Financial Analysis of HY2025 Results – Net Profit Decline

Business Description

The company operates in three core business segments: sales of goods, rendering of services, and airtime. Its geographic footprint extends primarily within the offshore energy and renewables sector.

Industry Position

The company is positioned within the offshore energy and renewables industry, which is experiencing a positive outlook despite facing challenges such as escalating operational costs and manpower shortages. The company aims to expand its revenue streams and secure new orders, particularly in the renewables offshore sector.

Revenue Streams and Customer Base

The company’s revenue streams are diversified across sales of goods, services, and airtime. The sales of goods segment saw the most significant increase due to higher project deliveries. Its customer base includes entities within the offshore energy and renewables sectors, with a supply chain that supports these industries.

Financial Statement Analysis

Income Statement

• Revenue: Increased by 26% to S\$20,355,000 in HY2025 from S\$16,155,000 in HY2024.
• Gross Profit: Increased by 23.5% to S\$5,805,000, with a slight decrease in gross profit margin from 29.1% to 28.5%.
• Other Income: Decreased by 71.5% due to the absence of a one-off legal claim settlement and lower interest income.
• Distribution and General & Administrative Costs: Increased by 15.1% due to higher manpower and rental expenses.
• Net Profit: Declined markedly from a profit of S\$26,000 in HY2024 to a loss of S\$330,000 in HY2025.

Balance Sheet

• Non-current Assets: Slight increase from S\$2,105,000 to S\$2,182,000.
• Current Assets: Decreased from S\$32,411,000 to S\$30,472,000, primarily due to a reduction in cash and cash equivalents.
• Bank Borrowings: Decreased from S\$2,273,000 to S\$1,771,000.
• Equity: Decreased from S\$21,757,000 to S\$21,130,000.

Cash Flow Statement

• Operating Activities: Net cash used of S\$505,000 due to changes in working capital.
• Investing Activities: Net cash used of S\$614,000 for plant and equipment purchases.
• Financing Activities: Net cash used of S\$1,129,000 for loan repayments, lease liabilities, and dividend payments.
• Cash Position: Decreased from S\$14,535,000 at the beginning of the period to S\$7,289,000 at the end of HY2025.

Key Findings and Recommendations

Strengths

• Strong revenue growth across all business segments.
• Robust financial position with sufficient liquidity.

Risks

• Significant increase in operating costs impacting profitability.
• Net loss recorded in HY2025 compared to a net profit in HY2024.
• Decreased cash and cash equivalents, indicating potential liquidity concerns.

Strategic Actions

The company is focusing on executing existing projects, expanding revenue streams, and extending its footprint in the renewables offshore sector to improve profitability.

Recommendations

For Current Investors

Hold the stock but closely monitor the company’s ability to manage its operational costs and secure new orders in the renewables sector.

For Potential Investors

Consider investing if the company demonstrates an improved ability to manage costs and capitalize on the positive outlook in the offshore energy and renewables segment.

Disclaimer: This recommendation is based solely on the information provided in the HY2025 financial results report dated 7 November 2024. Investors should perform their own due diligence and consider their financial situation before making investment decisions.