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SHS Holdings 2024 Six Month and Full Year Results · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:07
  You know that feeling, right? When you're trying to really get a handle on how
• 0:11
  a company's doing financially. Oh, yeah.
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  It can sometimes feel like you're drowning in numbers.
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  Exactly. Like this giant puzzle. And you just want someone to show you the finished picture.
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  You know, the key bits, what went well, what didn't, and maybe what's coming
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  next. Without spending hours digging through every single line item. Precisely. Right.
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  So that's what we're doing today. We've got the latest unaudited report from SHS Holdings LTD.
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  This covers the six months and the full year ending December 31st, 2024.
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  And our mission here essentially is to give you the clearest possible picture
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  of SHS Holdings financial performance for FY 2024.
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  We want to pinpoint why things happened the way they did the good and the bad.
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  And of course, get a sense of their outlook. We'll be touching on their main
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  business areas, engineering and construction, corrosion prevention,
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  solar energy, trading of commodities.
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  And there's another segment, too. OK, let's dive in, starting with the headline
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  numbers. Yeah. FY 2024, overall revenue.
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  Right. So overall revenue saw a modest increase, just 0.9%.
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  Not huge, then. No. It came in at S83. million dollars compared to S82.2 million
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  dollars the year before.
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  The interesting part is the second half of 2024. Ah, okay. What happened there?
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  Much stronger performance. Revenue was actually up 16.7% compared to the second half of 2023.
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  Okay, so some momentum building towards the end of the year.
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  That's significant. What about profit? That showed a better improvement overall.
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  Net profit attributable to shareholders. It climbed to S3.2 million dollars for the full year.
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  That's up from? Up from $2.5 million in FY2023. So that's a decent 17.8% increase.
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  Nice. And did that second half strength show up in profits too? Absolutely.
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  Big time, actually. The net profit in just the second half of 2024 was $4.3 million. Wow.
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  Compared to? Compared to only $3.3 million in the second half of 2023.
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  So a really substantial jump there. That's quite a turnaround in the latter part of the year.
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  Now looking beyond the P&L, what about their overall financial health balance
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  sheet strength? Seems pretty solid.
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  Total equity increased to $140.0 million by year end, up from about $136.6 million.
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  Yeah, cash. Strong cash position. They reported $38.3 million in cash and bank balances.
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  Okay. And I think I saw something about their debt levels. Yes,
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  exactly. That's another positive point.
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  Their debt to total equity ratio improved quite a bit.
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  Dropped down, didn't it? It did. Went from 35.4% at the end of FY2023 down to
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  26.8% by the end of FY2024.
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  That definitely sounds healthier. Lower reliance on debt. It's generally seen
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  as a good sign of financial stability, yes.
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  Now, to really understand why these overall numbers look the way they do,
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  we need to dig into the individual segments.
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  Right. Let's break it down. Where should we start? Engineering and construction.
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  That's usually a big one for them. Yeah, let's start with EC.
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  Now, interestingly, revenue here was actually up by 8.6% for the full year.
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  Okay, positive on the top line?
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  But what about profit? Ah, that's where the story changes.
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  Gross profit in EC decreased pretty significantly, down 33.7%. Ouch.
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  And the margin. Took a hit, too. The gross profit margin fell from 23.3% down
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  to 15.5%. So more work, but making quite a bit less profit on it. What was going on there?
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  Well, the report suggests that while the second half was more stable,
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  the real damage was done in the first half. How so?
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  Project schedule delays seemed to be the main culprit cited for that first half
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  weakness. And those delays combined with, you know, the inflationary pressures
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  on materials like steel and concrete during that period.
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  Right. Costs going up while projects were stalled. Not a good combination.
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  Exactly. It really squeezed their margins in that segment for the year.
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  OK, let's move to the next one.
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  Corrosion prevention or CP. This one seemed a bit counterintuitive.
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  It did. Yeah. Full year revenue was actually down 12.8 percent. OK, less business.
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  But their gross profit went up by a healthy 22.1 percent. Really?
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  How? And get this, the jump in the second half was massive, like 346.2% increase
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  in gross profit compared to 2H2023.
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  Wow. Okay, so margins must have improved dramatically then. They did.
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  The gross profit margin went from 12.9% up to 15.7%. So less revenue, much better profit.
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  What drove that? Was it a conscious choice? Seems like it.
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  Management talked about a strategic shift here, focusing on what they called
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  more favorable orders. Ah, so being pickier about the jobs they took on. Exactly.
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  Prioritizing profitability over just volume. And they mentioned cost-cutting measures in CP as well.
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  Makes sense. Quality over quantity paying off there, it seems.
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  What about solar energy?
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  SE. That's a much brighter story. A real growth area for them. Looked good, yeah.
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  Revenue up? Revenue up a strong 22.4%, and gross profit increased even more by nearly 35%. Nice.
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  Margin's improving there, too. Yep. Gross profit margin climbed from 15.4% to
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  a healthy 20.8%. So what's fueling that?
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  Just the general boom in solar? Partly, but the report points specifically to
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  an increase in their EPC work. EPC.
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  Engineering Procurement Construction. That's the one. So taking on bigger,
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  more comprehensive solar projects from start to finish. Plus they mentioned
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  higher sales of inverters.
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  Okay, so riding that renewable energy wave effectively. Good to see.
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  Definitely tapping into that market growth. And the last main segment,
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  trading of commodities, TC.
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  What was the story there? Quite different again. A significant decrease in revenue here.
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  Down over 30%. Big drop. Profit. Gross profit actually edged up slightly by
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  about 8%. But we need to keep perspective here. The margins are tiny.
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  How tiny? Like around 1% gross profit margin.
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  Very thin. Right. So even with a slight profit increase, it's not a huge contributor to,
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  Why the big revenue drop? Again, similar to corrosion prevention,
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  it sounds like a deliberate strategy.
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  Management said they prioritized favorable orders because of market volatility.
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  So another case of being selective, even if it meant much lower overall sales volume. Seems that way.
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  Navigating a tough, volatile market by focusing on the slightly better deals,
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  even if margins are still very low. Okay, so summing up the segments, it's a real mix.
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  Strong solar, recovering CP profit, challenged EC profit, and strategic shrinkage in TC.
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  That's a good summary. And when you put it all together, you can see how those
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  pieces explain the overall picture.
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  Right. So the overall decrease in group gross profit seems mainly down to those
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  EC segment issues in the first half.
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  Primarily, yes. The EC challenges and those broader inflationary cost pressures
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  were the main drags on gross profit.
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  What else affected the bottom line? Other income.
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  That was down mostly due to lower bank interest income. It was down quite sharply
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  in the second half, actually. Okay.
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  Expenses, operating costs. OPEX crept up a bit, 4.3% for the full year. Why was that?
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  Mainly higher selling and distribution costs. Think travel, entertainment, and admin costs.
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  Probably general inflation pushing those up. But didn't some costs go down? Yes.
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  Other operating expenses decreased. They mentioned reduced indirect costs.
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  And it seems some cost control efforts in the second half helped keep the overall
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  increase somewhat contained. Okay.
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  Any other major profit drivers? Okay.
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  Finance costs. Ah, that was a positive story. Finance costs decreased significantly. Oh.
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  Mainly because they used less short-term financing, like trust receipts and bills payable.
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  Which ties back to that stronger cash position and lower debt we talked about earlier. Exactly.
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  Less need for short-term borrowing, so lower finance charges.
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  Down over 25% for the full year. Got it.
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  One last thing on profitability taxation. That looked unusual.
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  A tax credit. Yes, that's right. Right. An income tax credit of about S-127,000 dollars for FY 2024.
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  Compared to paying tax the year
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  before. Correct. They had a tax expense of S-604,000 dollars in FY 2023.
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  Any idea what caused that swing? It's often a mix of things.
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  Could be changes in where they earned profits, utilization of tax losses,
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  perhaps, or deferred tax adjustments.
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  The report mentions both current and deferred tax components.
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  Okay. Interesting twist there. Let's shift focus a bit to the balance sheet
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  again. We mentioned equity, cash, and debt. Anything else notable changing?
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  Assets. Non-current assets ticked up slightly, mainly due to fair value gains
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  on some unquoted equity investments they hold. Okay, and current assets.
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  Those actually decreased overall, primarily because cash was lower,
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  as we discussed, likely used in financing activities like paying dividends and
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  debt. But weren't some current assets up?
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  Yes, that decrease was partly offset.
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  Trade receivables were up probably from higher billings as activity increased in the second half.
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  And inventories increased, particularly for EC fabrication work,
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  suggesting they're stocking up for projects. Right. What about the other side?
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  Liabilities. Current liabilities were down, mainly due to paying down those
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  short-term borrowings from bankers, the trust receipts and bills payable again.
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  Also, some term loan repayments. And if the increase on the liability side.
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  Contract liabilities did, which is usually seen as positive.
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  Why is that? It represents advances received from customers,
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  mainly in the solar and trading segments here.
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  So cash received for work yet to be fully delivered implies future revenue.
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  Got it. And non-current liabilities.
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  Also decreased, mostly due to scheduled term loan repayments.
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  So overall, the liability side looks like it's strengthening too.
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  Deleveraging happening. Yeah, painting a picture of a gradually strengthening
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  financial structure. Okay, makes sense.
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  How did all this translate into cash flow for the year? Where did the cash actually move?
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  Well, they generated cash from their core operations. Net cash inflow from operating
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  activities was S3.5 million dollars.
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  What drove that? They highlighted improved working capital management.
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  So being more efficient with managing receivables, payables,
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  inventory, that kind of thing. Okay, any other cash inflows? Yes.
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  Also, S3.5 million dollar inflow from investing activities. That was mainly
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  from selling some land they'd held for sale.
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  So operations and asset sales bringing cash in. Where did cash go out?
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  Mostly financing activities.
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  A net outflow of 5.2 million dollars there. Doing what?
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  Primarily paying dividends to shareholders and also those net repayments of
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  the trust receipts and some lease liabilities.
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  Okay, so using cash to reward shareholders and reduced debt leases.
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  Makes sense, given the improved profitability and balance sheet.
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  Exactly. It all seems pretty consistent.
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  So looking forward now, what's the vibe from management? What's their outlook?
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  They sound cautiously optimistic, especially about the engineering and construction
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  and the solar energy segments.
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  Why the optimism there? They're seeing opportunities from, you know,
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  government infrastructure spending, things like MRT expansions were mentioned.
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  And obviously, the continued push for sustainability and green initiatives is
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  a tailwind for solar. Makes sense.
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  Are they flagging any potential problems or challenges?
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  They did mention potential headwinds, stricter environmental regulations, for instance.
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  How would that impact them? It could potentially affect demand for their traditional
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  corrosion prevention services. Yeah.
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  So that might require, you know, further strategic thinking in that segment.
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  Right. So how are they planning to navigate all this? What's the core strategy?
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  Seems to be focused on balancing things, keeping a tight rein on costs,
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  but also ensuring their pricing remains competitive across the board,
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  trying to achieve sustainable growth that way. Okay.
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  And finally, dividends. You mentioned they pay dividends. What about the plan for FY 2024?
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  They've proposed a final dividend. It's $0.00229 per ordinary share.
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  How does that compare to the previous year? It's slightly lower.
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  The FY 2023 final dividend was 0.000284.
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  Okay, a small trim there. And it's still subject to shareholder approval, right? Correct.
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  Means approval at the AGM. Right. So let's try and wrap this up for everyone listening.
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  Key takeaways from SHS Holdings FY 2024.
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  Well, I think it's that overall profitability improved, which is good news. Yeah, definitely.
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  Driven largely by that really strong performance in solar energy.
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  And that impressive turnaround in profitability, especially in the second half,
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  for corrosion prevention.
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  Even though the big engineering segment had some profit margin challenges.
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  Right. And they deliberately pulled back revenue in the trading segment to focus
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  on slightly better deals.
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  But crucially, the company's overall financial position looks sound.
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  Good cash balance, debt coming down. Definitely a healthier foundation.
• 12:43
  So here's something for you, the listener, to think about. We heard about management
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  making strategic choices, right?
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  Like in corrosion prevention and trading, prioritizing profit over just chasing revenue.
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  Yeah, focusing on those favorable orders.
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  The question is, what do you think about that approach? Is that sustainable long term?
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  How might that focus on margin over volume shape their market position down
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  the road? It's an interesting strategic tension.
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  And maybe one final thought to leave you with. We know sustainability and major
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  infrastructure projects are huge themes in the region.
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  Massive drivers, yeah. So how will those powerful trends continue to shape SHS Holdings?
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  Both the opportunities, especially for EC and solar, but also maybe the challenges
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  like those environmental regulations potentially hitting CP.
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  It's definitely worth pondering. As always, we encourage you to look at the
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  full report if you want even more detail. but hopefully this gives you a really
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  solid understanding of their performance and what moves.
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  Music.