Executive Summary / Key Takeaways

• Skyline Builders Group Holding Limited ($SKBL) is a specialized civil engineering firm in Hong Kong, strategically expanding its role from a subcontractor to a main contractor in the robust public works sector.
• The company has demonstrated improved operational efficiency, reflected in a rising gross profit margin from 2.70% in FY2023 to 6.30% in FY2025, despite recent revenue fluctuations.
• SKBL's growth strategy is anchored in increasing market share in sizeable public projects, enhancing operational capacity through machinery acquisition, and strengthening its brand within Hong Kong's substantial infrastructure development pipeline.
• Key risks include significant customer concentration, the non-recurrent nature of its projects, and the potential for increased regulatory oversight from the Chinese government on Hong Kong-based entities.
• With management having addressed prior internal control weaknesses and a focus on leveraging industry technological advancements, SKBL aims to capitalize on sustained government investment in Hong Kong's infrastructure.

Setting the Foundation: Skyline Builders' Strategic Blueprint in Hong Kong's Infrastructure Landscape

Skyline Builders Group Holding Limited ($SKBL) operates as a dedicated civil engineering services provider in Hong Kong, primarily functioning as an Approved Public Works Contractor specializing in roads and drainage projects. The company's core business involves essential infrastructure development, including the construction of footways, drains, ducts, and pipelines, alongside site preparation and general establishment works. With over 12 years of operational history through its subsidiary, Kin Chiu Engineering Limited, SKBL has cultivated a strong track record and expertise in the local civil engineering sector.

The Hong Kong civil engineering industry presents a compelling backdrop for SKBL's operations. The gross value of civil engineering works performed by main contractors in Hong Kong recorded an overall incline from approximately HK$119.4 billion in 2018 to HK$151.4 billion in 2023, representing a Compound Annual Growth Rate (CAGR) of approximately 4.90%. More recently, this segment saw a significant year-over-year increase of 49.60% from March 31, 2023, to March 31, 2024. This growth is underpinned by continuous government funding support, efforts to enhance rail connectivity, and the rapid advancement of technologies such as Building Information Management (BIM) and Industrialized Building System (IBS). The government's budget for 2024-2025 includes a 19.80% increase in infrastructure spending to HK$106.1 billion, with annual capital works expenditure expected to reach HK$100 billion in the coming years, projecting total annual construction output to around HK$300 billion.

SKBL's overarching strategy is to strengthen its market position and expand its market share within this dynamic environment. The company aims to achieve this by actively pursuing new opportunities from both existing and potential customers. A significant competitive advantage for SKBL stems from its "Approved Contractor" status under the Roads and Drainage Group B Probation category since March 2020, which enables it to directly tender for public works contracts as a main contractor. This dual capacity, allowing it to operate as both a main contractor and a subcontractor, diversifies its income streams and expands its customer base. The company's proven track record for quality work, expertise, and timely project delivery are crucial factors that foster customer trust and provide a competitive edge in tendering processes.

In a "highly competitive industry" where larger players like China State Construction Engineering Corporation (3311), Gammon Construction, and Leighton Asia often possess "long operating history, better financing capabilities and well-developed technical expertise," SKBL leverages its agility and local focus. While these larger competitors benefit from superior operational scale and strategic adaptability, SKBL's localized market knowledge and responsiveness can foster stronger customer loyalty in Hong Kong-specific projects. The industry's high barriers to entry, including stringent regulatory approvals, substantial capital requirements, and the need for established relationships, offer some protection against new entrants but also reinforce the positions of well-established rivals. SKBL's strategic intent to apply for "confirmed status" as an Approved Contractor, which would allow it to tender for an unlimited number of contracts up to HK$400 million each (compared to the current aggregated value limit under probationary status), is a clear move to enhance its competitive standing and capture a larger share of the public works market.

Regarding technological differentiation, SKBL recognizes the industry trend of "rapid advancement in technology to optimize productivity and reduce costs such as the building information management and industrialized building system." Despite lacking proprietary, quantifiable technology differentiators, its growth strategies implicitly align with leveraging such advancements. The intent to acquire more machinery is a tangible step towards improving "overall work efficiency and technical capability," lowering "machinery rental expenses," and enhancing "flexibility to deploy our resources more efficiently." For investors, the successful adoption and integration of these industry-wide technological improvements will be crucial for SKBL to enhance its operational efficiency and maintain competitiveness against larger, potentially more technologically advanced rivals, thereby supporting future profitability and market share gains.

Corporate Evolution and Operational Milestones

Skyline Builders Group Holding Limited was incorporated in the Cayman Islands on June 25, 2024, as a holding company, building upon the foundation of its indirectly wholly-owned Hong Kong subsidiary, Kin Chiu Engineering Limited, established in April 2012 by Mr. Ngo Chiu Lam. Kin Chiu initially focused on civil engineering services as a subcontractor, accumulating over a decade of experience. A significant milestone occurred in March 2020 when Kin Chiu registered in the Approved Contractors List (Roads and Drainage Group B Probation) of the Development Bureau of Hong Kong, enabling it to directly tender for public works contracts as a main contractor. This led to substantial project awards, including a public project valued over US$37.1 million in 2022, and two additional public projects in 2024 with initial contract sums exceeding US$23.0 million and US$10.2 million, respectively.

The period between July 2024 and August 2025 marked significant corporate restructuring and a public listing. In July 2024, Kin Chiu Engineering Limited became an indirect wholly-owned subsidiary of Skyline Builders Group Holding Limited. The company then completed its initial public offering (IPO) on The Nasdaq Capital Market under the ticker symbol SKBL on January 24, 2025, raising approximately US$6.9 million in gross proceeds. Further corporate changes in August 2025 saw Supreme Development BVI Holdings Limited, the previous controlling shareholder, transfer all 2.00 million Class B Ordinary Shares to Quantum Leap Energy LLC (QLE). This transaction resulted in QLE holding approximately 79.14% of the aggregate voting power, thereby gaining control of the company. Concurrently, a private placement closed on August 29, 2025, generating US$17.77 million in gross proceeds, with US$7.00 million utilized to retire 18.50 million Class A Ordinary Shares previously held by Supreme Development BVI Holdings Limited.

Financial Performance and Operational Efficiency

Skyline Builders' financial performance reflects its operational dynamics within the Hong Kong civil engineering market. Total revenue for the fiscal year ended March 31, 2025, was approximately US$46.0 million, a decrease of 5.80% from US$48.8 million in FY2024. This decline was primarily due to the "substantial completion of certain sizeable public sector projects" and the "absence of new private projects" in FY2025. Public sector revenue, which constituted 100% of total revenue in FY2025, saw a 4.70% decrease, partially offset by ongoing high-value and newly awarded public projects. The private sector revenue, which contributed US$523,438 in FY2024, was nil in FY2025 due to project completions and no new awards. In contrast, FY2024 revenue increased by 9.60% to US$48.8 million from US$44.6 million in FY2023, driven by an increase in the number of projects and a higher volume of work on sizable public initiatives.

Despite the recent revenue dip, the company has demonstrated notable improvements in profitability. Gross profit margin significantly improved from 2.70% in FY2023 to 5.90% in FY2024, and further to 6.30% in FY2025. This upward trend in margins is attributed to projects transitioning from early, cost-intensive stages to middle stages, benefiting from "more efficient revenue recognition, economies of scale, and reduced cost per unit" in FY2024. The continued improvement in FY2025 was "primarily due to benefits from competitive subcontractor pricing and strict cost control management which improved cost efficiency." Net income, however, decreased by 21.80% to US$727,447 in FY2025 from US$929,912 in FY2024, following an increase from US$879,554 in FY2023.

Operating expenses saw an increase in FY2025, with general and administrative (G&A) expenses rising by 30.70% to US$1.36 million from US$1.04 million in FY2024. This increase was "mainly because of one-off expenses in relation to Reorganization and post-Listing fee for compliance purpose," alongside a 35.70% rise in staff costs, including directors' emoluments. Interest expense also climbed by 21.60% to US$891,379 in FY2025, reflecting a "higher average balance of outstanding bank and other borrowings" to fund ongoing projects. Other income, net, increased in FY2025, "primarily driven by remeasurement of provision for long service payments," but had significantly decreased in FY2024 due to the "absence of substantial government subsidies from Covid-19 Anti-epidemic fund." The effective tax rate increased from 11.70% in FY2023 to 13.50% in FY2024 and 19.90% in FY2025, partly due to the non-taxable nature of government subsidies received in prior periods.

Balance Sheet and Liquidity Profile

SKBL has made strides in strengthening its financial position, notably improving its working capital from deficits of US$1.90 million in FY2023 and US$1.02 million in FY2024 to a positive US$2.57 million as of March 31, 2025. Cash and cash equivalents also increased to US$718,625 in FY2025 from US$323,595 in FY2024, a result of business operations, proceeds from the IPO, and bank borrowings. Accounts receivable saw a significant increase from US$3.82 million in FY2024 to US$10.03 million in FY2025, reflecting increased work performed on ongoing and newly awarded projects. Conversely, contract assets decreased from US$10.70 million to US$5.67 million, primarily due to "improved processing time of certification by independent surveyors" and the release of retention receivables.

The company's bank and other borrowings increased to US$12.04 million in FY2025 from US$10.93 million in FY2024, indicating "increased financing requirements for ongoing projects." Management believes that its "current cash balance, cash generated from our operations, bank and other borrowings, and the net proceeds from this Offering will be sufficient to meet our working capital needs for the next 12 months." However, the company acknowledges that "additional financing may be required" if it faces an adverse operating environment, unanticipated capital expenditures, or accelerates its growth, which could lead to dilution for existing shareholders if equity financing is pursued.

A critical operational improvement has been in internal controls. As of March 31, 2024, material weaknesses were identified, including a "lack of sufficient full-time personnel with appropriate levels of accounting knowledge and experience" and the absence of a "functional internal audit department." Management has since implemented corrective measures, including hiring qualified staff, appointing independent directors, establishing an audit committee, and strengthening corporate governance, leading to an assessment that internal controls over financial reporting were effective as of March 31, 2025. This enhancement is vital for investor confidence and sustained operational integrity.

Growth Strategies and Market Outlook

SKBL's growth trajectory is closely tied to Hong Kong's ambitious infrastructure development plans. The government's commitment to projects such as Kwun Tung North and Fanling North of New Development Area, Kau Yi Chau Artificial Island under the Lantau Tomorrow Vision, and Tung Chung New Town Extension is expected to "sustain demand for civil engineering works" in the coming years. These initiatives, coupled with continuous government funding, efforts to enhance rail connectivity, and the adoption of advanced technologies, are anticipated to drive continued growth in the Hong Kong civil engineering industry.

The company's strategic pillars for growth include:

• Enhancing Competitiveness and Expanding Market Share: SKBL plans to deploy resources towards securing "more sizeable civil engineering projects." A key step is to apply for "confirmed status" under the Approved Contractors List (Roads and Drainage Group B), which would remove the current aggregated value limit of HK$400 million for probationary contractors, allowing it to tender for any number of contracts up to HK$400 million each.
• Acquiring Machinery to Enhance Capacity: To improve "overall work efficiency and technical capability," reduce "machinery rental expenses," and enhance "flexibility to deploy our resources more efficiently," the company intends to acquire more machinery. As of March 31, 2025, its fleet included 14 excavators, 3 generators, 1 truck, and 1 crane.
• Enhancing Brand: SKBL aims to broaden its customer base and attract more tender invitations through increased marketing efforts, including web presence, advertisements, event sponsorships, and proactive customer engagement.

Key Risks and Investment Considerations

Investing in SKBL carries several pertinent risks that warrant careful consideration. A primary concern is the company's exposure to PRC regulatory risk. Despite having no operations in mainland China and no Variable Interest Entity (VIE) structure, SKBL's Hong Kong-based operations are subject to the Chinese government's "significant oversight and discretion," which "may intervene in or influence our operations at any time." Such intervention could "significantly limit or completely hinder our operations" and "cause the value of our Class A Ordinary Shares to significantly decline or be worthless." The "uncertainty of the interpretation and the application of the PRC laws and regulations" further compounds this risk.

Customer concentration is another significant vulnerability, with the five largest customers accounting for approximately 82.70% of total revenue in FY2025. The non-recurrent nature of civil engineering projects means there is "no guarantee that our customers will provide us with new businesses," making revenue streams less predictable. Furthermore, the company "typically bear[s] the risk of delays and cost overruns in our projects and we are generally unable to pass these costs to our customers," which could materially affect financial results. Dependence on subcontractors also poses a risk, as "unsatisfactory performance by our subcontractors or unavailability of subcontractors may adversely affect our operation and profitability."

The company's dual-class share structure grants Quantum Leap Energy LLC (QLE) approximately 79.14% of the aggregate voting power, limiting the influence of other shareholders and potentially deterring change-of-control transactions. As a "controlled company" under Nasdaq rules, SKBL could elect to rely on certain corporate governance exemptions, which would reduce the protections afforded to shareholders of fully compliant companies. Additionally, there is a risk that SKBL could be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, leading to adverse tax consequences for U.S. holders. Finally, while the company's auditor is not headquartered in mainland China or Hong Kong, the ongoing uncertainty regarding PCAOB inspection access in these regions could still lead to delisting risks under the Holding Foreign Companies Accountable Act (HFCAA).

Conclusion

Skyline Builders Group Holding Limited presents a compelling investment narrative rooted in its established position within Hong Kong's expanding civil engineering sector. The company's strategic evolution from a subcontractor to an Approved Public Works Contractor, coupled with its focus on operational efficiency and brand enhancement, positions it to capitalize on the substantial government-led infrastructure pipeline. The notable improvement in gross profit margins underscores management's effective cost control and project execution capabilities.

However, the investment thesis is tempered by significant risks, particularly the geopolitical uncertainties surrounding Hong Kong's regulatory environment and the inherent challenges of customer concentration and non-recurrent project revenue in the construction industry. While management has proactively addressed internal control weaknesses, the concentrated ownership structure and potential for future shareholder dilution warrant close monitoring. Ultimately, SKBL's ability to sustain its operational improvements, successfully secure larger public projects, and adeptly manage the evolving regulatory landscape will be critical determinants of its long-term value creation in Hong Kong's dynamic infrastructure market.