| RISKS |
NOTE 16 – RISKS
| A. |
Credit risk |
| |
|
| |
Account receivables, contract assets and retention receivables arising from contracts with customers |
| |
|
| |
In order to minimize the credit risk, the management of the Company has delegated a team responsible for determination of credit limits and credit approvals. Other monitoring procedures are in place to ensure that follow-up action is taken to recover overdue debts. Internal credit rating has been given to each category of debtors after considering aging, historical observed default rates, repayment history and past due status of respective account receivables. Estimated loss rates are based on probability of default and loss given default with reference to an external credit report and are adjusted for reasonable and supportable forward-looking information that is available without undue costs or effort while credit-impaired trade balances were assessed individually. In this regard, the directors consider that the Company’s credit risk is significantly reduced. The maximum potential loss of account receivables, contract assets and retention receivables for the year ended December 31, 2024 and 2023 are $3,365,746 and $579,233, and $3,997,467 and $1,988,421 respectively. |
| |
|
| |
Bank balances |
| |
|
| |
The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. The Company is exposed to concentration of credit risk on liquid funds which are deposited with several banks with high credit ratings. |
| |
|
| |
Deposit and other receivables |
| |
|
| |
In response to the economic slowdown and to mitigate potential
increases in credit risk, the Company has implemented a policy of establishing a loss allowance for other receivables. This allowance
is determined based on scenario analysis and specific indicators assessed as of December 31, 2024. No allowance for credit losses
was recognized as of December 31, 2023. |
NOTE 16 – RISKS (CONTINUED)
| B. |
Interest risk |
| |
|
| |
Cash flow interest rate risk |
| |
|
| |
The Company is exposed to cash flow interest rate risk through the changes in interest rates related mainly to the Company’s variable-rates short-term and long-term bank loans and bank balances. |
| |
|
| |
During the year ended December 31, 2024, the Company implemented an in-house interest rate hedging policy to mitigate fair value interest risk and cash flow interest rate risk. As a result of this policy, the effective interest rate decreased by 2%. |
| |
|
| |
Sensitivity analysis |
| |
|
| |
The sensitivity analysis below has been determined assuming that a change in interest rates had occurred at the end of the reporting period and had been applied to the exposure to interest rates for financial instruments in existence at that date. 1% increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. |
| |
|
| |
If interest rates had been
1%
higher or lower and all other variables were held constant, the Company’s post tax loss for the years ended December 31, 2024 and
2023 would have increased or decreased by approximately $23,730 and $17,473,
respectively. |
| |
|
| |
Foreign currency risk |
| |
|
| |
Foreign currency risk is the risk that the holding of foreign currency assets will affect the Company’s financial position as a result of a change in foreign currency exchange rates. |
| |
|
| |
The Company’s monetary assets and liabilities
are mainly denominated in HK$, the Company did not have foreign currency denominated monetary liabilities at the end of reporting period.
The Company currently does not have a foreign currency hedging policy to eliminate the currency exposures. However, the directors monitor
the related foreign currency exposure closely and will consider hedging significant foreign currency exposures should the need arise.
In the opinion of the Company, the currency risk of
$ is considered insignificant as HK$ is pegged to $ and therefore no sensitivity analysis is presented. |
| C. |
Economic and political risks |
| |
|
| |
The Company’s operations are mainly conducted in HK SAR. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by changes in the political, economic, and legal environments in HK SAR. |
| |
|
| |
The Company’s operations in HK SAR are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in HK SAR, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things. |
| |
|
| D. |
Environmental risks |
| |
|
| |
The Company has procured environmental licenses required
by the HK SAR government. Historically there was no penalties charged over the environmental issue during any engagement of construction
works. In addition, the Company also obtained a certification of complies with the requirements of ISO 14001: 2015 Environmental Management
System Standard to maintain and proved the quality service with less environmental risk.
In the opinion of the management of the Company, there
is no environmental risk for the Company. |
| |
|
| E. |
Inflation risk |
| |
|
| |
The Company monitors changes in price levels. Historically inflation has not materially impacted the Company’s audited consolidated financial statements; however, significant increases in the price of raw materials and labor that cannot be passed to the Company’s customers could adversely impact WLHK’s results of operations. |
| |
|
| F. |
Concentration risk |
| |
|
| |
The Company heavily depends on large-scale projects
from a select group of customers to generate a substantial portion of its revenue. In the years ended December 2024 and 2023, the top
5 contract assets and retention receivables accounted for 100% and 99%, and 99% and 100%, respectively. Since the Company operates on
a project basis, it does not have any long-term contracts with any one customer, but it expects to maintain these relationships with its
top 5 customers as the large-scale projects continue.
The Company notes that this concentration
of business with a few customers carries inherent risks. Any disruptions or changes in these projects or with the customers involved
could significantly impact the Company’s financial performance. To mitigate this risk, the Company enhances diversification by
performing many smaller to medium-scale projects with varied complexities and durations simultaneously. As of the years ended December
2024 and 2023, 15%
and 10%,
respectively, of the Company’s projects were small to medium-scale projects valued under HK$1 million (equivalent to $129,308),
with an average duration of approximately 3 months.
The Company believes that the loss of any one customer
would not materially affect the Company’s financial position or results of operations, as there are numerous potential customers.
Additionally, the Company continues to enhance the diversity of its service line by introducing new products and services. |
|