Cocoon Holdings Limited Annual Report 2025: Detailed Review for Investors

Executive Summary

Cocoon Holdings Limited, an investment company listed on the Main Board of the Hong Kong Stock Exchange, has released its audited results for the year ended 31 December 2025. The report contains several notable developments which are important for shareholders and could have implications for share valuation.

Key Financial Highlights

• Revenue: The Group recorded revenue of HK\$319,000, up 25.6% from HK\$254,000 in 2024, primarily driven by increased dividend income.
• Investment Activity: Gross proceeds from the disposal of trading securities surged to HK\$354.8 million from HK\$49.1 million in the previous year. Realised gains on securities increased to HK\$23.99 million from HK\$6.67 million, while fair value losses narrowed significantly to HK\$7.61 million from HK\$78.89 million, reflecting improved performance in US equity holdings.
• Profitability: The Group returned to profitability, recording net profit attributable to owners of HK\$9.789 million compared to a loss of HK\$76.81 million in 2024.
• Shareholder Funds: Shareholders’ funds rose 37% to HK\$178.25 million, up from HK\$130.06 million in 2024.
• Borrowings: Borrowings reduced sharply to HK\$2.081 million from HK\$13.939 million, lowering the gearing ratio to 1.2% from 10.7% in 2024, highlighting improved financial stability.
• Cash Position: Available funds stood at HK\$4.452 million, mainly held in Hong Kong dollars.

Capital Structure and Fund Raising Activities

• Placing of New Shares:
  • On 12 June 2025, 17,853,962 new shares were placed at HK\$0.17 each, raising net proceeds of HK\$2.9 million. HK\$2.5 million was invested in listed securities, and HK\$0.4 million used for working capital.
  • On 7 August 2025, 21,424,755 new shares were placed at HK\$0.178 each, raising net proceeds of HK\$3.7 million. HK\$2.7 million targeted investments in listed securities, HK\$1.0 million used for working capital.
• Share Option Scheme: 4,316,722 options were granted and exercised during the year, resulting in the issuance of an equal number of ordinary shares. The scheme was fully utilized for 2025.
• No Capital Expenditure Commitments: No capital expenditure commitments as at 31 December 2025.

Investment Portfolio and Significant Holdings

• Portfolio Composition: As of 31 December 2025, the Group held 18 investments: 15 listed equities (Hong Kong and US), one private entity in Anguilla, and two private entities in the US.
• Significant Investments:
  • Perfect Path Limited (Anguilla): The Group owns 20% equity, with Perfect Path indirectly holding 45% of a gold mine in Thailand. The gold mine is pending relevant licenses/permits; no income generated in 2025. Fair value gain for Perfect Path recognized: HK\$28.5 million in 2025 (up from HK\$6.6 million in 2024). Net assets attributable to the investment, per management accounts, HK\$70.48 million.
  • LNPR Group Inc. (US): The Group holds 5.15% equity. Market value at year end: HK\$19.49 million. Dividend income: nil.
  • Chelsea Tech, Inc. (US): New investment in 2025 with 4% equity; market value HK\$9.57 million.
• Valuation Methodology: Level 3 fair value measurements were used for private equity holdings, involving significant management judgement and independent professional valuation. Sensitivity analysis revealed that a 5% change in discount for lack of marketability could impact Perfect Path’s fair value by HK\$2.87 million.
• Exposure to Market Risks: The Group’s investments are subject to price, liquidity and equity risk. A 10% change in equity prices would result in a HK\$12.14 million impact on profit before tax for FVTPL holdings, and HK\$5.74 million on other comprehensive income for FVTOCI holdings.

Corporate Governance and Risk Management

• Compliance: The Group complied with relevant laws and regulations in Bermuda, the British Virgin Islands, Hong Kong, and the Cayman Islands.
• Risk Management: The Board annually reviews risk management and internal control systems, employing external consultants for internal audit. Key risks include equity risk (volatility), liquidity risk (private equity investments), and credit risk.
• Whistleblowing and Anti-corruption Policies: The Group maintains robust policies for ethics, whistleblowing, and anti-corruption, with regular staff training.

Other Noteworthy Information

• Dividend Policy: No dividend recommended for 2025 (same as previous year).
• Shareholding: Largest shareholder Yu Po Kwan holds 18,729,400 shares (14.57% of total issued shares). Directors’ shareholdings are modest.
• Management Contracts: Investment management by Tiger Securities, with an annual fee capped at HK\$2.98 million.
• Corporate Structure: No property, plant, or equipment held. Principal subsidiaries: IT Star Limited (BVI, 100%), Studio V Limited (HK, 100%).
• Shareholder Rights: Shareholders holding at least 10% of paid-up capital have the right to requisition special general meetings.
• IFRS Compliance: Annual report prepared in accordance with IFRS standards, with updates on new standards such as IFRS 18 (effective 2027).
• Audit: Independent auditor McMillan Woods (HK) CPA Limited identified valuation of Level 3 financial instruments as a key audit matter due to complexity and subjectivity.
• Going Concern: Directors believe the Group has adequate resources to continue operations.

Potential Price Sensitive Information

• Return to Profitability: The Group’s swing to profitability after a significant loss in 2024 is a key positive development. This could affect investor sentiment and share price.
• Reduction in Borrowings: The sharp reduction in debt and improved financial stability can enhance valuation multiples and attract investors.
• Fair Value Gains on Perfect Path: Substantial fair value gain (HK\$28.5 million) on the gold mining investment in Anguilla; however, the mine has not yet commenced operations, and licensing is pending. Any progress in licensing or operational launch could be highly price sensitive.
• Significant Placings: Two share placings in 2025 increased capital, supporting new investments. These may dilute existing shareholdings but also signal confidence in growth opportunities.
• Sensitivity to Market Risk: The Group’s portfolio is highly sensitive to equity market swings, especially in Hong Kong and US stocks. Investors should monitor macroeconomic and policy changes closely.
• Valuation Uncertainty: Material fair value measurements for Level 3 instruments involve significant management judgement. Changes in assumptions or market conditions could impact asset valuations and share price.

Conclusion

Cocoon Holdings Limited’s 2025 annual report signals a turnaround in performance, strong capital management, and ongoing investment activity in both listed and private equities. The Group’s exposure to gold mining and US tech sectors, alongside improved financial stability, are positive factors, but investors should be aware of risks arising from market volatility and the uncertainties inherent in private equity valuations and regulatory approvals.

Disclaimer

This article is for informational purposes only and does not constitute investment advice. Investors should make their own decisions based on independent research and consult professional advisors where appropriate. The information provided is based on the Cocoon Holdings Limited 2025 annual report and may be subject to change.

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