OneConstruction Group Limited (ONEG)

Executive Summary / Key Takeaways

• OneConstruction Group Limited (NASDAQ:ONEG) specializes in structural steelwork in Hong Kong, leveraging its expertise in public and private sector projects amidst a growing construction market.
• The company recently completed its IPO, raising $7 million, which is intended to bolster its financial capacity for strategic expansion and workforce development.
• Despite a 16.2% revenue decline in FY2025 to $53.2 million, primarily due to a slowdown in the private commercial property market, ONEG improved its overall gross profit margin to 7.4%, driven by higher-margin public sector projects.
• ONEG's competitive edge stems from its specialized expertise, tailored solutions, and stringent quality control in structural steelwork, positioning it as a reliable partner in Hong Kong's competitive construction industry.
• Key risks include significant reliance on a limited number of major clients, potential PRC government oversight, and the inherent uncertainties of project cost estimations, which could impact future profitability and operational stability.

Forging a Future in Hong Kong's Construction Boom

OneConstruction Group Limited, operating primarily through its subsidiary OneC Engineering, stands as a specialized structural steelwork contractor within Hong Kong's dynamic construction industry. Since its inception in 2021, the company has focused on the procurement and installation of structural steel, forming the essential backbone for a diverse range of public and private sector projects, including critical infrastructure, public facilities, and residential and commercial developments. This specialization has allowed ONEG to carve out a distinct niche, emphasizing precision, quality, and project management expertise in a highly competitive market.

The broader Hong Kong construction market presents a compelling backdrop for ONEG's operations. Following the gradual subsidence of the COVID-19 pandemic and the relaxation of related restrictions since the second quarter of 2022, the industry has experienced a notable recovery and growth trend. Aggregate expenditure for building and civil works, which heavily relies on structural steelwork, increased from $17.60 billion in 2022 to a forecasted average of $20.30 billion in 2024, representing a Compound Annual Growth Rate (CAGR) of 7.40%. Projections indicate continued expansion, with expenditure expected to rise from US$20.9 billion in 2025 to US$22.8 million in 2027, a CAGR of approximately 4.50%. This growth is fueled by major ongoing and planned infrastructure projects, such as the Tung Chung New Town Extension and the Kwu Tung North New Development Area, alongside the increasing adoption of structural steelwork for its flexibility and space efficiency, and continuous government support for industry development.

Operational Excellence and Differentiated Service Delivery

ONEG's competitive differentiation is rooted in its operational model and service delivery, which can be viewed as its core technological advantage in a service-oriented industry. While the company does not disclose proprietary material science or software, its strength lies in the sophisticated application of its technical and operational expertise. This includes developing detailed work schedules, coordinating with clients on designs and timelines, and implementing rigorous site safety supervision and quality control. These "tailored solutions" allow ONEG to adapt to complex project specifications and tight deadlines, a critical capability in Hong Kong's demanding construction environment.

The company's "effective and stringent quality control systems" are a cornerstone of its reputation. These systems involve regular inspections of materials upon delivery, and if required, external laboratory testing to ensure compliance with standards. Quality control personnel closely monitor each stage of structural steelwork, ensuring adherence to established requirements. This commitment to quality and safety, while not a patented technology, provides a tangible benefit by fostering client confidence, reducing project risks, and potentially leading to repeat business and higher-margin opportunities. This operational excellence contributes directly to ONEG's competitive moat by enhancing project reliability and customer loyalty.

Financial Performance and Liquidity

OneConstruction Group's financial performance in the fiscal year ended March 31, 2025 (FY2025) reflects a period of strategic adjustments and market shifts. Total revenue decreased by 16.2% to $53.2 million, down from $63.5 million in FY2024. This decline was primarily driven by a $7.51 million decrease in public sector revenue, mainly from infrastructure and public facilities projects, and a $2.74 million reduction in private sector revenue, attributed to a slowdown in Hong Kong's commercial property market.

Despite the revenue contraction, the company demonstrated an improvement in overall gross profit margin, rising from 7.0% in FY2024 to 7.4% in FY2025. This was largely due to the award of public sector projects commanding higher profit margins, with public sector gross profit increasing by 38.9% to $5.06 million, and its margin expanding to 11.0%. Conversely, the private sector experienced a negative gross profit of $1.14 million in FY2025, primarily due to cost overruns and final account adjustments on certain legacy projects. Cost of revenue decreased by 16.5% in line with revenue, with notable shifts in cost components: material costs decreased by 27.6% as projects moved past material-intensive stages, and subcontracting costs significantly dropped by 70.2% as ONEG strategically increased its direct labor force for better quality control. This shift also led to an 8.1% increase in direct labor costs. Administration expenses, however, surged by 153.9% in FY2025, mainly due to legal and professional fees associated with the company's initial public offering (IPO) and the procurement of D&O liability insurance. Consequently, profit before taxation decreased by 40.4% to $1.14 million, and net income fell by $871,000 to $898,000 in FY2025.

From a liquidity perspective, ONEG's cash balance decreased from $1.60 million in FY2024 to $0.70 million in FY2025.

Net cash used in operating activities amounted to $5.11 million in FY2025. However, the company's IPO on January 2, 2025, generated $5.57 million in net proceeds, contributing to $4.31 million in net cash generated from financing activities, partially offsetting operational cash outflows. This capital injection significantly bolstered working capital, which increased to $33.13 million as of March 31, 2025, from $5.17 million in FY2024, providing a stronger financial foundation for future growth initiatives. The company currently intends to retain all future earnings for business expansion and does not anticipate paying dividends in the foreseeable future.

Strategic Initiatives and Market Positioning

ONEG's strategic roadmap is centered on expanding its market share within Hong Kong's growing structural steelwork industry. The company aims to achieve this by pursuing additional and more sizeable projects, which necessitates an expansion of its operational scale, including increasing available manpower and financial resources. To support this, ONEG plans to enhance its financial management to ensure optimal finance costs and capital sufficiency, recognizing that a robust capital base is crucial for undertaking capital-intensive projects. The company also intends to expand its project management team by hiring additional project managers, quantity surveyors, and engineers to bolster its capacity and maintain service quality across a larger project portfolio. The establishment of the 2025 Equity Incentive Plan and the issuance of 3.00 million ESOP Shares in May 2025 underscore its commitment to attracting and retaining key talent.

In the competitive Hong Kong structural steelwork market, which is characterized as highly competitive and fragmented, ONEG faces rivals such as Gammon Construction and China State Construction International Holdings Ltd. (CSIHY). These competitors often possess longer operating histories, greater financial resources, and broader operational scales. For instance, Gammon Construction, a leading Hong Kong-based firm, excels in broader civil engineering and infrastructure projects, while China State Construction, a major global player, benefits from extensive resources and a focus on large-scale, government-backed operations.

ONEG differentiates itself through its specialized expertise in structural steel, its proven track record, and its ability to provide tailored solutions with stringent quality control. While it may not match the sheer scale or diversified portfolio of a company like China State Construction, ONEG's focused approach allows for agile, client-specific solutions, particularly in precision-driven projects. Its emphasis on site safety and quality fosters trust, potentially leading to better customer retention and enhanced profitability in safety-conscious segments. However, ONEG's relatively smaller scale and regional dependency pose vulnerabilities, potentially limiting its access to larger contracts and exposing it more directly to regional economic fluctuations compared to competitors with broader geographic reach or diversified offerings. For example, MYR Group Inc. (MYRG), while primarily focused on electrical infrastructure in North America, demonstrates how diversification into high-growth areas like data centers can drive stronger revenue and EBITDA trends. ONEG's strategic response involves deepening its specialization and operational efficiency to maximize opportunities within its core market.

As of March 31, 2025, ONEG's active and ongoing construction projects are expected to be completed between the second half of 2025 and 2028. Notably, the company is engaged in structural steelwork for 25,100 public residential units, representing 22% of the Hong Kong Housing Bureau's forecasted total of 113,300 public sector residential units from 2025 to 2028. This significant pipeline in the public sector provides a degree of revenue visibility and underpins the company's growth aspirations.

Conclusion

OneConstruction Group Limited is a specialized structural steelwork contractor operating in a growing Hong Kong construction market. While facing a revenue decline in the most recent fiscal year, the company demonstrated resilience by improving its gross profit margin through higher-margin public sector projects and strategically managing costs. Its recent IPO has significantly strengthened its capital base, providing the necessary financial resources to pursue its growth strategies of increasing market share, optimizing financial management, and expanding its skilled workforce.

The core investment thesis for ONEG hinges on its ability to leverage its specialized expertise, tailored service delivery, and stringent quality control to secure a larger share of Hong Kong's expanding construction expenditure, particularly in the public sector. Despite competitive pressures from larger, more diversified players and inherent risks associated with client concentration and regulatory uncertainties, ONEG's focused operational model and strategic initiatives position it to capitalize on the sustained demand for structural steelwork. Investors should monitor the company's execution on its project pipeline, its ability to mitigate cost pressures, and its continued operational excellence in a dynamic regional market.