Zhongzheng International Company Limited

Income statement

EPS note: FY2026 and FY2025 are restated basic EPS from [FY26P]; the FY2025 figure was restated for the rights issue. FY2024 is from [AR25], adjusted for the share consolidation. FY2022–FY2023 EPS are S&P-adjusted and approximate. No dilutive instruments were outstanding.

Margin profile (%)

Revenue CAGR FY2022–FY2026: about -15.7% a year (70.43 vs 139.33 over 4 years; derived; distorted by the 18-month FY2022 base). FY2023's HK$872.9M spike reflected one-off PRC property handovers, which were later discontinued.

Commentary on the income statement.

FY2023 was the only profitable year: It was driven by PRC property sales; S&P records about HK$251M of "other unusual items" and a HK$167M tax charge.

FY2024 was the crisis year: Discontinued property operations lost HK$777.9M. Within the group, impairments in FY2024 included:

• associate Chengde Jinyu written down by HK$288.8M;

• a HK$68.2M write-down on the amount due from Chengde Jinyu;

• property write-downs of HK$196.4M;

• HK$65.9M on other receivables.

• FY2025–FY2026: the continuing loss run-rate settled at HK$86–95M a year. But its composition changed:

  • Associate losses (Pacific Memory impairments) and the coal write-down account for HK$58.7M of the FY2026 loss.

  • The core OEM business's operating loss is about HK$14M.

  • Central costs plus shareholder-loan interest (HK$10.8M) make up the rest.

  • Non-recurring gains cushioned FY2026 by HK$16.5M: HK$9.59M debt-capitalisation gain, HK$2.25M PP&E disposal gain and HK$4.66M bargain purchase.

• Underlying operating profitability is worse than the headline loss narrowing suggests.

Balance sheet

Sources: FY2025–FY2026 [FY26P][AR25]; FY2022–FY2024 [S&P/SA] and [AR25]. In FY2022–FY2024 the "interest in associates" line is S&P "long-term investments".

Balance-sheet commentary.

• The July 2024 property disposal removed about HK$1.04bn of borrowings and HK$1.21bn of property inventory.

• The 2025 recapitalisation then:

  • converted HK$100.9M of shareholder loans and interest to equity;

  • raised HK$112.0M in cash; and

  • with the Dongguan property sale, retired all secured bank debt.

• At 30 June 2026 the only material debt is HK$218.7M of unsecured shareholder loans from Mr. Lim, due 31 December 2027. There is also HK$8.5M of other short-term loans, including HK$2.8M borrowed from the CFO, and HK$12.7M of accrued loan interest within payables.

• Reported gearing (debt to equity) fell from 1,168.5% (FY2024) to 137.4% (FY2025) to 48.2% (FY2026).

• The equity base depends on one asset: the Pacific Memory stake. In FY2025 the auditor identified its impairment test as a key audit matter.

Cash flow

Cash-flow notes:

• The FY2026 cash-flow statement is not included in the preliminary announcement; full statements will be in the annual report due by 31 October 2026.

• Operating cash flow by year is not publicly disclosed in the sources reviewed.

• Capex figures are segment non-current asset additions excluding acquisitions.

• No share repurchases were made in FY2025 or FY2026.

Ratios

Ratio notes:

• Ratios are derived from the tables above; FY2024–FY2026 gearing is the company definition.

• ROIC is not meaningful given persistent operating losses.

• Cash conversion cycle cannot be computed reliably: inventory was nil at 30 June 2026 after the shift to subcontracting, and cost-of-sales detail is incomplete. Trade receivables were HK$9.1M (about 47 days of revenue) and trade payables HK$5.2M at 30 June 2026.

Ratio commentary.

Liquidity has been repaired: The current ratio went from 0.47 to 2.67, helped by HK$94.5M cash and HK$19.2M in wealth products.

Solvency now hinges on one creditor: The shareholder-loan maturity in December 2027 effectively sits with director Lim Kim Chai, who has extended it before (in July 2024).

Return metrics remain deeply negative and structural: The asset base is about 72% an associate that generates no revenue. Asset turnover is below 0.1x.

Management guidance

Healthcare & household: Management is "highly cautious" for FY2027, citing tariffs, US sourcing relocation and copper-driven material costs. The asset-light transformation is to complete around Q4 CY2026.

Beauty & wellness: Expected to become a new driver of revenue and profit.

Coal: Exit on completion of the BMS sale.

Overall: No numeric guidance; no consensus estimates exist.

Bull case

1. Cleaner group, real cash. After the coal exit, the group is OEM plus SaaS plus one associate, with about HK$114M of liquid assets, no bank debt, and an EV/Sales ratio that falls toward about 4.5x on pro-forma revenue of about HK$95.6M (derived).

2. SaaS mix shift. A full year of Elise (implied revenue of about HK$26M, profitable and taxed at 15%) could take group revenue back toward HK$90–100M and move the mix toward recurring subscription income.

3. Book value discount. At about 0.69x P/B, the market prices a deep discount to stated equity. Any Pacific Memory capital partnership or land monetisation could close it.

Bear case

1. The core business is in structural decline. OEM revenue is down 40% in one year, the anchor customer is leaving, and the remaining top customer (Customer B, HK$34.9M) is half of group revenue.

2. Book value is suspect. About 72% of book value sits in an undeveloped Malaysian associate that has needed HK$200M+ of cumulative property impairments at the associate level over FY2025–FY2026. Further write-downs would erode equity.

3. Governance and audit quality. Persistent audit qualifications, connected-party transactions, a single creditor-director, missed use-of-proceeds milestones and serial dilution (shares up about 3.2x in 12 months) argue for a governance discount.

Catalysts and monitorables (next 12 months)

• Publication of the Annual Report 2025/26 (due by 31 October 2026), including the cash-flow statement and director pay detail. Also the AGM date and resolutions.

• Completion of the coal disposal, and the resulting removal of the last live audit qualification.

• Completion of the Fairform subcontracting transition; Customer B retention; new European and Middle East orders.

• Elise Beauty's first full half-year: 1H FY2027 interim results, due by about end-February 2027.

• Pacific Memory: new impairment tests, developer or investor deals, and Malaysian construction-cost trends.

• Any extension, refinancing or capitalisation of the HK$218.7M shareholder loan ahead of December 2027.

• Further equity issuance or acquisitions under the general mandate.

• Disclosure of current substantial-shareholder stakes after the 2025–26 share issuances.

Analyst verdict

Zhongzheng International is no longer the company its name suggests, nor the eForce OEM of its past. It is a restructuring vehicle that has completed the hardest part of its balance-sheet triage:

• the PRC property exit (July 2024);

• debt-to-equity conversion and a HK$112M rights issue (July–August 2025);

• monetisation of its Dongguan factory and repayment of all bank debt (by June 2026); and

• an agreed exit from Indonesian coal (August 2026).

The result is a materially de-risked capital structure. The current ratio is 2.67, gearing is 48%, and the only significant debt is unsecured and owed to a director.

The operating picture remains weak, however. Fairform's revenue fell 40% to HK$69.1M as its anchor US customer relocated sourcing. The segment still lost HK$14.3M, and its transformation to subcontracted production carries execution and customer-approval risk. The Elise Beauty acquisition is strategically logical and was acquired below fair-valued net assets. But it is small: implied annual revenue is about HK$26M, and it does not yet prove the "industry enablement platform" ambition.

The decisive variable for equity holders is not operations but Pacific Memory. The 35% Malaysian associate carries HK$541.5M — more than the company's entire market value. It earns no revenue and has absorbed successive cost-driven impairments. The stock's 0.69x price-to-book ratio is best read as the market's scepticism about that carrying value, compounded by:

• a six-item qualified audit opinion;

• connected-party dealings;

• missed use-of-proceeds milestones; and

• a share count that roughly tripled in a year.

Verdict: a speculative, event-driven special situation, not an investment-grade operating story. Upside requires:

1. visible stabilisation of Fairform after its transformation;

2. Elise delivering profitable growth; and

3. a credible monetisation path for Pacific Memory.

Absent these, continued losses and further dilution are the base case. Investors should treat stated book value with caution and watch the December 2027 shareholder-loan maturity closely.