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Currency Volatility Wipes Out SHS Holdings 2025 Half-Year Gains · Investor Exchange

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  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:07
  Welcome to the Deep Dive. We're here to cut through the corporate jargon and
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  give you the insights you need.
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  Today, we're tackling the first half 2025 results for SHS Holdings LTD.
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  And our mission really is to get our heads around this, well, this paradox.
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  How does a company see huge revenue growth, but at the same time report a much,
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  much deeper loss on the bottom line? Yeah, this report, it's quite the contradiction.
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  One hand, fantastic top line transformation.
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  But then the loss is just accelerated. It's kind of like watching a speeding car hit a wall almost.
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  We need to figure out what's going on. That sums it up perfectly.
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  It's a real head-scratcher.
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  Let's just pin down those key numbers first.
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  Revenue really did soar. We're talking a 49.1% jump year-on-year. Wow.
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  Yeah, it's $48.5 million compared to S$32.6 million in the first half of 2024.
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  That's serious growth on the top line. Okay. But like you said, the bottom line.
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  A totally different picture. Quite grim, actually. The net loss that goes to
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  the equity holders. It deepened by almost 70%. 70. Ouch.
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  Yeah. And that translates to an 88.24% jump in the loss per share, both basic and diluted.
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  It went from 0.17 cents to 0.32 cents. Okay. That is painful.
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  So the big question we need to unpack for you is this.
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  How do you add S-16 million dollars in sales and somehow manage to lose more money?
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  Our deep dive suggests there are kind of two big reasons for this headline loss.
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  One is, well, it's a non-cash paper loss you can mostly set aside. but the other,
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  That looks like a real operational problem in their biggest new venture.
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  We need to separate those out for you. Okay.
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  All right, let's start with the good news, maybe. Where did that revenue growth actually come from?
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  That 49.1% jump, it didn't just appear out of thin air. Where did it originate?
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  Looking at the segments.
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  Engineering and construction, corrosion prevention, solar, and the new one, commodities.
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  Right. And the growth. It was overwhelmingly driven by one thing,
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  strategy, specifically their acquisition strategy.
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  The commodity segment just completely dominated the numbers here.
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  Ah, the newcomer. Exactly.
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  Its revenue went from, what, $1.7 million in 1H2024. Pretty small.
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  Yeah, tiny. To a massive $17.2 million in 1H2025.
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  Okay, that's the explosion right there. That's it. And it wasn't organic market
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  growth. This was almost entirely the result of buying the title companies over
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  in China. Right, the aluminum businesses.
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  Yes, precision aluminum manufacturing and recycling. So SHS basically just bought
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  a huge chunk of new revenue and consolidating those sales onto their books is
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  what drove that huge jump this half.
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  So it's fair to say that acquisition is pretty much responsible for all the
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  group's growth, though. Pretty much, yeah.
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  Though we should give credit where it's due. The engineering and construction
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  segment, EC, it also did pretty well.
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  Its revenue grew 44.5 percent, up to $17.2 million.
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  Oh, so strong. Very strong. And that came from, you know, better project execution
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  and recognizing revenue from work they'd completed.
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  It helps to remember that the first half of 24 was actually a bit slow for EC.
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  Their big new projects only really kicked off after that period.
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  Got it. So timing helped there, too. But this growth was offset a bit elsewhere.
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  It was. The two, let's call them legacy segments, didn't fare as well.
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  Solar energy revenue down 34.7%. Why was that?
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  Timing differences again on when projects were executed and booked.
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  And corrosion prevention, or CP, that fell 10.3%. And the reason there?
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  Simply fewer orders coming in for their site and blasting jobs.
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  Okay. So a very clear revenue picture emerges.
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  Huge boost from the acquisition, solid performance from EC, but dips in solar and CP. Exactly.
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  So now, the crucial question.
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  Why did that nearly 50% revenue growth just vanish and actually drag the bottom
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  line deeper into the red?
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  We need to trace where the profitability went wrong.
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  Okay, but before we get into the big loss drivers, it's maybe worth pointing
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  out they did manage some costs well. That's true.
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  Administrative expenses actually fell by 16%. 16%, that's not bad.
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  No, it shows they were actively trying cost optimization.
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  The real problems were definitely elsewhere. Right, and this is where it gets,
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  like you said, really interesting.
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  Yeah. Because we have those two very different issues causing the pain.
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  Let's start with the one that feels like the bigger, more fundamental operational
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  issue, that shiny new commodity segment.
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  One that brought in the S17.2 million dollars in sales. That's the one.
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  Shockingly, it reported a gross loss of Serio.2 million dollars in this period.
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  Wait, a gross loss? Yes, which means its growth profit margin was negative 1.4 percent. Hold on.
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  So $17 million in sales generated a loss even before considering overheads, admin, anything else.
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  They're basically selling aluminum for less than it costs to make or recycle it. Is that right?
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  That's what a negative gross margin implies, yes. Is this just temporary pain
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  from the integration, do you think?
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  Or do they buy a business that fundamentally loses money on its core operations?
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  Well, management points to higher cost pressures. And yes, expenses related
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  to integrating and realigning these new aluminum companies.
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  So you hope it's temporary. But the key takeaway, operationally speaking, is Stark.
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  Their brand new growth engine is currently burning cash, just doing its basic job.
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  That sounds like a major problem they need to fix. Faf. Absolutely. It's fundamental.
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  Now let's switch gears to the second big drag on the results.
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  This one's more dramatic in numbers, but maybe less worrying operationally.
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  It's the huge jump in other operating expenses.
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  They shot up 130.2% from S2.8 million dollars to S4.6 million dollars. Wow.
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  Another massive jump. What on earth caused that? Okay, so this is almost the
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  textbook definition of a non-cash paper loss. It's quite fascinating, actually.
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  The increase was almost entirely due to unrealized foreign exchange losses. Ah, FX movements.
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  Exactly. They hold assets denominated in U.S. dollars.
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  During this reporting period, the U.S. dollar weakened against the Singapore dollar.
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  So when they translate those USD assets back into SUD for the report,
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  boom, they look like they're worth less on paper.
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  So it's unrealized. They haven't actually lost that cash.
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  Correct. It's a non-cash hit. It's an accounting valuation thing.
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  If the USD bounces back next quarter, this loss could shrink or even flip into a game.
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  Right. So it's important for you, the listener, to distinguish these two. Absolutely critical.
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  The operational gross loss in commodities. That's a real cash draining issue
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  tied to the business itself.
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  The FX loss. That's more like financial market volatility hitting the accounts.
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  Painful, yes, but different. That makes a lot more sense now.
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  So you've got this operational drag from the new business. compounded by this
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  big whack from currency movements.
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  That explains the deeper net loss. Precisely. And just quickly,
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  we should also note, finance costs were up too.
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  Expecting with the acquisition, I guess. Yes, up 16.6% to about half a million dollars.
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  Simply because they had to use more bank credit facilities to fund everything.
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  It all ties back to that big growth push.
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  And that growth push, that acquisition, didn't just mess with the profit and loss, did it?
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  It completely reshaped the company's structure, the balance sheet.
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  Oh, absolutely. You mentioned leveraging up the company. It's like they traded
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  in a family car for an A380 overnight.
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  Good analogy. They've got the scale now, but maybe still figuring out all the
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  controls. Yeah. And yeah, that acquisition is plastered all over the balance sheet.
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  Non-current assets skyrocketed from S66 million dollars to a some hundred seventy
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  two point four million dollars.
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  Huge jump. Almost entirely consolidating those China subsidiaries,
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  bringing in massive amounts of property, plant, and equipment,
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  including, interestingly, S-53.5 million dollars in assets still under construction.
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  Okay. And liabilities must have followed suit. Naturally. You can't add that
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  many assets without adding debt or obligations.
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  Total liabilities also jumped massively, from S-37 million dollars up to S-152
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  million dollars, roughly. Whoa. Yeah.
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  Big increases in what they owe suppliers trade and other payables and a significant
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  hike in long-term bank loans, all tied to funding the purchase and just running
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  those much bigger new businesses.
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  So that's the tradeoff. Crystal clear. You buy scale, but you take on a whole
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  lot more debt and financial risk.
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  Exactly. Massive scale, massive commitments.
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  But amidst all that leveraging and the operating loss we talked about, their total equity...
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  It only increased slightly. That seems counterintuitive. Was there something propping it up?
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  There was. And again, it's another non-operating item, sort of a bit of good
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  fortune on the accounting side.
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  Total equity ended up at S142.7 million dollars.
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  It was largely stabilized because they recognized a 6.14 million dollar gain
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  on some long-term equity investments they hold.
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  A gain on investments. How does that work? It falls under a category called
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  FEOCI fair value through other comprehensive income.
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  Basically, certain investment gains bypass the main income statement.
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  Ah, so they don't count towards that net profit or loss figure we discussed. Exactly.
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  They go straight to bolster the equity balance sheet amount.
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  And in this case, that S6 million dollar gain acted like a crucial buffer.
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  A shield almost. A shield is a good word.
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  It partially offset the net loss they reported and the dividends they paid out.
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  Without that game, the equity position would look noticeably weaker.
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  Okay, so another non-operational factor playing a big role.
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  But hang on, there was a flash of genuinely good news in the cash flow,
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  wasn't there? Yes, definitely a bright spot.
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  Despite the net loss on paper, their net cash from operating activities turned positive.
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  Positive, how much? $3.6 million generated from operations in 1H 2025,
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  which is a really significant turnaround from the same period last year when
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  they had a $5.2 million outflow.
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  That's a big swing. What drove that improvement?
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  Primarily better working capital management. It suggests that fundamentally,
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  the underlying business operations, maybe excluding the immediate turmoil of
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  the new acquisition, are managing cash flow more tightly. That's a positive signal.
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  Okay, so connecting all these dots, the revenue, the losses,
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  the balance sheet changes, the cash flow, what's the outlook?
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  What does management see coming in the next year or so?
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  Yeah, looking ahead, the picture they paint is definitely mixed.
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  There are some solid opportunities out there, but also those cost challenges
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  aren't going away. Let's look at the opportunities first. What are they highlighting?
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  Well, for engineering and construction, Singapore's continuing focus on big
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  infrastructure projects is key.
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  Right, the MRT expansion, public housing. Exactly.
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  Huge, long-term demand drivers.
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  Management says their focus now is on completing the contracts they have and
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  really getting involved in those upcoming MRT network projects.
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  So a solid pipeline there. And for solar.
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  Demand is expected to keep rising, both in Singapore and Indonesia.
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  Government support, like the Solar Renova program in Singapore, is a big help.
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  But what's maybe more interesting strategically is their move into adjacent areas. Like what?
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  They're actively building capabilities in battery energy storage systems,
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  BSS, and also EV charging stations.
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  Ah, complementing the solar installations. Smart. That's very smart.
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  Adding BSS isn't just a nice add-on, it's becoming crucial. Solar power is intermittent, right?
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  Batteries let them offer stable, round-the-clock power. Makes them a much stronger
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  partner for big projects.
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  Precisely. Especially for large infrastructure or utility customers.
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  It increases the value proposition of their whole clean energy offering.
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  It's a forward-thinking move.
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  Okay, so good potential in ENC and solar.
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  Now, the challenges in the cautious notes. I saw they used the word prudent
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  regarding the corrosion prevention segment.
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  That sounds like corporate code for we're struggling, doesn't it?
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  Right. Like maybe they're facing intense competition and having to pull back.
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  That's likely the right way to read it. The CP segment is grappling with rising
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  costs, compliance issues, and really tough pricing competition.
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  Especially from shipyards, maybe.
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  That seems to be a key area. So when they talk about a prudent approach in order management strategy.
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  They mean they're being very selective, probably turning down low margin work. Exactly.
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  They're explicitly choosing to protect profitability over chasing volume or
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  market share in that segment. It confirms they're under pressure and trying
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  to stop CP from becoming a drag on the group's overall results.
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  Okay, and finally, the big one, commodities. The new growth engine that's currently losing money.
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  What's the word there? Management confirmed they are, and I quote,
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  closely monitoring the segment. Which means we know it's a problem.
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  Pretty much. They also said they're taking operational initiatives to enhance
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  performance, which implicitly confirms that negative gross margin issue.
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  It's ongoing and they know they have to fix it urgently.
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  Right. The success of this whole massive expansion really hinges on turning
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  that segment around. OK, so let's try and wrap this up.
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  What does this all mean for you, the listener, trying to understand SHS Holdings?
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  Well, the 1H 2025 results paint a picture of a company in the middle of a really
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  fast, pretty high-risk transformation driven by that big acquisition.
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  They absolutely succeeded in scaling up the top line. But that growth story
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  got badly damaged by two things.
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  That huge, but mostly non-cash, FX loss.
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  And more concerningly, that operational loss in the brand new high-revenue commodities
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  business. While the older segments, EC and solar, seem to be positioning themselves
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  okay for the future, the immediate headache is definitely internal.
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  That's right. The number one challenge for SHS right now is practical.
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  They have to figure out how to make that S17 million dollar commodities business
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  actually make money, not lose it. They need to solve that core operational issue.
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  And they need to do it while managing the financial strain from all the new debt they took on.
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  And while navigating that tough competition and cost pressure in their older
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  corrosion prevention business, it's a tricky balancing act. Okay,
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  so here's a final provocative thought for you to consider as we wrap up.
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  Remember that $6.14 million gain on their long-term investments,
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  the one that bypassed the income statement and propped up equity.
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  The FBOCI game. It was absolutely critical this period. It stopped the overall
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  financial picture from looking much worse.
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  So the question is, how sustainable is this group's financial health if its
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  stability, even partially, relies on these kinds of non-optrating investment gains?
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  Rather than consistent, reliable operating profit coming from its core industrial
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  businesses, especially the ones they just spent so much to acquire.
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  That really is the million-dollar question, isn't it? It is.
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  And I guess the second half of 2025 and beyond will start to give us the answer. So.