Leader Environmental Technologies Limited: HY2025 Financial Analysis

Leader Environmental Technologies Limited (“Leader Environmental”) has released its condensed interim financial statements for the six months ended 30 June 2025 (HY2025). This report provides a comprehensive analysis of the company’s financial performance, key metrics, and strategic developments over the period, based strictly on the disclosed financials.

Key Financial Metrics and YoY Comparison

*HoH: Half-on-Half; as only half-year data are provided, this column reflects the same data as YoY for comparison.

Historical Performance and Trends

• Revenue (Continuing Operations): Sharply contracted by 55.7% YoY to RMB 2.06 million, reflecting a significant drop in engineering activity and equipment sales.
• Revenue (Discontinued Operations): Surged over four-fold YoY, mainly from new operation & maintenance (O&M) contracts in the AIWater business.
• Gross Profit: Margins deteriorated in continuing operations (from 60.3% to 8.3%), attributed to a shift in revenue mix towards lower-margin equipment sales as opposed to higher-margin services last year. The discontinued segment’s margin fell from 31.9% to 24.4% due to lower-margin O&M project wins.
• Net Loss: More than doubled, driven by lower revenue, fair value losses on convertible bonds, and higher administrative expenses in the discontinued segment.
• EPS: Loss per share increased sharply, indicating the dilutive impact of losses.
• Net Asset Value: Turned negative at (0.63) RMB cents per share, from a positive 1.43 RMB cents at end-2024, reflecting erosion of equity.

Exceptional Items and Corporate Actions

• Exceptional Gain on Divestment: The company completed the sale of its AIWater business for RMB 370 million in July 2025. If the disposal gain of RMB 319.8 million is recognized, the group would have recorded a net profit of RMB 285.0 million for HY2025, substantially reversing the reported loss.
• Capital Reduction and Cash Distribution: Following the divestment, the company initiated a capital reduction and a cash distribution of S\$0.0287 per share (totaling approximately RMB 154.2 million) to shareholders, scheduled for payout on 11 August 2025.
• Convertible Bonds: Outstanding CBs of US\$15 million are now classified as current liabilities due to a change in accounting standards, but the company retains a sole discretion extension option for 2 years beyond the initial 3-year maturity.

Chairman’s Statement and Strategic Outlook

The Chairman’s Statement signals a positive and forward-looking tone. The successful disposal of the AIWater business is described as a “significant milestone,” enabling the group to “sharpen its focus” and “position itself for sustainable long-term growth.” The group’s new strategy centers on scaling its proprietary sludge treatment platform leveraging Continuous Thermal Hydrolysis (CTH) and pyrolysis technologies. Completion of a demonstration plant in Singapore in July 2025 is highlighted as validation of its technical model and a new reference point for business development.

The group is actively pursuing strategic partnerships, notably with Econ Technology Co., Ltd. (a SDHS subsidiary) in China, securing contracts worth approximately RMB 70 million for sludge treatment equipment. The high-performance membrane business (via NTi Technology Pte. Ltd.) is to remain an important pillar.

Directors’ Remuneration and Related Party Transactions

• Directors’ Fees and Pay: For HY2025, directors’ fees amounted to RMB 725k, with salaries and short-term benefits of RMB 1,028k and stock options granted of RMB 37k. Key management (excluding directors) received total salaries and benefits of RMB 2,788k and stock options of RMB 75k.
• Related Party Transactions: Sales of membrane products (RMB 374k) and O&M services (RMB 11,080k) to related parties were disclosed as significant transactions.

Liquidity, Financial Position, and Risks

• Net Current Liabilities: After reclassifying convertible bonds, net current liabilities stood at RMB 47.0 million (current ratio 0.68x), down from net current assets of RMB 52.2 million (2.09x) before reclassification—indicating a tighter liquidity position, but management asserts CB maturity will not affect liquidity over the next 12 months.
• Cash Flow: Net cash used in operating activities was RMB 19.5 million, mainly due to higher operating losses and working capital needs. Net cash outflow from investing activities was RMB 2.9 million, while financing activities provided RMB 1.4 million, aided by government grants and reduced pledged deposits.
• Dividends: No interim dividend was declared, as the group seeks to preserve cash for working capital.

Outlook and Key Risks

• Strategic Refocus: The divestment of AIWater and cash return to shareholders mark a new chapter, with a refined focus on high-potential sludge treatment and membrane manufacturing.
• Project Pipeline: The group’s proprietary technologies and new references (demonstration plant) are expected to support future project wins, notably as regulatory and sustainability pressures mount in core markets.
• Liquidity Risk: While the company asserts comfort over near-term liquidity, the negative net current asset position post-CB reclassification is a risk if not managed by new project inflows or further fundraising.

Conclusion: Overall Assessment

Leader Environmental Technologies Limited’s HY2025 financial results reflect a transitional period with weak underlying performance in core continuing operations, offset by a transformative divestment of its AIWater business. The reported loss and shrinking equity base highlight operational challenges, yet the substantial one-off gain from the divestment (if recognized) would materially strengthen the balance sheet and provide significant cash to shareholders. The group’s outlook appears cautiously optimistic, grounded in proprietary technology and project wins, but will require continued execution in its core segments to restore sustained profitability and improve liquidity.

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