Latest / Investor Exchange / Qian Hu: Navigating Volatility, Sustaining Revenue in 1H2025

Transcript

Qian Hu: Navigating Volatility, Sustaining Revenue in 1H2025 · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:08
  Welcome, Curious Minds. Today, we're doing a deep dive into Count U Corporation Limited.
• 0:13
  They're an integrated fish service provider, and we've got our hands on their
• 0:17
  first half 2025 financial results and the press release.
• 0:21
  Our mission, as always, is to cut through the jargon, really understand how
• 0:24
  they performed, why they performed that way, and maybe get a Okay, so let's unpack this.
• 0:31
  When you first look at the numbers, it's a bit, well, puzzling.
• 0:34
  Revenue for the first half of 2025, $35.1 million.
• 0:39
  Pretty much the same as last year, steady. But, and this is the real head-scratcher,
• 0:42
  their net profit just tanked.
• 0:44
  I mean, it plummeted by a staggering 87.7%. So how does that happen?
• 0:48
  Stable revenue, but profit nearly disappears.
• 0:51
  That's exactly what we're here to figure out for you. That's the key question, isn't it?
• 0:54
  You see that resilient top-line revenue, but then the profit drop is just so
• 0:57
  dramatic. from $251,000 in the first half of 24 down to only $31,000 this time around.
• 1:03
  It immediately makes you ask, OK, what specific things happened under the surface?
• 1:07
  What eroded that profitability so much? And yeah, this deep dive using their
• 1:10
  own materials should shine a light on exactly that. All right,
• 1:13
  let's start with the big picture then.
• 1:14
  The overall group performance. As we said, revenue pretty flat at $35.1 million.
• 1:19
  Technically down just 0.2%.
• 1:22
  Interestingly, though, their
• 1:23
  gross profit actually edged up a little bit by 1.1% to $12.46 million.
• 1:28
  And the gross profit margin improved slightly, too, from 35.1% to 35.5%.
• 1:33
  But then, bam, that net profit figure, $31,000, down 87.7%.
• 1:39
  Quite a story brewing there. It really is. And what that means in practical
• 1:43
  terms is their net profit margin basically evaporated.
• 1:45
  It went from 0.9% down to 2%.
• 1:48
  0.3%, a tiny fraction. And it flows through, you know, earnings per share,
• 1:52
  EPS, that dropped hugely from 0.22 Singapore cents down to 0.03 cents.
• 1:56
  Also, net asset value per share, NAV, it slipped 1.7% to 34.46 cents.
• 2:02
  So yeah, the sales held up, but something fundamental further down the income
• 2:05
  statement really took a hit.
• 2:07
  Okay, that fundamental shift, let's track it down. Key on who isn't just one
• 2:10
  thing, right? They're an ornamental fish, aquarium, pet accessories, and also plastics.
• 2:13
  It's quite integrated. So if we break down the revenue by those segments,
• 2:16
  what does that tell us? Where did the money come from? Well,
• 2:18
  it's a mixed bag, actually.
• 2:20
  The fish segment, surprisingly, did quite well on the top line.
• 2:23
  Revenue there grew 5.3% up to $15.2 million.
• 2:26
  Healthy growth, but that growth was basically canceled out by weaker performance elsewhere.
• 2:31
  Accessories revenue fell 3.9% to $16.1 million, and plastics dropped 4.4% to $3.8 million.
• 2:39
  Sufficient accessories are still the big players, making up almost 90% of total
• 2:43
  revenue combined. And geographically, not much change either.
• 2:46
  Singapore revenue down a tiny bit, 1.2%. But overseas revenue actually grew
• 2:51
  slightly, 0.4%. So overall, a bit of give and take on the revenue side.
• 2:55
  Right, a mixed bag indeed.
• 2:56
  Fish up, accessories, and plastics down. But that still doesn't fully explain
• 3:00
  the massive profit drop, does it?
• 3:01
  If the fish segment grew revenue, you might expect profit to follow.
• 3:04
  So let's look at profit before tax for each segment. That must be where the
• 3:08
  real story emerges. What did those numbers show? Exactly.
• 3:11
  This is where it gets really illuminated. Remember the fish segment.
• 3:13
  Revenue up 5.3%. Yeah. Well, its profit actually decreased, down 11.8% to $1.3 million.
• 3:19
  So more sales, less profit. Very counterintuitive. But then look at accessories.
• 3:24
  Revenue was down 3.9%. Right.
• 3:26
  Yet its operating profits surged up by a massive 81.3% to $272,000.
• 3:34
  Quite the turnaround there. Wow. Okay. So complete opposite stories in fish and accessories.
• 3:39
  Precisely. And then plastics, its pre-tax profit decline of 23.2% down to $364,000.
• 3:45
  That kind of lines up with its revenue drop.
• 3:47
  More straightforward there. And finally, you have the unallocated corporate
• 3:51
  expenses, things like central admin, staff costs for the whole group.
• 3:55
  Those rose about 2.4% to $1.72 million.
• 3:58
  So you put it all together, the overall profit got dragged down mainly by the
• 4:02
  fish segment's unexpected profit dip and the plastics decline,
• 4:06
  even though accessories had that fantastic profit jump. That is fascinating.
• 4:10
  Such different dynamics within the same company. Okay, let's dig into the why.
• 4:14
  We see the what, but what reasons did the company give for these shifts?
• 4:17
  Let's start with the overall profit decline.
• 4:19
  Well, the group points first to the big picture stuff, you know.
• 4:21
  Global economic uncertainty, rising operational costs, geopolitical challenges,
• 4:25
  the usual suspects in today's environment.
• 4:27
  That's the macro backdrop. Sure, the external pressures.
• 4:31
  But they also highlighted specific
• 4:32
  internal factors. General and administrative expenses went up 1.5%.
• 4:37
  They mentioned things like unfavorable foreign exchange rates,
• 4:41
  putting money into IT systems, and importantly, startup costs for new operations
• 4:45
  they're setting up in Malaysia and Indonesia.
• 4:48
  Investing for the future, but it costs now. Also, net finance costs went up
• 4:53
  12.6%. Now, that's interesting because interest rates on their borrowings were actually lower.
• 4:58
  Oh, how does that work? It seems it was because their finance income dropped.
• 5:03
  You know, the interest they earn on cash or short-term investments.
• 5:06
  With interest rates generally falling in the environment they operate in,
• 5:09
  they earn less, pushing up the net cost.
• 5:11
  It does make you wonder about their cash sentiment strategy.
• 5:13
  And didn't you mention the tax rate earlier? That also played a big part,
• 5:16
  right? Oh, absolutely. A huge part.
• 5:18
  Their effective tax rate for this half was 43.2%. Compare that to 19.4% for
• 5:23
  the same period last year. Wow, more than double.
• 5:26
  Why such a big jump? It was mainly down to a couple of things.
• 5:30
  Some parts of the group, some entities actually made losses and they couldn't
• 5:33
  use those losses to offset the profits made by other companies within the group for tax purposes.
• 5:39
  Plus, they operate in different countries and the statutory tax rates just vary.
• 5:43
  So when the mix of profits and losses shifts across those jurisdictions,
• 5:48
  the overall effective rate can swing quite a bit. Okay, so it's like a perfect storm.
• 5:52
  Macro headwinds, rising admin costs, higher net finance costs,
• 5:57
  and a big jump in the effective tax rate, all hitting the bottom line.
• 6:01
  That's a good way to put it. It wasn't just one thing. It was a combination
• 6:03
  of factors squeezing profitability from multiple angles.
• 6:07
  Right. Now let's drill down into those segment specifics again because they were so contrasting.
• 6:12
  The fish segment growing revenue but falling profit. You said that was counterintuitive.
• 6:16
  What was the specific reason there? Yeah, it's quite specific.
• 6:19
  They said that while general demand for their fish products was strong across
• 6:22
  a diverse customer base, the profit hit came mainly from lower handling fees. Handling fees.
• 6:28
  Yeah, specifically from their transshipment activities. That's part of their
• 6:31
  aquaculture business, where they basically help move fish shipments for other parties.
• 6:36
  It's like a logistic service within the fish trade.
• 6:38
  So even though they sold more fish themselves, income from this specific service
• 6:42
  line decreased, dragging down the segment's overall profit.
• 6:46
  It highlights how reliant they are on different streams within even one segment. Ah, okay.
• 6:52
  So the specific service line within the fish segment underperformed.
• 6:56
  That makes more sense. Now let's flip to the bright spot. Accessories.
• 6:59
  Revenue down, but profit soaring 81%. That's remarkable.
• 7:03
  How did they pull that off? This is really where good management shines,
• 7:06
  I think. They acknowledged that buying was cautious, especially in places like
• 7:10
  China, due to trade issues and economic uncertainty. Sales were tougher.
• 7:15
  But the profit surge, they credit it directly to two things,
• 7:19
  streamlined inventory management and better margins from their proprietary products.
• 7:23
  Proprietary products. Yeah. Meaning their own brands.
• 7:26
  Exactly. Products they develop and own rather than just distributing others.
• 7:30
  These typically carry higher margins. So by managing stockholders really tightly.
• 7:36
  Probably reducing waste and holding costs and focusing sales efforts on these
• 7:41
  higher margin own brand items, they massively boosted profitability even on lower sales volume.
• 7:47
  That's impressive. Shows the power of efficiency and focusing on high value products. Absolutely.
• 7:52
  It's a great example of controlling what you can control internally when the
• 7:55
  external market is tough.
• 7:57
  And then plastics, revenue and profit both down. That seemed more straightforward. Yes, largely.
• 8:02
  The profit decline there tracked the lower revenue, but it was also made worse by a few factors.
• 8:07
  They set at higher raw material costs, increased operational expenses within
• 8:11
  that segment, and also differences in the sales mix.
• 8:13
  Sales mix, again, meaning maybe selling more of the lower margin plastic items. Precisely.
• 8:18
  They did say they tried to maintain a stable customer base by focusing on products
• 8:22
  with more sustainable margins, like essentials for health care and waste management.
• 8:26
  So it sounds like they're trying to navigate that, but costs and mix still hit
• 8:29
  them. Okay, so we've looked at revenue, profit, the reasons why.
• 8:34
  Let's take a step back and look at the company's overall financial health.
• 8:37
  How did all this activity impact their balance sheet, their assets and liabilities?
• 8:41
  Right, the balance sheet. Well, total assets actually increased slightly by
• 8:44
  about $0.4 million, ending up at $58.4 million.
• 8:48
  The big move here was buying a freehold office-cum-warehouse building in Selangor, Malaysia.
• 8:54
  That was a significant capital expenditure, around $3.2 million.
• 8:58
  A freehold property, that's a big investment. It is. They also bought a life
• 9:02
  insurance policy for a key management person, which also added to their financial assets.
• 9:07
  On the flip side, they did make progress on inventory, those streamlining efforts
• 9:11
  we talked about. Inventory decreased by $0.3 million.
• 9:14
  And they also collected some money owed to them trade and other receivables
• 9:17
  down $0.8 million, helped partly by getting a grant reimbursement.
• 9:21
  So investing in property, trimming inventory.
• 9:24
  What about the other side of the balance sheet, the liabilities?
• 9:26
  Total liabilities went up by about $1.0 million, the main reason.
• 9:31
  They took out new loans and borrowings, about $3.0 million worth,
• 9:35
  specifically to finance that property acquisition in Malaysia.
• 9:39
  Ah, so they borrowed to buy the building? Correct.
• 9:42
  That increase in debt was partly offset by normal stuff, like making regular
• 9:47
  repayments on lease liabilities and paying down some supplier's trade and other
• 9:51
  payables decreased as they settled bills.
• 9:53
  So, connecting the dots, despite the profit squeeze, they made a major investment
• 9:58
  in a property, funding it with new debt.
• 10:00
  What does that signal to you? It signals, I think, a degree of long-term confidence.
• 10:05
  They're willing to invest significantly in their physical infrastructure,
• 10:08
  probably aiming for long-term cost savings on rent and better operational control,
• 10:12
  even when short-term profits are under pressure.
• 10:15
  It's a strategic bet funded by leverage. Interesting.
• 10:18
  And how did all this play out in terms of cash flow? Sometimes cash flow tells
• 10:21
  a different story than profit. It did here, actually.
• 10:24
  Despite the much lower net profit, their net cash from operating activities
• 10:28
  actually improved in the first half of 2025 compared to last year. Really?
• 10:32
  Mostly driven by working capital changes. That reduction in inventory we mentioned freed up cash.
• 10:38
  And getting that grant reimbursement also helped boost operating cash inflow.
• 10:41
  Okay, so operations generated more cash. What about investing and financing?
• 10:46
  Well, investing activities were a net cash outflow, as you'd expect.
• 10:50
  That was mainly the money spent on buying the Malaysian property and purchasing
• 10:53
  that key man insurance policy.
• 10:55
  And financing activities were a net cash inflow. That was primarily due to drawing
• 10:59
  down those new bank loans to pay for the property.
• 11:02
  So operations generated cash, they spent big on investments,
• 11:05
  and funded part of it with new debt. Got it.
• 11:08
  A complex picture, but the improved operating cash flow is definitely noteworthy
• 11:13
  given the profit situation.
• 11:15
  All right, let's shift focus to the future. Looking ahead, how does Keonhu see
• 11:19
  the landscape for the rest of 2025?
• 11:21
  What's their outlook? Well, the executive chairman and CEO, Mr.
• 11:25
  Yapcock Cheng, didn't mince words in the press release.
• 11:28
  He described the global business landscape as remaining extremely volatile and
• 11:32
  challenging to navigate.
• 11:34
  He specifically pointed to ongoing instability in key regions,
• 11:38
  rising energy prices, and those escalating U.S. tariffs disrupting supply chains.
• 11:43
  He noted these are contributing to economic slowdowns, especially hitting China.
• 11:47
  He also made an interesting point that strategies companies are using to cope,
• 11:50
  like sourcing regionally or nearshoring, might build resilience,
• 11:54
  but they also bring their own new inefficiencies and costs.
• 11:57
  So, no easy answers. Sounds like they're very aware of the headwinds.
• 12:00
  So given that challenging outlook, what's their plan? How are they planning to navigate this?
• 12:05
  They're focusing on strengthening what they call their core capabilities.
• 12:08
  It seems to boil down to a few key things. Driving innovation,
• 12:12
  continuing to expand their product mix, probably leaning into those higher margin
• 12:16
  proprietary items and making their distribution networks even better.
• 12:20
  They also specifically mentioned leveraging technology and AI to boost productivity
• 12:24
  and better meet changing customer needs.
• 12:27
  That's becoming a common theme across industries, isn't it?
• 12:30
  Tech and AI for efficiency. Right. And they're also actively looking for strategic partnerships.
• 12:36
  Ways to maybe unlock new growth opportunities or expand into new markets together
• 12:40
  with others They seem to be relying on their wide product range and their spread
• 12:44
  out regional distribution as sources of resilience.
• 12:47
  So multi-pronged strategy, innovation, products, distribution, tech, partnerships.
• 12:52
  Despite the gloomy global picture, what's their final word on the outlook?
• 12:56
  Are they expecting things to get...
• 12:58
  Better, worse, stay the same. Their official statement is cautiously optimistic,
• 13:02
  I'd say, they concluded.
• 13:04
  Barring unforeseen circumstances, the group expects to maintain profitability
• 13:08
  in the second half of FY 2025.
• 13:10
  Maintain profitability. Okay, so not necessarily predicting a huge rebound,
• 13:15
  but expecting to stay in the black. Exactly.
• 13:17
  Aiming for stability in a tough environment.
• 13:19
  All right. So reflecting on this whole deep dive, what really stands out to you?
• 13:24
  We've seen this company dealing with a really turbulent global scene.
• 13:29
  Profit took a massive hit, yet they kept revenue stable, invested heavily in
• 13:33
  property, managed to improve operating cash flow, and even saw a segment's profit
• 13:37
  soar thanks to efficiency.
• 13:39
  It's quite a mix. It really is a fascinating case study in resilience, isn't it?
• 13:43
  That stark difference between the steady top line and the crashing bottom line
• 13:47
  just screams how vital operational efficiency and cost control are when times
• 13:52
  get volatile. You can't just rely on sales volume.
• 13:55
  But it also shows that even when profits are squeezed, making strategic long-term
• 14:00
  investments like that property or focusing on proprietary products can be seen
• 14:04
  as crucial for future strength.
• 14:06
  It's that constant balancing act between managing the present and building for the future.
• 14:10
  Defense and offense, like you said. Yeah, that balance is key.
• 14:13
  Cutting costs versus investing for growth, all while trying to adapt to a chaotic global market.
• 14:17
  It's incredibly tricky. So here's something for you, our listeners,
• 14:21
  to think about as you go about your day.
• 14:23
  How do those big macro challenges we talked about, the geopolitics,
• 14:27
  energy prices, tariffs, how do they actually filter down and affect the day-to-day
• 14:31
  reality and the profitability of a specific business like Keenan Hu?
• 14:35
  And maybe more pointedly, given the huge profit challenge they faced in the
• 14:38
  first half, what is their strategy for the next six months focusing on innovation,
• 14:42
  efficiency, partnerships, while aiming just to maintain profitability,
• 14:46
  suggests about how companies are trying to navigate this complex,
• 14:50
  uncertain economic weather? It's a real tightrope walk.
• 14:53
  Music.