20-F: SU Group Reports FY2025 Net Loss Amid Rising Costs

SU Group Holdings Limited reported a net loss of HK$18.5 million for the fiscal year ended September 30, 2025, despite a 5.6% increase in revenues, driven by higher operating costs and a significant decline in gross profit margins.

Summary

• Revenues increased by 5.6% to HK$192.4 million (US$24.7 million) for the fiscal year ended September 30, 2025, up from HK$182.2 million in FY2024.
• Cost of revenues rose by 20.1% to HK$161.6 million (US$20.8 million) in FY2025, compared to HK$134.6 million in FY2024.
• Gross profit decreased by 35.4% to HK$30.7 million (US$4.0 million) in FY2025, down from HK$47.6 million in FY2024.
• Gross profit margin declined significantly from 26.1% in FY2024 to 16.0% in FY2025.
• Selling, general and administrative expenses increased by 35.2% to HK$48.7 million (US$6.2 million) in FY2025, primarily due to a provision for credit loss, increased employee benefits, and higher advertising expenses.
• The company recorded a net loss of HK$18.5 million (US$2.4 million) in FY2025, a substantial shift from a net income of HK$10.7 million in FY2024.
• Net cash used in operating activities was HK$15.5 million (US$2.0 million) in FY2025, compared to net cash provided of HK$14.1 million in FY2024.
• Material weaknesses were identified in internal control over financial reporting, including a lack of accounting staff with U.S. GAAP knowledge, absence of a formal risk assessment process, and insufficient IT general controls.
• The company regained compliance with Nasdaq's minimum bid price and publicly held shares requirements in October 2025 after receiving delisting notices.
• A proposed public offering of up to 6,000,000 Units, each consisting of one pre-funded warrant and two common warrants, was filed in November 2025 and became effective on December 30, 2025.

Sentiment

Score: 3

Explanation: The company experienced a significant decline in profitability, moving from net income to a substantial net loss, coupled with a sharp drop in gross profit margins and increased operating expenses. While revenues grew and Nasdaq compliance was regained, the overall financial performance for FY2025 is concerning, indicating operational challenges and increased costs. The proposed capital raise suggests a need for additional funding, potentially to address these issues or fund future growth amidst a weaker financial position.

Positives

• Revenues increased by 5.6% to HK$192.4 million in FY2025, indicating continued business growth.
• The company successfully regained compliance with Nasdaq's minimum bid price and publicly held shares requirements in October 2025, avoiding delisting.
• Net cash provided by financing activities was HK$25.2 million in FY2024, primarily from the initial public offering, strengthening the capital base.
• The company has a diversified service portfolio including security-related engineering, security guarding, screening, and vocational training services.
• Shine Union is an exclusive distributor for two brands of threat detection systems and has a strong track record with over two decades of industry experience.

Negatives

• The company reported a significant net loss of HK$18.5 million (US$2.4 million) in FY2025, a sharp decline from a net income of HK$10.7 million in FY2024.
• Gross profit decreased substantially by 35.4% in FY2025, with the gross profit margin falling from 26.1% to 16.0%.
• The decrease in gross profit margin was attributed to higher use of subcontracting services in engineering projects and increased labor costs due to rising minimum wage and salary adjustments in security guarding services.
• Selling, general and administrative expenses increased significantly by 35.2% in FY2025, contributing to the overall loss.
• Net cash used in operating activities was HK$15.5 million in FY2025, indicating that core operations are consuming cash.
• Losses on disposal of property and equipment increased by 215.6% to HK$2.0 million in FY2025, mainly due to X-ray machines disposed upon termination of rental agreements.
• The company identified material weaknesses in its internal control over financial reporting, which could affect financial reporting reliability and fraud prevention.

Risks

• Potential political, economic, and social instability in Hong Kong could significantly impact business and profitability.
• Uncertainties and restrictions from the PRC government, including potential direct influence over Hong Kong operations, could materially affect business and share value.
• The future development of national security laws in Hong Kong could trigger sanctions and economic harm.
• Uncertainties in the interpretation and enforcement of PRC laws and regulations, which can change with little notice, could limit legal protections.
• Recent government interference by the PRC into U.S.-listed Chinese companies may negatively impact operations and securities value.
• Exposure to data protection laws and regulations in Hong Kong, with non-compliance potentially leading to adverse effects.
• Hong Kong subsidiaries may face restrictions on paying dividends or other payments to the holding company, affecting liquidity and dividend distribution to shareholders.
• Dividends and gains on share sales by foreign investors may become subject to PRC tax if the company is deemed a PRC resident enterprise.
• Class A ordinary shares may be prohibited from trading on U.S. exchanges if the auditor is not inspected by the PCAOB for two consecutive years under the HFCA Act.
• Heavy reliance on recurring customers, with any decrease or loss of business from them adversely affecting results.
• Inability to accurately estimate risks, work progress, revenues, or costs in contracts could lead to lower profits or losses.
• Adverse effects on reputation and business from material interruptions with suppliers or quality issues with outsourced security systems.
• Loss, expiry, withdrawal, or failure to obtain/renew registrations, approvals, licenses, and certifications could materially affect operations.
• Dependence on approved lists of contractors/suppliers for Hong Kong government departments, with removal adversely affecting business.
• Exposure to claims from latent defects caused by subcontractors, potentially impacting reputation and financial results.
• Labor shortages or increases in labor costs could harm business, reduce profitability, and slow growth, especially for labor-intensive security services.
• Significant deviation in payment collection patterns from estimates could adversely affect cash flows and working capital.
• Heavy dependence on major suppliers, with any shortage or delay in supply significantly impacting business.
• Restrictions or obligations imposed by suppliers, with non-compliance adversely affecting relationships.
• Increase in security systems costs may adversely affect operations and financial performance if not passed on to customers.
• Corporate structure with multiple service segments exposes the company to risks relating to different industries and management challenges.
• Short operating history in security guarding, screening, and vocational training services may lead to difficulties in management and integration.
• Failure to maintain an effective quality assurance system could harm reputation and business.
• Risks related to work safety and occurrences of accidents, potentially leading to disputes, legal proceedings, and significant liabilities.
• Inability to attract and retain talented employees, particularly skilled screeners and engineers.
• Security breaches, theft, or damage to properties/personnel secured by the company could adversely affect business and reputation.
• Inability to collect payments from customers, leading to impairment losses on receivables.
• Uncertainty in terms of engagement for urgent security systems maintenance services provided based on verbal agreements.
• Allegations, complaints, or negative publicity from customers and third parties could damage reputation.
• Participation in government projects may draw adverse public attention and be subject to budget/policy changes.
• Failure to meet contract requirements or quality standards could result in damages and additional costs.
• Business operations are sensitive to local conditions and changes in Hong Kong, including economic, social, political, and force majeure events.
• Outbreaks of communicable diseases could have a material adverse effect on business.
• Reliance on one-off government grants in the past, which may not recur in the future.
• Exposure to credit risks of suppliers due to deposits or prepayments without collateral.
• Adverse developments in the financial services industry could affect liquidity.
• Inadequate insurance coverage or increasing insurance costs could adversely affect financial performance.
• Inability to successfully implement future plans due to unforeseen factors or increased costs without corresponding revenue growth.
• Inability to obtain additional funding to expand business.
• Fluctuations in foreign exchange rates may materially and adversely affect business.
• Operating results may fluctuate significantly due to various factors beyond control.
• Trading price of Class A ordinary shares may be volatile, leading to substantial losses for investors.
• An active trading market for Class A ordinary shares may not continue.
• As a controlled company under Nasdaq rules, the company may exempt itself from certain corporate governance requirements, potentially affecting public shareholders.
• Concentrated ownership by directors and officers (98.9% of total voting power) limits other shareholders' influence.
• As a Cayman Islands exempted company, the company may follow home country corporate governance practices that differ from Nasdaq standards, affording less protection to shareholders.
• Reliance on price appreciation for return on investment, as no dividends are expected.
• Dual-class share structure with different voting rights limits influence and may affect value/liquidity.
• Nasdaq may apply additional and more stringent criteria for continued listing due to small public offering and large insider holdings.
• Extreme volatility in stock price unrelated to underlying performance.
• Lack of research or adverse changes in recommendations by securities analysts could cause price/volume decline.
• Classification as a passive foreign investment company (PFIC) could have adverse U.S. federal income tax consequences for U.S. taxpayers.
• Anti-takeover provisions in memorandum and articles of association could adversely affect shareholder rights.
• Difficulties in enforcing U.S. judgments against the company or its directors/officers due to incorporation under Cayman Islands law and assets/personnel outside the U.S.
• Shareholders may be unable to present proposals before annual or extraordinary general meetings.
• Economic Substance Legislation in the Cayman Islands may impact the company.
• As an emerging growth company, the company may take advantage of reduced reporting requirements, potentially making financial statements less comparable.
• As a foreign private issuer, the company is exempt from certain U.S. securities rules, providing less extensive and timely information to investors.
• Significant costs and management time required as a public reporting company, especially after ceasing to be an emerging growth company.
• Potential delisting from Nasdaq if unable to meet listing requirements.

Future Outlook

The company intends to retain all available funds and future earnings for business operation and expansion, not anticipating declaring or paying any dividends in the foreseeable future. It plans to continue expanding its related vocational training services. The company believes its current cash and anticipated cash flows from operating and financing activities will be sufficient to meet working capital and capital expenditures for the next 12 months and beyond. However, the company acknowledges that its future business plans may be hindered by factors such as competition and the ability to obtain additional funding.

Management Comments

• Our directors are of the view that we are not likely to be in breach of the PDPO and the PDPAO, for the following reasons: (i) using our products and services do not require providing users personal information and (ii) we possess a minimum amount of personal information, if any, in our business operations.
• Our directors confirm that the outbreak of COVID-19 has not resulted in any material adverse impact on our business operations and financial performance up to September 30, 2025.
• We believe that our current insurance policies provide sufficient coverage of the risks to which we may be exposed to and are in line with the industry norm.
• Management believes it is more likely than not that the deferred tax assets will be realized.

Industry Context

The company operates in the competitive security-related engineering, security guarding, screening, and vocational training industries in Hong Kong. The demand for its services is influenced by economic activities, government policies (e.g., Smart City initiatives, CAD policies for air cargo screening), and the need for flexible deployment of human resources in labor-intensive security services. Competition is significant, with moderate entry barriers and a permit/license system. The company differentiates itself through a comprehensive range of security system solutions, established reputation, and access to skilled professionals.

Comparison to Industry Standards

• The company's employee turnover rate for full-time security guarding and screening services employees (37.5% in FY2025) is noted as 'relatively high' but 'the nature of the security guarding and screening industry in Hong Kong,' implying it is within industry norms for this specific segment.
• The company's insurance coverage is considered 'customary for businesses of our size and type and in line with the standard commercial practice in the jurisdiction(s) where we operate,' suggesting adherence to local benchmarks.
• The company's gross profit margin of 16.0% in FY2025, a significant decrease from 26.1% in FY2024, suggests underperformance relative to its own recent history and potentially industry peers, although no specific comparable companies or projects are detailed in the filing for direct comparison.
• The shift from net income to a net loss in FY2025 indicates a performance below typical expectations for a growing company, especially when compared to its own prior year's profitability.

Corporate Governance

Legal Proceedings

• As of January 16, 2026, there were no litigation, arbitration, or claims outstanding, pending, or threatened by third parties against the company that would have a material adverse effect on its results of operations or financial condition.

Related Party Transactions

• The Group leases workshop and warehouse properties from Mr. Chan Ming Dave (founder, ultimate shareholder) and Ms. Yam Fung Yee Carrie (founder's family member) at a total monthly rent of HK$33,000, with annual rental expenses of HK$396,000 for the period ending September 30, 2025.
• Mr. Chan Ming Dave made capital contributions of HK$4,961,320 in FY2023 and HK$762,688 in FY2024 to the company; no capital contributions were made in FY2025.
• Mr. Chan Ming Dave and Ms. Yam Fung Yee Carrie provided guarantees for the banking facilities of a subsidiary as of September 30, 2024, but no guarantee was provided by related parties as of September 30, 2025.

Stakeholder Impact

• **Shareholders:** Experience a significant net loss and declining gross profit margins, potentially impacting share price and return on investment. The dual-class share structure limits the influence of Class A shareholders. The proposed offering of Units could lead to dilution.
• **Employees:** Increased employee benefit expenses and salary adjustments, particularly in security guarding and screening, suggest efforts to retain staff amidst labor shortages. Share-based compensation plans aim to incentivize key personnel.
• **Customers:** Continued revenue growth indicates ongoing demand for services, but declining gross margins might pressure service quality or pricing in the long term. Quality assurance systems and customer feedback mechanisms are in place to maintain satisfaction.
• **Suppliers:** Heavy reliance on major suppliers for threat detection systems creates concentration risk. Any disruption in supply or changes in terms could affect the company's ability to fulfill customer orders.
• **Creditors:** The company's shift to a net loss and negative operating cash flow in FY2025, along with material weaknesses in internal controls, could raise concerns about its ability to service debt, although current cash and banking facilities are deemed sufficient for the next 12 months.

Next Steps

• Continue to implement remedial measures for identified material weaknesses in internal control over financial reporting, including U.S. GAAP training, engaging external consulting, strengthening corporate governance, adopting cybersecurity policy, and hiring experienced IT staff.
• Expand related vocational training services in the upcoming years.
• Utilize remaining net proceeds from the initial public offering for deepening penetration of security-related engineering services, strengthening development capability, enhancing product offerings, expanding security guarding services, improving operational efficiency, pursuing strategic acquisitions, and for general corporate purposes.
• Proceed with the proposed public offering of Units (pre-funded warrants and common warrants) to raise additional capital.

Key Dates

Recommendation

The company's financial performance for FY2025 is concerning, marked by a significant shift from net income to a substantial net loss and a sharp decline in gross profit margins. While revenues increased, the disproportionate rise in cost of revenues and selling, general, and administrative expenses indicates fundamental operational challenges and profitability pressures. The identified material weaknesses in internal control over financial reporting raise red flags regarding the reliability of financial disclosures and potential for future issues. Although the company regained Nasdaq compliance and is pursuing a capital raise, the overall financial deterioration and governance concerns suggest a high-risk investment profile. A seasoned investor would likely view these results as a strong indicator of underlying business weakness and potential for further value erosion, warranting a 'sell' recommendation.

Keywords

Security Services, Security Engineering, Security Guarding, Screening Services, Vocational Training, Hong Kong, SEC Filing, 20-F, Financial Results, Net Loss, Gross Profit Decline, Internal Controls, Nasdaq Compliance, Capital Raise, Risk Factors, Corporate Governance, Cayman Islands, PRC Influence, HFCA Act, SUGP