Hong Kong's foundation engineering industry has shifted from cyclical fluctuation to structural contraction. In 2025, the nominal total value of private site works completed by major contractors fell 16.9% year-on-year, and the first quarter of 2026 continued with a 15.9% year-on-year decline. The Construction Industry Council forecasts that the total value of private works in 2026/27 will be about HK$90 billion, down 43% from the 2018 peak. Although the government's annual capital works investment of about HK$120 billion provides some support, it is difficult to fully offset the contraction in private demand. At the same time, labor shortages are driving up subcontracting and construction costs, and cost rigidity is especially prominent in labor-intensive segments such as foundation engineering, keeping the industry's gross margin center on a downward trend. The overlap of shrinking demand and rigid costs is simultaneously narrowing the profit buffer and capital operation space of small and medium-sized contractors, and is also making the listing arrangements of such companies more pragmatic. At this point, Hong Kong foundation engineering contractor Haina Construction (Advance JV Group Limited, referred to as "Haina Construction") publicly submitted an F-1 prospectus to the U.S. SEC, planning to issue 2.5 million ordinary shares at US$1.5 to US$2 per share, with total fundraising expected to be about US$5 million based on the upper end of the offering price range.
Gross Margin Rises Against the Trend
The prospectus shows that Haina Construction's operating entity is Hong Kong Haina Construction Limited, which was renamed in 2021 and focused on the foundation engineering track. Its core business revolves around the entire foundation engineering chain: pile foundations, foundation pit support, foundation reinforcement, site clearance and earthwork allocation, as well as supporting geological drilling and geotechnical investigation. The company holds three types of specialized contractor licenses issued by the Hong Kong Buildings Department for foundation construction, site investigation, and site formation, and has also obtained registration qualifications from the Construction Industry Council. Its upstream customers are mostly general contractors and subcontractors of Hong Kong building and infrastructure projects, while end owners are mainly government departments and public institutions, with some small and medium-sized private projects. This is a typical Hong Kong local niche subcontractor. Its competitiveness lies in its construction management experience in the narrow working spaces of Hong Kong's high-density urban areas, as well as its ability to flexibly switch between public works and private projects. This positioning determines the ceiling of its revenue scale: even in the best years, annual revenue is only in the tens of millions of dollars range. According to financial data for the six months ended November 30, 2025 (the interim period of fiscal year 2025/26), the company fell into a predicament of "slightly lower revenue and halved net profit"; however, a deeper breakdown of the income statement structure shows that the profitability of its core main business has not deteriorated, and gross margin has even expanded against the trend. During the reporting period, the company recorded contract revenue of US$5.6357 million, down 10.3% from US$6.2858 million in the same period last year. This decline is consistent with the macro trend of continued shrinkage in Hong Kong private site works volume. What is noteworthy is the sudden change in revenue structure. In the same period of 2024, the company's contract revenue from related parties was as high as US$694,600, while in the same period of 2025 this indicator directly fell to zero. Excluding related-party contributions, the company's revenue from independent third parties increased slightly from US$5.5912 million to US$5.6357 million, a slight year-on-year increase of 0.8%. On the one hand, this shows that after losing related-party business support, the company still maintained a stable base in the external market; on the other hand, against the backdrop of a rapidly shrinking overall industry pie, the lack of breakthroughs in new incremental markets means the revenue ceiling has already appeared. Despite revenue pressure, Haina Construction's performance in the upper half of the income statement is still notable. During the reporting period, the cost of contract revenue fell sharply from US$5.0769 million to US$4.3686 million, a decrease of 14.0%, faster than the decline in revenue. Driven by this, the company achieved gross profit of US$1.2671 million, a year-on-year increase of 4.8%; more importantly, gross margin climbed against the trend from 19.2% in the same period last year to 22.5%. At a time when labor shortages are driving up industry subcontracting and construction costs, the company's gross margin rose instead of falling, reflecting two positive operating signals: first, the company has become more restrained in project selection and has abandoned low-margin projects won by "bleeding for orders"; second, subcontractor management and internal cost control, such as material procurement and optimization of construction efficiency, have achieved substantive results. This shows that Haina Construction's cost moat in its niche track still exists. The biggest turning point in financial performance appeared on the operating expense side. During the reporting period, the company's general and administrative expenses (G&A) surged from US$321,500 in the same period last year to US$816,100, a year-on-year increase of 153.8%. Dragged down by this, the company's operating profit shrank sharply from US$887,400 to US$451,000, nearly halved. In terms of non-operating income and expenses, the company faces certain pressure. During the reporting period, interest expense was US$69,800, up 11.2% year-on-year. Against the backdrop of the Federal Reserve's high interest rate environment and high local financing costs in Hong Kong, asset-heavy, long-cycle projects such as foundation engineering occupy working capital heavily, and the rigid rise in interest expense directly erodes thin operating profit. In addition, other expenses, net, rose 21.4% year-on-year to US$30,300. Affected by the above factors combined, the company's income before income tax fell 51.2% year-on-year to US$420,800, and the income tax provision correspondingly decreased from US$117,400 to US$50,700. Ultimately, net profit was US$370,100, down 50.3% from US$745,100 in the same period last year, and net margin narrowed from 11.9% to 6.6%.
New Business "Surprise Force" Comes to the Rescue
Although gross margin rose against the trend, from a two-way breakdown of revenue and costs, Haina Construction's traditional core business is encountering significant headwinds. Fortunately, however, newly added business changed the company's revenue profile in a very short time. As the company's long-standing absolute base, revenue from foundation engineering services — fixed-price contracts — fell sharply from US$6.2845 million in the same period last year to US$4.8785 million, a significant year-on-year decline of 22.4%. On the cost side, the cost of this business dropped from US$5.0760 million to US$3.9620 million, a decrease of 21.9%. This data directly reflects the macro reality of shrinking demand for private site works in Hong Kong. Under the fixed lump-sum model, contractors must bear all risks of construction delays and raw material price fluctuations. At a time of labor shortages and rigid costs, Haina Construction has clearly taken the initiative to give up some fixed-price orders with heavy funding pressure, thin profits, or even loss risks, in order to avoid the cash flow trap of "taking orders and courting death." Against the backdrop of a sharp contraction in fixed-price contracts, the company added basic engineering services — unit-price contract business, recording revenue of US$370,700 and costs of US$319,200 during the period. Unit-price contracts, usually settled according to actual engineering quantities, can effectively avoid the risk of fluctuations in material and labor costs and transfer part of the cost overrun pressure to the client. Although the initial scale is not large, this marks a pragmatic step forward in the company's risk exposure management. The most eye-catching change came from basic engineering consulting services. Revenue in this segment exploded from only US$1,283 in the same period last year to US$386,500, an increase of more than 30,000%. It was precisely this US$370,000 increase in unit-price contracts, combined with the US$380,000 increase in consulting, that forcibly kept the decline in the company's total revenue at a less ugly level. The previous analysis noted that Haina Construction's overall gross margin climbed against the trend from 19.2% to 22.5% during the period. Combined with the business breakdown data, this was due to the subsidy from high-margin new businesses. During the period, the fixed-price contract business, which accounted for the absolute majority, did not see its gross margin improve, but instead slipped slightly from 19.2% to 18.8%; the gross profit it contributed fell sharply from US$1.2085 million to US$916,500. This shows that in an environment where overall industry engineering unit prices are under pressure, even an established subcontractor like Haina Construction has seen its bargaining power in traditional construction segments squeezed, and its absolute profit space is thinning. The company's overall gross margin was able to jump 3.3 percentage points to 22.5%, entirely due to the astonishing 77.4% gross margin of basic engineering consulting services. This business contributed US$299,100 in gross profit with less than 7% of total revenue, accounting for 23.6% of the company's total gross profit of US$1.2671 million. Consulting services are a typical asset-light, high-barrier business that does not involve heavy machinery scheduling or heavy labor dependence, and has extremely low marginal costs. By extending its business chain upstream to investigation, design, and project management consulting, Haina Construction not only earns high added value, but also effectively hedges the risk of profit erosion on the construction side. Based on the above breakdown, Haina Construction's future growth space no longer depends on how many "piling" jobs it can take, but on the depth and breadth of its business structure transformation. In the Hong Kong and U.S. stock markets, pure construction subcontractors usually receive very low price-to-earnings ratios, while valuations for engineering consulting and design companies are significantly more favorable. If Haina Construction can continue to expand its consulting services segment, it will reshape its valuation logic. However, leaping from US$1,283 to US$380,000 can be seen as "breaking the ice," but moving from US$380,000 to the millions-of-dollars level will require strong cross-disciplinary team building and external market expansion capabilities. In the short term, the base of this business is too small to support the company in achieving leapfrog development. In summary, Haina Construction's interim business performance demonstrates the survival wisdom of a small and medium-sized regional construction company at the bottom of the cycle: using high-margin consulting business to fill the gap in traditional construction revenue, and using flexible unit-price contracts to hedge fixed-price risks. Its future growth space depends on whether it can solidify its unexpectedly surging consulting business into normalized capability.
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