Latest / Investor Exchange / Hafary Holdings FY2025 US Pivot & Inventory Gamble

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Hafary Holdings FY2025 US Pivot & Inventory Gamble · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  You know, usually when we sit down to do a deep dive into a high growth sector,
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  we're looking at something flashy.
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  Right, like tech, biotech, AI, maybe sustainable energy if we're feeling grounded.
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  Yeah, exactly. We aren't usually looking at, well, tiles.
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  Stone, ceramic flooring, marble.
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  It sounds incredibly static. I mean, And it's literally the stuff you walk on
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  and completely ignore. Right.
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  But I've been going through the FY2025 financials for Hefari Holdings,
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  and boring is definitely the last word I'd use here. It's surprisingly dynamic.
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  It really is. We are looking at a company that is acting as this massive proxy
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  for the Southeast Asian construction boom.
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  And weirdly enough, seems to be a huge beneficiary of global trade tensions with the U.S.
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  It's a classic case of looking under the hood. On the surface, sure, they sell tiles.
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  But the financials tell this entirely different story about supply chain shifts,
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  inflation management, and a massive pivot in where they actually make their money.
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  Yeah, and if you want to know if the property market is actually healthy,
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  not just what the pundits say on TV, but where the money is physically moving,
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  you look at a materials company like Hefari. Exactly.
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  So that's our mission today. We are going to strip down Hefari's interim financial
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  statements for the full year Ended December 31, 2025.
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  And we're doing this strictly from an investor perspective. Right.
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  We aren't here to pick out bathroom patterns.
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  No, definitely not. We want to figure out, is this business actually making money?
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  And is the sudden explosive growth in their manufacturing arm just a fluke?
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  Or is it the start of a massive trend?
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  And we definitely need to look at the risks, too. Because when you dig into
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  their balance sheet, there are some very large numbers sitting in inventory
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  that we need to make sense of. For sure.
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  But let's start with the headline numbers. Because despite a really challenging
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  global environment, they didn't just maintain stability.
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  No, they had a really solid jump. FY 2025 revenue hit roughly $287 million.
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  That is up about 9.1% from the $263 million they did in 2024.
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  And that isn't just a one-off bump either. If you look at the second half of
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  the year alone, 2H 2025 brought in nearly $150 million.
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  And profit net of tax followed right along, hitting $31.1 million.
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  That's an 8.2% increase. Which is solid. But I think if you just look at the
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  top line, you miss the real story here. In a vacuum...
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  You know, 9% revenue growth is good, but it's not mind-blowing.
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  Right. What really catches my eye is the efficiency of the business.
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  I noticed that in the margins, too. We've been hearing about inflation for,
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  what, two years straight now?
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  Energy costs, shipping, raw materials. Yeah, the stuff that usually absolutely
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  crushes margins. Exactly.
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  But Hafari's gross profit margin actually expanded.
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  It went from 40.3% to 42.1%. Now, that doesn't sound like a lot to a layperson
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  I know. but in a high-volume physical goods business, a near 2% jump in gross
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  margin is massive. It implies pricing power, right? Exactly.
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  It means they aren't just eating the higher costs of shipping or energy,
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  they're passing those costs directly on to the customer.
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  Or they're just selling more expensive premium stuff. It's likely a mix of both.
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  They are keeping over 42 cents on every single dollar of tiles sold before overheads.
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  That is a very healthy buffer.
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  And for you listening, as an investor, this flows right down to the earnings
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  per share the EPS, that rose to 6.94 cents, up from 6.4.
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  So the actual value of the company per share is tangibly increasing.
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  Okay, so the engine is running efficiently, but we need to figure out where
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  this money is actually coming from.
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  Yeah, because when I looked at the segment breakdown, that growth wasn't just
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  spread evenly across the board.
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  Not at all. The general segment, which is their retail sales to homeowners,
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  interior designers, and renovators in Singapore.
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  It was fine. It was steady. Revenue there was up 4.0% to about $142.7 million.
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  That is their bread and butter. And that correlates directly to the Singapore
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  property market, right? Exactly.
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  Resale flats change hands, people rip out the old floors, and Hafari sells them new tiles.
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  It's reliable, it pays the bills, but it's not where the excitement is.
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  No, the excitement is definitely in the manufacturing segment.
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  This is the part that totally jumped off the page for me.
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  This segment grew by over 35%. 35.6% to be exact. Revenue surged to $63.1 million.
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  And this is driven by their production plants in Klong, Malaysia.
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  But here's the crazy thing. They aren't just making more tiles for the Malaysian market.
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  No, they aren't. The financial notes specifically highlight this massive surge
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  in distribution to the United States.
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  Sales to the U.S. jumped from about $29 million to nearly $35.7 million.
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  That is a huge leap. This is where the whole macro picture gets really fascinating.
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  You have to ask, why is the U.S.
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  Suddenly buying so many tiles from a Malaysian factory? It's the China plus
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  one strategy playing out in real time.
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  We hear that buzzword a lot, China plus one.
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  But this is a concrete example of it. It is entirely real. U.S.
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  Buyers are actively diversifying away from Chinese suppliers.
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  Whether it's because of tariffs, trade friction, or just wanting to reduce supply
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  chain risk, they need a new source.
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  And Hefari's Malaysian plan is just stepping right into that vacuum.
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  Precisely. they are effectively bycasting the geopolitical tension and offering
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  a high-quality, neutral alternative.
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  So this isn't just a case of, we ran a good marketing campaign and sold more tiles.
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  This is a massive structural tailwind. It changes the narrative completely.
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  It turns hafari from a purely local Singaporean play into a legitimate international exporter.
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  If that trade shift is permanent.
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  And looking at global politics, it might be that 35% growth in manufacturing
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  might just be the beginning.
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  Wow. Okay, let's look at the third bucket, the project segment.
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  These are the major developments, architecture firms, commercial construction.
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  Right, the big institutional stuff. This segment saw moderate growth of about 2.2% to $81.2 million.
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  But there was a really interesting strategic move mentioned here, an acquisition.
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  Yes, MML Shanghai Trading Co, LTD.
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  Yeah. And this is interesting, because while the manufacturing growth was totally
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  organic, they made more stuff and sold it, the project growth was partly bought. Right.
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  They acquired MML Shanghai to capture incremental sales in that region,
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  showing they are willing to buy growth where organic growth might be a bit slower.
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  And that leads us to one of the weirdest terms I found in the finance report,
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  negative goodwill. Ah, yes.
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  They listed a gain of $234,000 from this acquisition under negative goodwill.
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  How do you make a game on paper by spending money to buy another company?
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  It's basically the accounting equivalent of finding a ridiculous bargain at a garage sale.
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  Usually goodwill is what you pay over the fair value of a company's net assets.
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  You pay a premium because of their brand reputation or customer list.
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  Negative goodwill is the exact opposite. It means Hafari bought MML Shanghai
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  for less than the fair market value of its actual net assets.
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  So just to simplify, if the Shanghai company had a million dollars in physical
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  assets, Hifari maybe only paid $800,000 for it. Effectively, yes.
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  And accounting rules require you to book that difference as an immediate gain.
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  For an investor, it suggests management is being highly disciplined.
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  They aren't just throwing money around to overpay for growth.
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  They are waiting for a genuinely good price. I like that.
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  Having bargain hunters in management is a great trait.
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  Speaking of money management, let's talk about their costs and their debt.
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  Always a fun topic in construction. Seriously, in heavy materials and construction,
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  debt is usually the silent killer.
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  Interest rates have been so high globally, I honestly expected their finance
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  costs to look pretty ugly this year.
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  You would definitely think so, but their finance costs actually decreased by
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  12% down to $10.7 million.
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  How did they pull that off in this environment? The report specifically attributes
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  it to an overall decrease in the bank loan interest rates they managed to secure.
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  This is crucial if you're evaluating this company.
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  In a debt-heavy industry, if you can lower your cost of capital while your competitors
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  are struggling to pay high interest, you win.
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  It creates a financial mode. Less money going to the bank means more money dropping
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  to the bottom line for shareholders. Exactly.
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  But I have to say, the real aha moment for me in this entire report wasn't the
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  profit, and it wasn't the debt. It was the cash flow.
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  I literally circled this number three times. Net cash from operating activities. Yes.
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  It skyrocketed. In FY 2024, they generated about $22.6 million in operating cash.
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  In FY 2025, it was $57.8 million.
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  That is way more than double. It's a massive discrepancy. How do you double
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  your cash flow when your actual revenue only grew by 9%?
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  You become absolutely ruthless with your working capital.
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  When you dig into the cash flow statement, you see the exact mechanics of how they did it.
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  It comes down to two things. A decrease in trade receivables and an increase in trade payables.
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  Let's unpack that a bit for anyone listening who isn't a CPA. Sure.
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  Decrease in trade receivables simply means they chase down their customers to pay up faster.
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  They didn't let those invoices just sit around for 90 days. Getting the cash in the door. Right.
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  And increase in trade payables means they took longer to pay their own suppliers.
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  Ah. So they are collecting money faster from their clients, but holding onto
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  their own cash longer before paying their bills.
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  Exactly. They are effectively using their suppliers to fund their day-to-day
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  operations interest-free.
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  It's an aggressive tactic, but it is brilliant for the balance sheet.
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  It frees up so much liquidity. That is smart.
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  However, there is a flip side to this working capital coin that we definitely have to talk about.
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  The inventory. I was waiting for this. The inventory hit $124.1 million.
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  That represents a 6.7% increase. That is a whole lot of tiles just sitting in a warehouse.
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  It is. And in retail or physical goods, inventory is often seen as a huge liability.
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  If it sits there too long, styles change, stock gets damaged,
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  or it just ties up cash that you could be deploying elsewhere.
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  So why are they holding on to so much? Are we looking at a bunch of dead stock?
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  The company's stance, and they explicitly address this in the expert commentary of the report,
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  is that they are actively stocking up to cater to anticipated demand in both
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  domestic and overseas markets. Ah, tying back to the U.S. expansion.
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  Right. Given that 35% growth in the U.S. we just discussed, it's likely a very
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  deliberate strategic bet.
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  They want to make absolutely sure that when those massive orders come in from
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  America, or when a big Singapore megaproject starts pouring concrete.
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  They have the stock ready to ship immediately.
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  So it's a confident bet on the future. They believe the orders are locked in.
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  That's the optimistic interpretation.
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  And to be fair, given their recent revenue growth, it is totally plausible.
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  But as a skeptical investor, you have to watch that number closely.
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  Because if demand drops.
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  Exactly. If revenue slows down next year and that inventory number stays high,
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  then you have a real problem.
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  Then you just have a warehouse full of heavy, unsold rocks.
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  That makes sense. Let's zoom out and look at the overall health of the balance
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  sheet. With all that inventory and the new acquisitions, are they overleveraged?
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  They actually look very solid.
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  Total assets are sitting at around $510 million against total liabilities of about $357 million.
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  And they have a healthy $21.5 million in cash and cash equivalents sitting in
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  the bank. What about the debt profile?
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  They do have significant loans and borrowings.
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  We're looking at $137.6 million in non-current liabilities and $119.2 million in current.
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  But that is completely normal for a company in this sector. You need serious
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  capital to run factories and buy $124 million worth of inventory.
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  But they are actively paying it down, right?
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  Yes. They repaid over $33.3 million in loans just this year.
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  Plus, their EBITDA, that's Earnings Before Interest, Tax, Depreciation,
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  and Amortization, is very strong at $60.4 million.
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  So they can comfortably afford the interest payments. Exactly.
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  The interest coverage is healthy. they aren't drowning by any stretch.
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  Which brings us to the part that income investors probably care about the most. The dividends.
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  They declared a mix of interim and special interim dividends,
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  totaling 2.25 cents per share for the period.
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  Which really reinforces this idea of Haffrey as a bit of a cash cow.
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  They make real money and they actually return a chunk of it to the shareholders.
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  And it signals high confidence from the board. You do not pay out special dividends
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  if you think your business is about to run into a liquidity crunch.
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  It tells me that despite that massive inventory buildup, management feels totally
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  secure in their cash position.
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  OK, so looking back at 2025, it's a remarkably strong scorecard.
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  But the market always looks forward. What is the outlook for FY2026 and beyond?
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  The report actually cites some pretty specific economic data for both Singapore and Malaysia.
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  Yes, the macro tailwinds in Singapore are very clear. The construction sector
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  there grew 4.2% in the last quarter of 2025 alone.
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  But it's the future pipeline that really matters for a company like this.
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  They explicitly called out some massive infrastructure projects.
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  Changi Airport Terminal 5, the TUA's megaport expansion, and the new MRT lines,
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  like the Cross Island and Chirong region lines.
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  Think about the sheer volume of physical material those projects require.
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  Terminal 5 is basically the size of a small city. You cannot finish an airport
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  terminal or an underground train station without literal miles of flooring and wall cladding.
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  And half-refeeds right into those multi-year projects.
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  Exactly. That provides this incredibly stable baseline of demand that protects
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  them a bit from the usual cyclical ups and downs of the residential housing
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  market. And it's not just Singapore providing the tailwinds.
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  The outlook on Malaysia was surprisingly bullish, too.
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  It is. The Malaysian construction sector is actually forecast to grow 6.1% in 2026.
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  And there is a very specific catalyst driving a lot of that.
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  Visit Malaysia 2026. The tourism initiative.
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  Right. When a government pushes a massive tourism year, what happens on the
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  ground? Hotels renovate their lobbies.
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  Malls spruce up their walkways. Restaurants upgrade their bathrooms.
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  Turn into a hospitality supply chain. Exactly.
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  The report highlights this hospitality supply chain as a key driver.
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  Afari's strong presence and manufacturing base in Malaysia positions them perfectly
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  to capture all that renovation spend.
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  Okay, we've painted a pretty rosy picture here. Right. But we have to be realistic.
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  The report does include a global
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  outlook section, and it is definitely not all sunshine and rainbows.
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  No, and it shouldn't be. The World Bank and the IMF are actively warning about
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  shifting trade policies and supply chain readjustments.
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  We talked about the U.S. expansion earlier.
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  That could easily be a double-edged sword, couldn't it? Absolutely.
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  If U.S. trade tariffs shift again, or if shipping routes get disrupted,
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  that incredible 35% growth in their manufacturing segment could evaporate overnight.
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  It's a risk you have to price in. And cost pressures are still a reality.
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  Even though they managed to get their finance costs down, their other expenses
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  actually rose by 14.7%. Right, because expansion isn't free.
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  It costs serious money to set up new distribution channels to the U.S.
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  And to integrate a new subsidiary like MML Shanghai.
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  So investors need to watch if those expenses stabilize next year. Exactly.
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  If expenses keep rising faster than revenue, that beautiful margin expansion
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  we celebrated earlier will just disappear. So putting this all together for
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  you listening, what is the final verdict on Hafari Holdings FY 2025?
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  I see it as a company in transition, but in a really good way.
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  You have this dual engine running.
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  You have this steady cash printing Singapore retail and project business on
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  one side. And then this high growth export lottery ticket in Malaysia on the other.
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  The Singapore side pays the bills and funds the dividends, while the Malaysia
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  side offers the actual growth story. Perfectly summarized. If that U.S.
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  Expansion continues to grow at rates anywhere near 35%.
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  Haffrey fundamentally changes. It stops being just a local stable dividend plate,
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  a yield trap, as some skeptical investors might call it, and becomes a legitimate
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  international growth stock.
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  It sounds like a great setup, but I just keep going back to that warehouse.
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  $124 million tied up in physical stock. It is the big gamble.
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  They say it's to prepare for demand, but that is a massive, concentrated bet.
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  So here is a thought to chew on before we wrap up. With inventory levels sitting
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  at a record high, is Hefari perfectly positioned to dominate a coming construction
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  boom, or are they dangerously overexposed if the global economy suddenly slows down in 2026?
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  That is the multi-million dollar question. Are they brilliantly stocking up
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  for a feast, or will they be left holding the bag in a famine?
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  That's the exact question you need to explore on your own.
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  We've laid out the numbers, the strategy, and the risks. The rest is up to you to decide.
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  Thanks for joining us on this Deep Dive. This content is intended to serve strictly
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  and only as an informational, independent, objective summary of recent events
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  and should in no way be interpreted, construed or relied upon by any party as
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  inside information or financial advice.