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Khong Guan Limited’s FY2025 Operations Hit By Doubtful Debts · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:08
  Welcome back to the Deep Dive. Today, we're digging into Kongwan Limited, KGL.
• 0:13
  Specifically, their full-year financial results for the year ending July 31st, 2025.
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  So FY 2025. Now, if you've been keeping an eye on KGL, you'll know there was some buildup to this.
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  They put out a profit guidance announcement beforehand, kind of a warning shot, really.
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  Yeah, a heads up to the market. Exactly. Basically told shareholders,
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  look, brace yourselves for a net loss.
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  And they specifically mentioned rising doubtful debt provisions.
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  Right. Bad debts. And weaker performance in their operations over in Malaysia and Singapore.
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  So expectations were, well, pretty low.
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  And that warning kind of sets our mission for today, doesn't it?
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  We need to unpack these actual results now that we have them.
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  See how bad that loss really was. Exactly.
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  Was it as severe as they warned, and, crucially, why.
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  We need to understand the factors behind the numbers. You know,
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  the internal stuff they flagged, like those debts, but also maybe some external
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  things or even unexpected strengths.
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  And then see what they're saying about the outlook, right? Precisely.
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  What does it all mean going forward?
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  Okay, let's get into it then, starting at the top-line revenue.
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  And this is maybe the first surprise. Yeah, it's actually up.
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  Revenue increased by 4.6%. So it went from about $70.16 million in FY 2024 to
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  $73.38 million in FY 2025.
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  So selling more stuff despite, you know, what sounds like a tough environment. That's interesting.
• 1:35
  It is. But like the guidance warned, it wasn't enough for a profit.
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  The group ended up recording a net loss attributable to equity holders.
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  The final number was $264,000 for the year. Right.
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  264K loss. Still red. But hang on.
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  That guidance made it sound potentially quite bad. How does that 264K loss stack
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  up against last year? Ah, and that's where it gets really interesting.
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  Last year, FY224, the loss was much bigger. How much bigger?
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  It was S1,365,000, over 1.3 million. Wow.
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  Okay, so they went from a loss of over S1.3 million to a loss of just S264,000.
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  Exactly. So while it is a loss, it's a massive improvement, over a million dollars
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  better year and year. That's a huge swing.
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  That doesn't quite square with just weaker performance. It doesn't.
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  And you see that reflected in the loss per share, too. It improved massively
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  from 5.25 cents down to just 1.02 cents.
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  So the loss happened like they warned, but it was dramatically less severe. Right.
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  Which tells us that while some parts of the business might have struggled as
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  expected, something else must have performed, well, unexpectedly well,
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  or some other factor came into play.
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  Okay, so we need to find the heroes behind the scenes that help cushion that blow.
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  So where did that improvement come from? If the core Malaysian and Singapore
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  operations were supposedly weak. Let's start looking.
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  What's the first big positive driver?
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  Well, a really significant one comes from outside their main trading business,
• 3:01
  their associates. Your associated company.
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  Yeah. The group's share of results from associates net attacks.
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  This showed a major turnaround.
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  In FY 2024, the associates actually contributed a loss of S$458,000 to the group's
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  bottom line. Right. So they were dragging things down.
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  Exactly. But in FY 2025, that completely flipped. They contributed a profit of S$124,000.
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  Okay, that's a swing of nearly $600,000 from negative to positive just from
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  the associates. That's substantial.
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  It really is. And digging into the details, it seems to be driven by two main things.
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  First, a solid profit contribution from United Malayan Flour,
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  that's UMF, their milling and trading associate. Okay.
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  And second, SG Protein Peat, LTD.
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  That's their plant-based protein
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  venture. apparently incurred lower losses because of improved sales.
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  Interesting. So the associates provided a really strong operational boost then.
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  Definitely a key part of the story.
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  But it's not the whole story of that reduced loss. There's a big non-operational factor, too.
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  Ah, right. You hinted at something earlier, currency effects. Bingo.
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  This is where things get a bit more
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  accounting focus, but it's crucial for understanding the headline number.
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  There was a massive gain from currency translation differences.
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  I'm looking at the statement of comprehensive income. Yeah, under other comprehensive
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  income, or OCI. There's a huge positive number.
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  It's $1,689,000.
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  That's the one. S1.689 million dollar gain. Explain that. What does that actually
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  mean? Where does it come from?
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  It relates mainly to their foreign operations, especially in Malaysia.
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  The Malaysian ringgit strengthened against the Singapore dollar during the financial year.
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  So when KGL translates the financial statements of their Malaysian subsidiaries
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  back into Singapore dollars for the group accounts.
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  They book a game because the assets and earnings are worth more in Sing dollars.
• 4:49
  Exactly. It's an accounting game purely due to currency movements.
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  And compare that to FY 2024 back then, they actually had a loss in OCI from
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  currency translation of S341,000 dollars.
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  So went from a 341k loss to a S1.689 million dollar gain.
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  That's a two million dollar swing just from currency translation on paper.
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  Precisely. It massively boosts the reported total comprehensive income and helps
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  narrow that net loss figure dramatically.
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  But critically for anyone trying to understand the business health,
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  this isn't cash, right? It's not like they suddenly made an extra S $1.7 million from selling biscuits.
• 5:28
  Not at all. It improves the look of the balance sheet and the overall profitability picture.
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  A very helpful paper gain in this case. But yeah, we need to look past it to
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  see the real operational story.
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  Exactly. So that currency gain explains a lot about why the reported loss shrank so much.
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  Right. But now we need to circle back to what management was actually worried
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  about in that profit warning.
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  Where were the real operational weaknesses?
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  Well, they were spot on about the doubtful debts.
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  That really stands out in the numbers. The allowance on impairment of trade receivables. Yep.
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  That's the provision they set aside for invoices they think they might not be
• 6:03
  able to collect from customers.
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  And how did that look? It surged. I mean, really surged.
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  In FY 2024, it was $60,000.
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  Okay. In FY 2025, it jumped to $547,000.
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  Wow. From 60K to over half a million. That's nearly a tenfold increase.
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  It is. A massive spike. That directly confirms the doubtful debt issue they warned about.
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  It points to significant operational risk. Does it say where that risk is concentrated?
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  Is it across the board or? The report suggests it's particularly an issue within
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  their Malaysian operations. OK, let's look at the subsidiaries then.
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  Sui Hinchan Company, SHC, that's their Malaysian distributor, right? Correct.
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  And their results show this perfectly. Their gross profit margin actually improved
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  slightly, maybe helped by lower import costs. So making more profit on the goods themselves.
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  Yes. But despite that, they flipped from a profit after tax of S-47,000 last
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  year to a loss of A-87,000 this year. And why the flip?
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  The commentary directly attracted it to that net impairment allowance on trade receivables.
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  The bad debt provision wiped out their gross profit improvement and then some.
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  Ouch. Okay. So that's one Malaysian subsidiary hit hard by bad debt. What about others?
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  Tungguan Food Products, TGF, also Malaysia? TGF is a slightly different story.
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  Their revenue actually increased, partly helped by that favorable currency translation we talked about.
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  Good news there, then. Well, yes and no. Revenue up, but their operating expenses
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  also jumped significantly. Why was that?
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  The report mentions costs associated with setting up a new warehouse and office
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  in Kodomurudu, Sabah. Ah, expansion costs. Right.
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  So investing for growth in East Malaysia, but that hits the P&L in the short
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  term. Exactly. Higher setup costs, rent, logistics, that kind of thing.
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  Necessary for the future, maybe, but a drag on current profits.
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  And then there was Singapore, which they also flagged. How did that perform?
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  It was a weaker spot, but maybe less dramatic.
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  Singapore operations revenue saw a marginal decrease, fell slightly from S1.54
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  million dollars to S1.48 million dollars.
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  So a bit softer domestically, too. Yeah.
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  So the overall picture is associates doing better, currency giving a big paper
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  boost, but the core trading businesses, especially in Malaysia,
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  facing real pressure from bad debts and higher operating costs.
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  Singapore also a bit sluggish. OK, given that the big currency gain isn't actual cash.
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  Right. It makes looking at the cash flow statement even more important, doesn't it?
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  Did the actual operations generate or burn through cash? And this is probably
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  the single most positive operational signal in the entire set of results.
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  Oh, good news on cash flow.
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  Yes. A complete turnaround from last year. In FY 2024, the group reported net
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  cash used in operating activities of $821,000.
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  So they were burning cash just running the business day to day. Correct.
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  But in FY 2025, they reported net cash generated from operating activities of $546,000.
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  From an S821K burn to generating over half a million in cash.
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  That's a swing of nearly S1.4 million dollars in operating cash flow.
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  It's a very significant positive shift. It means the underlying business,
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  despite the reported net loss and the bad debt provisions, was actually bringing
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  cash in the door from its core activities.
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  And that kind of operational cash generation gives them breathing room, right?
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  To handle things like the expansion
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  costs in SEBA or absorb some of those potential bad debts. Absolutely.
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  It provides vital liquidity and operational stability. It suggests better working
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  capital management, or perhaps just the timing of cash collections versus payments
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  worked in their favor this year.
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  And presumably that positive cash flow played a role in their decision about
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  dividends, despite the net loss.
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  You'd have to assume so. It sends a signal of confidence.
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  The board recommended a final dividend. What are they proposing?
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  A final tax-exempt one-tier dividend of one cent per ordinary share for FY 2025.
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  And how does that compare to last year?
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  Well, they didn't declare a final dividend for the corresponding period last
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  year, though they did pay out some dividends for the full FY 2024 eventually.
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  But recommending one this year, even with a net loss on the books,
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  suggests the board feels the company is fundamentally sound enough.
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  Likely thanks to that positive operating cash flow.
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  Okay, so wrapping things up, we've got this mixed bag. A much smaller loss,
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  thanks to currency and associates, positive operating cash flow,
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  which is great. But also these worrying signs like the huge jump in bad debt
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  provisions and those expansion costs.
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  So how does KGL management see things panning out over the next 12 months?
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  What's their official outlook?
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  The word they use as for the listing rules requirement is cautious.
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  Huh. OK. Standard corporate language. But what are they specifically cautious
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  about? What risks are they highlighting?
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  They're pointing mainly to macroeconomic headwinds. Things like global trade
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  uncertainties and persistent inflationary pressures.
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  The worry is that these could disrupt their export sales and also dampen consumer spending generally.
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  And if consumer spending weakens,
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  that could feed back into those bad debt problems, right? Exactly.
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  More pressure on customers could be more difficulty collecting receivables.
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  It increases the risk profile.
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  Are they pointing to any potential bright spots or buffers against these risks?
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  They do mention one potential positive factor.
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  They note that the current favorable price environment for certain commodities
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  might continue to support their associates' milling operations.
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  Ah, so looking again to United Malayan flour, which helped them this year. Seems like it.
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  If that associate continues to perform well due to pricing, it could act as
• 11:39
  a bit of a stabilizer for the group if the consumer side gets tougher.
• 11:42
  Okay. So the key takeaway here seems to be Kong Wan managed to significantly
• 11:47
  narrow its loss in FY 2025, which looks good on the surface.
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  But a lot of that improvement came from non-operational factors like currency
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  translation and from their associates stepping up. Well, the core business showed signs of strain.
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  Particularly that very sharp rise in provisions for doubtful debts.
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  But counterbalancing that strain, they did manage to generate positive operating
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  cash flow, which is a definite plus.
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  Absolutely. And that brings us to the final thought for you listening to Chew On.
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  We saw that positive operating cash flow figure S546,000 generated, which is good.
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  But we also saw the increase in the allowance for doubtful debts was almost
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  identical. It went up by nearly S-490,000 dollars from 60K to 547K.
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  Let's call it roughly half a million dollars extra risk they've identified.
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  So the cash generated basically matches the increase in perceived bad debt risk.
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  Pretty much year over year.
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  So the question is, given their own cautious outlook about inflation and consumer
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  sentiment potentially getting worse, how much buffer does that positive cash flow actually provide?
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  Could that cash cushion get eroded very quickly if those trade receivable problems
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  continue or even accelerate in the next year? That's the question.
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  How resilient is that cash position against the operational risks they've clearly identified?
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  What stands out to you when you balance those factors? Something to definitely
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  keep an eye on. That's all we have time for on this deep dive. Thanks.