Latest / Investor Exchange / Revenue Is Growing, Yet Losses Are Deepening For Heatec Jietong Holdings In Q3 2025

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Revenue Is Growing, Yet Losses Are Deepening For Heatec Jietong Holdings In Q3 2025 · Investor Exchange

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  Time for another Investor Exchange Podcast. Here are your hosts, Matt and Sally.
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  Welcome back to The Deep Dive. Today, we're running a full systems check on
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  a company that's been under, well, some pretty intense scrutiny.
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  That's Hitek Jitong Holdings LTD, or HJHL. Yeah.
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  We're going to be focusing on their third quarter and nine-month results for
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  the period ending September 30, 2025.
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  And this isn't just your standard quarterly earnings call analysis.
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  There's a really critical piece of context here. Right. HGHL has to provide
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  these mandatory updates because their independent auditor issued what's called
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  a qualified opinion on their last full financial year, FY 2024.
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  So this is less about just numbers and more about governance,
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  risk, and frankly, stability.
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  That really frames our mission for today, then. We need to figure out how management
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  is fighting a battle on two fronts, the governance battle and the operational one. Exactly.
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  So we'll start by dissecting the steps they took to fix that audit headache.
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  Then we'll try to reconcile this fascinating financial picture,
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  a strong loss-reducing third quarter versus a nine-month period where the loss actually got worse.
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  And finally, we have to break down the big strategic moves they're making,
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  the cost-cutting, the divestments.
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  It's the definition of a pressure cooker situation.
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  They have to prove they can govern reliably while turning the actual business around.
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  So let's start with that elephant in the room, the audit issue.
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  A qualified opinion, especially about consultancy services, that suggests pretty
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  significant weakness in internal controls, right?
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  It does. It points to how they hire, delegate, and pay for external services.
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  For anyone looking at the company, it's a major red flag about governance.
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  So what did they do? I mean, what specific concrete actions did management take
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  to clean things up? They seem to have addressed it head on.
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  The first move was tightening the whole contract review process.
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  They set up a much clearer delegation of authority.
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  What does that mean exactly? It's based on the dollar amount.
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  So, you know, standard operational stuff is handled one way.
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  But higher risk, non-operational activities get a whole different level of sign-off.
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  Okay, so they're moving away from ambiguity and toward really strict, centralized control.
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  And if you think about why this matters, a breakdown there can expose a company
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  to all sorts of risks. Inflated fees, fraud.
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  Precisely. And to tackle that risk, they're now mandating that all contracts
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  have to specify clear deliverables. Which you'd think would be standard.
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  You would think. And not just deliverables, but strict payment milestones that
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  actually match the work being done.
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  But the crucial step, I think, for the auditors was all about documentation.
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  That paper trail. The paper trail.
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  They rolled out a new process to properly document every single meeting with external parties.
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  So recording key discussion points, clarifying the work done, tracking action plans.
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  It's that level of detail you need when auditors are trying to trace where the
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  money went. Did they bring in any extra oversight to make sure these new rules
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  actually stick? They absolutely did.
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  Internal auditors were brought in right away to review these new processes.
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  And beyond that, management is now looking at a formal investment policy.
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  And this is key. They're moving to establish KPIs for consultants.
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  So they're not just tracking payments
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  anymore. They're actually measuring performance and accountability.
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  Exactly. It's about turning a reactive fix into a proactive long-term governance strategy.
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  Okay. With that internal cleanup happening, let's pivot to the financials.
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  And let's start with the three-month period, 3Q 2025.
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  This quarter, it really felt like a ray of hope. It was, yeah.
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  A much-needed positive signal.
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  Revenue was up a solid 15%, climbing from about S4.4 million dollars to 5.0 million dollars.
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  And crucially, gross profit went right up with it, increasing 16% to S1.4 million dollars.
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  So it wasn't just volume, they kept their margins. Right. Right.
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  The real headline here is the bottom line. The net loss was cut by 53%.
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  It shrank from $16.6 million to some $1.3 million.
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  I mean, they halved their loss in a single quarter. What was the main engine
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  behind that? It all came from their core business, the heat exchanger segment.
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  This unit's revenue just surged, hitting S3.4 million dollars for the quarter.
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  Okay. And that points to a really successful three months.
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  More project activity, robust customer demand. Yeah.
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  It was just firing on all cylinders. So the core engine is definitely strong when demand is there.
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  And we also see some other sort of financial tailwinds helping out.
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  Other operating incomes shot up by over 100%.
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  Yeah, and the report says that's largely from things like government grants
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  and some extra rental income.
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  Okay, and that ties into another point.
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  Finance costs were down by 25%.
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  How did that happen? That goes back to good financial hygiene.
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  Management has been laser focused on reducing their debt load.
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  So that drop in finance costs is just a direct reflection of them paying down
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  bank borrowings and managing their leases better.
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  So you have a strong operational quarter, you get a boost from external grants,
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  and you're paying less in interest.
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  That's a powerful mix. For one quarter, absolutely.
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  It's a perfect storm of positive factors.
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  But now we have to take that promising quarterly data and zoom out.
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  If you look at the full nine month view, the story completely changes.
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  Right. This is where it gets complicated.
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  That strong third quarter was great, but the overall nine month logs actually
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  got worse compared to last year.
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  Exactly. It reveals just how complex this turnaround is.
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  OK, so let's walk through the nine month numbers. Overall revenue was up six percent.
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  It grew from self-14.4 million dollars to 15.2 million dollars.
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  So still growing. Still growing, yes.
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  But that growth was almost completely neutralized by costs.
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  Gross profit just held steady, actually declined just a tiny bit to still $0.7 million.
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  And that led to the tough bottom line. The net loss worsened by 33 percent.
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  It went from a loss of $0.5 million last year to, say, $9.7 million this year.
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  And that's the gap we have to explain. Yeah. How do you grow your revenue but
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  also dramatically increase your cumulative loss? It seems to come down to a
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  conflict between the different business segments and just, well,
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  administrative weight.
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  That's it. The star performer, the heat exchanger segment, was still the winner
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  over nine months. It grew by an impressive $1.7 million.
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  But? But that growth was substantially offset by the declining performance of
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  their legacy piping segment.
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  That part of the business saw its revenue drop by $0.9 million.
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  So you have the new engine working
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  overtime, but the old heavy segment is dragging the whole thing down.
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  It's a classic tug-of-war. And the margin squeeze is then explained by the fixed costs, right?
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  Because administrative expenses still went up by 5%. That's the killer.
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  5% might not sound like a lot, but when your margins are already thin,
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  a jump in admin overhead,
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  mostly from higher staff costs, is enough to eat up every penny of that new
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  profit and push you deeper into the red.
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  So they're basically structured for a level of activity they're not quite hitting.
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  They have an expensive cost base, especially people, attached to a part of the
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  business that is clearly shrinking.
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  You've hit it exactly. The 5% rise in those sticky costs just canceled out the 6% revenue growth.
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  Okay, so that's a challenging operational picture, but let's shift from the
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  income statement to the balance sheet, because it looks like management has
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  been really focused on capital management, specifically debt reduction.
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  Yes, their efforts to stabilize the company's financial base are really clear on the balance sheet.
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  They managed a pretty significant reduction in current liabilities down over
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  14%. And what drove that? It was mainly lower trade payables and,
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  most importantly, paying back their trade facilities and borrowings.
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  Which explains the lower finance costs we saw earlier. How much debt did they actually cut?
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  It took total borrowings down from about $4.5 million at the end of last year
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  to $3.6 million by the end of this quarter.
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  Wow. So almost a million dollars in nine months. That's a very deliberate move
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  to de-risk the balance sheet. It is.
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  And on top of that, they kept a secure net current asset position,
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  your working capital, of $4.7 million.
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  So they have enough liquidity to keep the lights on despite the losses.
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  Their cash flow statement also tells an interesting story.
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  Cash from operations actually improved a bit to S1.5 million dollars.
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  And the report says this was driven by favorable working capital movements.
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  Can you break that down for us? Sure. It just means they're getting better at
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  managing their cash cycle.
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  They were successful in collecting cash from customers faster and tying up less cash in unbilled work.
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  And that's absolutely essential when your business is losing money overall.
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  Now, here's the interesting tension point.
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  They're paying down debt, tightening working capital, but they're also spending money, a lot of it.
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  They recorded a 139% increase in purchases of property, plant, and equipment.
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  Right, about $260,000.
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  Isn't that a big gamble? Investing heavily in CapEx while your losses are getting worse?
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  It's a calculated risk, but the report frames it as a strategic necessity.
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  They say it's about enhancing their operational capabilities for sustainable growth.
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  So what are they spending it on? We could probably assume a lot of that went
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  into improving their main workshop
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  and maybe funding that dormitory conversion we're about to discuss.
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  Management is essentially betting that if they invest in efficiency now,
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  they can accelerate the turnaround and make that heat exchanger segment even
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  more profitable down the road.
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  That brings us to the future then. The outlook and the strategic restructuring they've put in place.
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  The main headwinds are still there. high costs, especially staff wages,
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  and that problem of lower worker deployment in the piping segment.
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  And management has responded with some very direct targeted action.
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  They recognized that dormitory rental costs were a major cash drain. So what's the fix?
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  Starting in July, they began transferring workers to a newly completed factory-converted
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  dormitory that's located right in their workshop complex.
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  Oh, that's smart. They're internalizing a huge overhead cost.
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  It's a brilliant move. But they didn't just stop at internal costs.
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  They started aggressively shedding non-performing assets. The focus on trimming
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  the fat seems pretty relentless.
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  It is. In August, they got rid of a wholly owned subsidiary, JTY Engineering.
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  And the reasons they gave were very telling.
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  It had a negative book value, high operating expenses, and critically unfavorable tariff rates.
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  So if you unpack that, the costs related to international trade were making
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  that unit fundamentally unprofitable.
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  It was just a money pit, so they cut the cord. Exactly.
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  And that strategy continued even after this reporting period.
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  In November, we saw the announcement that they planned to sell their 60% stake in Sitch Energy.
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  That's their trading segment subsidiary. And that decision makes sense when
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  you look at the numbers. The trading segment was barely contributing anything.
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  I mean, S$49,000 in revenue for the nine months?
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  It had even posted a negative revenue number the year before.
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  It was clearly non-core and a distraction. So by divesting these underperforming
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  assets, management is focusing all their capital, time, and attention on the
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  successful heat exchanger business and the smaller chemical cleaning segment.
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  They believe shedding this dead weight is the fastest way to get back to stability.
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  So if you put it all together, HGHL is in the middle of this highly complex
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  turnaround, and it's all happening under the bright spotlight of that qualified
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  audit opinion. It's a real tug of war.
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  You've got the successful growing heat exchanger segment fighting against the
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  drag from the declining piping segment and those stubbornly high admin costs.
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  Right. But what's impressive is how decisive they're being. They've tackled
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  the governance issues, they've cut debt, they've invested in efficiency,
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  and they are not hesitating to get rid of unprofitable business lines.
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  It feels like a very determined management team. It does.
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  They've laid out a clear two-pronged strategy, fix the internal controls and
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  streamline operations.
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  So the big question now for anyone watching this company is a simple one.
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  Which is? Will the cost savings from moving those workers to the new dormitory
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  and the cash from selling off the trading segment,
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  will that be enough to absorb the high staffed costs and, maybe most importantly,
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  the continued revenue decline from that crucial piping segment in the next quarter?
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  That balance is what's going to decide whether they can finally achieve consistent
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  sustainable profitability.