Overview of the CERKS Project

Azeus Systems Holdings Ltd (“Azeus” or the “Company”) has provided investors with a significant update on its Central Electronic Recordkeeping System (CERKS) project for the Hong Kong SAR Government. The project, initially announced on 9 May 2022, involves the design, development, deployment, and maintenance of a comprehensive electronic recordkeeping system across a majority of the Hong Kong Government’s bureaux and departments.

The original contract value was estimated at HK\$1.02 billion (approximately US\$132.0 million), with HK\$633.9 million (US\$82.4 million) allocated to system implementation and HK\$381.4 million (US\$49.6 million) for ten years of maintenance and support following deployment. The CERKS core is based on Convene Records, a proprietary Azeus content and records management solution, to be customized and deployed to government agencies. Notably, 75% of the total contract value was expected to come from license and maintenance fees for the Convene Records software, based on the number of users and government departments adopting the system.

Key Updates and Developments

• Deployment Progress: The CERKS project has entered its deployment phase and is reportedly progressing on schedule, with positive feedback from early agency rollouts. Revenue related to licensing and deployment services will be recognized over FY2026 and FY2027, in line with the expected project timeline.
• Lower Than Expected User Numbers: Preliminary indicators now suggest that the actual number of users may fall below initial projections. The latest figures from the customer confirm that expected user numbers are lower than originally outlined in the tender. However, there remains potential for additional government agencies to adopt the system, which could partially offset this variance.
• Revenue Impact: The reduction in user numbers directly impacts the license and maintenance fees to be received. Based on the most recent committed client license numbers, the total contract value may be reduced by approximately 8.9% to 11.4%, equaling a decrease of about HK\$91.1 million to HK\$116.3 million (US\$11.8 million to US\$15.1 million). This estimate covers both the one-off license revenue (to be recognized in FY2027) and the 10-year maintenance revenue (to be recognized from September 2026 to 2037).
• Impact on Financial Results: The Company expects that the reduction in contract value will not have a significant impact on its results for FY2026. However, the impact will be felt in FY2027 and subsequent years, particularly in relation to license and maintenance revenue streams.
• Ongoing Discussions and Additional Risks: There is an unresolved issue regarding the method for calculating server license fees. Azeus and the customer have differing interpretations, and discussions are ongoing to resolve this. Should the customer’s interpretation prevail, there could be a further adverse impact on revenue from FY2027 onwards.
• Final Numbers Pending: The final user and license numbers, which will determine the ultimate contract value and revenue recognition, are expected to be confirmed closer to project completion, anticipated before September 2026. The Company notes that user numbers—and thus revenue—may still fluctuate over the next 12 months.

Implications for Shareholders and Investors

• Revenue Reduction May Affect Share Price: The projected reduction in contract value by nearly 9–11% is material and may impact investor sentiment and share valuation. The decrease in user numbers and associated license fees is a key risk factor that investors should monitor.
• Potential for Further Downside: The unresolved dispute regarding the server license fee calculation introduces additional risk. If resolved unfavorably, it could lead to further revenue shortfalls from this flagship project, affecting earnings in FY2027 and beyond.
• Upside Potential Remains: There is still room for upside if more government agencies or departments sign on to use the system, which could restore or exceed prior revenue projections.
• Limited Immediate Impact: The Company does not expect a significant effect on FY2026 results, but the subsequent years are at risk and will require close monitoring by shareholders.

Conclusion

The update on the CERKS project is a critical development for Azeus Systems Holdings Ltd. The reduction in contract value and associated revenue, as well as the unresolved fee calculation issue, are price-sensitive matters that could materially affect the Company’s future financial performance and share price. Investors should pay close attention to future updates, particularly as the final user numbers and contract value are confirmed closer to project completion before September 2026.

Disclaimer: This article is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. Investors should conduct their own due diligence and consult with financial advisors before making any investment decisions. The information is accurate as of the publication date but is subject to change based on future disclosures by Azeus Systems Holdings Ltd.

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