsolete-inventory provision), recovered to 33.5% (FY2024) and 35.0% (FY2025) — the latter flattered by US$2.3M of net inventory-provision reversals (FY2024: US$4.0M). The inflection came in 2H 2025 (≈30.6%) and 1H 2026 (27.4%) as AI-driven foundry utilisation raised wafer prices and gold prices increased packaging costs. Management explicitly states production costs will remain "relatively high" in 2H 2026.

Operating leverage has turned negative. R&D rose from US$17.8M (FY2023) to US$21.5M (FY2025) and 23.4% of revenue in 1H 2026, while revenue fell. On the S&P definition, the core business has been operating-loss-making since FY2025; reported profits in FY2025 relied on ~US$4.1M interest income and US$2.5M other income (including the one-off US$2.0M). Without interest income and the one-off, FY2025 would have been a pre-tax loss of roughly US$2M.

Balance sheet: fortress, but working capital re-inflating. Cash rose from US$24.8M (FY2021) to US$104–108M; the Group has no bank debt. However, DSO jumped to 91 days in FY2025 (receivables from related parties rose from US$7.7M to US$13.8M), and inventory days rose to 110 as inventories increased to US$18.3M before falling to US$14.0M in 1H 2026. Free cash flow turned negative (−US$3.8M) in FY2025.

Interest income is a material and declining earnings pillar. Interest income of US$4.1M in FY2024 and FY2025 fell to US$1.6M in 1H 2026 (vs US$2.2M), as rates eased — removing a cushion that had masked operating losses.

Management guidance (21 August 2026)

• Revenue and operating performance expected to improve gradually in 2H 2026 as new products launch and projects enter mass production; Q2 2026 was already significantly better than Q1 2026.

• Production costs to remain relatively high in 2H 2026; product prices to be adjusted to supply/demand.

• Medium/long-term wafer agreements to stabilise supply from 2H 2026.

• New revenue sources: seven-colour ESL, Gallery 3 e-notebooks, AIO mono e-reader IC, E6/Spectra™ 6 signage; HUD mini-LED LoD solution launched in 2H 2026; Prism™ 3 and GOA projects progressing.

• No quantitative guidance; no consensus available.

Bull case

1. Valuation floor and optionality: the stock trades at ≈0.78x net cash and ≈0.61x book; even zero value for the operating business implies upside, and the CEC parent could pursue a privatisation or asset injection (unconfirmed, speculative).

2. E-paper product cycle: seven-colour ESLs (higher margin per management), Spectra™ 6 signage and e-readers could restore New Display growth, as FY2025 shipments (+40%) showed latent volume demand.

3. Operating leverage on recovery: with R&D at 23% of revenue and costs being cut (headcount −12% in 1H 2026; capex near zero), modest revenue recovery and normalising wafer costs could return gross margin toward the 35–40% range seen in FY2025/1H 2025.

Bear case

1. Structural margin compression: AI-driven foundry demand is not cyclical noise; a small fabless player with weak bargaining power may face 27–30% gross margins for an extended period, leaving the core business loss-making.

2. Cash value erosion: losses (US$4.0M in 1H 2026), falling interest income and negative FCF gradually consume the cash cushion, while minority holders have no dividend and little influence over capital allocation.

3. Concentration and execution: a single customer at ~50% of revenue plus a record of slipping launches means any loss of share at that customer or further delays could drive another leg down in revenue.

Key catalysts and monitorables (next 12 months)

Analyst verdict

Solomon Systech enters late 2026 as a company whose balance sheet is worth more than its share price but whose operating franchise is under genuine strain. The audited record is unambiguous: revenue has fallen for four consecutive years from US$190.8 million to US$93.3 million, implied blended ASPs have more than halved, and the business has moved from a 13.6% operating margin in FY2022 to operating losses, with FY2025 profit sustained only by interest income and a one-off US$2.0 million receipt. The first-half 2026 loss of US$4.0 million and a 27.4% gross margin confirm that the AI-driven repricing of foundry capacity is hitting small display-driver designers disproportionately.

Against this, the company retains real assets: undisputed leadership in PMOLED drivers, a leading position in ESL drivers tied to E Ink's colour roadmap, approximately 680 patents, and about US$110 million of cash with no bank debt. The pipeline for 2H 2026 — seven-colour ESLs, Spectra™ 6 signage, colour e-notebooks, a mono e-reader AIO chip and first automotive products — is the most substantive in years, and Mainland China revenue is already responding (+166% in 1H 2026).

The investment case therefore hinges less on near-term earnings than on two questions: whether new e-paper products can lift gross margin back above ~33% despite elevated wafer costs, and whether the CEC-aligned board will deploy the excess cash in a way that benefits minority shareholders. Persistent launch slippage, 50% customer concentration and lengthening receivable ageing argue for caution. On balance, the stock screens as a deep-value, catalyst-dependent special situation: downside is cushioned by net cash, but the cash is being slowly consumed, and absent evidence of margin recovery in the FY2026 results (March 2027) or a capital-return/strategic action, the discount to net cash is likely to persist.