Latest / Investor Exchange / Hock Lian Seng Holdings: Half-Year Financials June 2025

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Hock Lian Seng Holdings: Half-Year Financials June 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 to the Deep Dive. Forget sifting through endless reports yourself.
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  We're giving you the ultimate shortcut to being truly well-informed.
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  Yeah, it's like we're right here with you, maybe with a coffee,
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  spreading out these financial documents.
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  Exactly. And we're about to dissect the very latest performance of a company,
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  Hockley and Sang Holdings Limited, or HLSH. Yes, HLSH.
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  They're into some pretty core sectors.
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  Right. Primarily civil engineering works, you know, big infrastructure like
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  roads, train stations, also property development. And they do strategic investments, too.
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  So building, selling, investing, it's quite a spread.
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  It is. And our mission today is to unpack their unaudited, condensed interim
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  financials for the first half of 2025, ending June 30th. And we'll be setting
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  that against the same period last year, 1H 2024, right, to see the changes. Precisely.
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  We want to pinpoint the why behind the numbers, good, bad, indifferent,
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  what's driving it. And then, partially, what's the outlook?
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  What does the future seem to hold for them? That's the plan.
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  These reports can look dense, but honestly, sometimes the story inside is quite surprising.
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  Let's jump straight into the financial performance. And I have to say,
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  it's a bit of a mixed bag. Often the most interesting kind. Totally.
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  So, on the surface, the top line...
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  Well, it looks okay. Revenue actually increased. Okay. By how much?
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  Total revenue for 1H 2025 was $103.3 million.
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  That's up 3.5% from $99.8 million in the first half of 2024.
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  3.5% growth, so more activity, more money coming in the door,
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  generally a positive sign.
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  You'd think so, right? But this is where it gets really interesting.
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  Ah, I sense a butt coming. The revenue isn't the whole picture. Not even close.
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  Because despite that revenue growth, profitability just, well,
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  it fell off a cliff. Okay, how bad are we talking?
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  We're talking about the gross profit plummeting by a shocking 63.1%. Wow, 63%. That's huge.
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  It is. It went from $21.3 million in 1H 2024, which sounds pretty healthy,
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  down to just $7.8 million in 1H 2025.
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  That kind of contrast, revenue up slightly, gross profit down by nearly two-thirds,
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  that immediately signals a major issue.
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  Yeah. What did that scream to you? It screams cost pressures or pricing power issues.
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  Essentially, for every dollar of stuff they sold or built this year,
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  it cost them way more to do it compared to last year.
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  And that wasn't just the gross profit, was it? It flowed all the way down.
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  Oh, absolutely. That kind of hit at the gross level cascades.
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  Profit after taxation decreased by 57.5 percent.
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  57 percent. Fell from over $20 million, 20.41 neighbor, down to just $8.682 million.
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  Ouch. And for investors watching earnings per share, that's a key metric.
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  It tumbled from 3.98 cents per share down to 1.68 cents.
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  So less than half the earnings per share compared to last year. Exactly.
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  It's a textbook example, really, of how top line growth, especially modest growth
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  like this, can mask some serious underlying problems with costs.
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  You see this a lot in construction and heavy industry. OK, so we need to understand the why.
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  What drove that revenue increase, small as it was, and what absolutely hammered
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  the profits? Let's start with the revenue drivers.
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  Right. Let's break it down by segment. That usually tells the story.
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  The main engine for revenue was definitely civil engineering.
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  The infrastructure stuff. Yes.
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  That segment brought in $90.1 million in 1H 2025.
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  That's, what, 87% of their total revenue? Wow.
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  Nearly all of it. And how does that compare to last year? It's a big jump up
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  from $72.0 million in 1H 2024.
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  So that segment is clearly busy.
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  And why the increase there? Specific projects. Exactly.
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  The report mentions higher construction activity specifically on two big MRT station projects.
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  Sarangon North, that's CR 113, and Aviation Park, CR 103.
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  Right, because major projects ramping up, driving that civil engineering revenue.
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  Makes sense. But that wasn't the whole revenue story. Right,
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  because the overall increase was only 3.5%. So something must have dragged it down. Correct.
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  That was the property development segment. Its revenue actually declined quite a bit.
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  It fell to $13.1 million in 1H 2025, down from $27.7 million in the same period last year.
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  Okay, so a significant drop there. Why was that? Pretty straightforward reason given.
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  Fewer units sold at their shine to a self-development. Ah, the industrial property project.
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  Sales slowed down there. Seems so. So you had civil engineering pushing revenue
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  up strongly, but property development pulling it back down, resulting in that,
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  you know, modest overall gain. Got it. That explains the top line.
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  But let's get back to that massive profit drop, that 63% fall in gross profit overall.
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  And you mentioned civil engineering specifically took an 80% hit to its gross profit. That's right.
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  Civil engineering gross profit went from $10.3 million down to just $2.0 million.
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  Even though its revenue surged.
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  So they did more work, but made drastically less profit on it. Why?
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  What's the puzzle there? Well, it's less of a puzzle and more a reflection of
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  the current environment, unfortunately.
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  The main reason cited is elevated cost pressures on ongoing projects.
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  Meaning materials, labor. Both, and likely more.
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  Think steel, concrete, fuel costs.
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  They've all been volatile, mostly rising. And labor shortages mean higher wages
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  to attract and retain workers.
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  These costs ate directly into their margins.
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  So they're winning big projects, which is good, but the cost of actually doing
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  the work has squeezed their profitability way down. Precisely.
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  It's like running faster on a treadmill that's tilted steeper against you. That's a good analogy.
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  Was there anything else impacting that profit comparison?
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  Yes, and this is important for context. Next, there was a non-recurring factor in 1H 2024.
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  Okay. The gross profit figure for the first half of 2024 actually included some
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  cost savings they recognized when settling the final accounts for a joint venture, the CAG-JV project.
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  Ah, so a one-off boost last year that wasn't repeated this year. Exactly.
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  That made the 2024 number look better, and consequently it makes the 2025 comparison
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  look worse than it might otherwise purely based on operational changes.
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  Right. It inflates the base you're comparing against. And what about the property
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  development profit? I assume that dropped, too.
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  It did. And that was, as you'd expect, mainly due to the reduced sales activity.
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  Fewer sales means less gross profit coming in from that segment.
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  OK, so core operations were squeezed. Yeah.
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  But I also saw other income dropped by about 15 percent.
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  That probably didn't help the bottom line either. No, it certainly contributed
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  to the overall profit decline.
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  That was about a one point zero million dollar drop in other income.
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  What caused that? It was a few things, really.
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  Lower rental income from their unsold development units. Okay.
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  A big drop in government grants. They got $0.6 million in 1H 2024.
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  But basically zero in 1H 2025.
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  Wow, that's quite a cut. Yeah, and also lower interest income.
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  Now, they did have a bit of good news there. A higher fair value gain on investment
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  securities. That went up from $1 million to $0.7 million.
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  So the value of their investments went up on paper. Right. But the drop in rent,
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  grants and interest income more than wiped out that gain.
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  So net-net, other income was down, adding to the pressure on profits.
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  Okay, so profit took a major beating due to costs, a non-recurring prior year
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  gain and lower other income.
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  Let's shift gears to cash. Profit is one thing, but cash flow.
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  That's the lifeblood, right? Absolutely. Especially in construction where payments
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  can lag behind work done.
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  And I noticed a huge decrease in net cash generated from operating activities.
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  It went from almost $29 million, $28.99 never, in 1H2024, way down to just $4.6 million in 1H2025.
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  That's a significant drop. And their overall cash balance fell by $6.5 million during the period.
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  What's going on with the cash? Okay, so the big reason for the lower operating
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  cash flow was money being tied up in higher contract assets.
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  Contract assets, meaning work they've done but haven't billed for yet? Essentially, yes.
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  Costs incurred and profits recognized on projects ahead of billing.
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  So revenue might be recognized on the income statement, but the cash hasn't
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  actually arrived. Got it. So more work in progress tying up cash.
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  Right. Now, this was partly offset by cash coming in from sales of those development
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  properties. And also, they got some retention money released from that CAG-JV project, finally.
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  Okay, so some inflows, but overshadowed by cash tied up in ongoing work.
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  And the overall cash balance drop, where did that $6.5 million go? Two main places.
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  First, a pretty significant dividend payment to shareholders that was $9.2 million
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  going out the door. Rewarding the owners. Yep.
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  And second, cash used for investing activities about $1.4 million.
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  This was mainly buying new plant and equipment, you know, machinery vehicles
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  and also adding to their investment securities.
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  So paying dividends and investing in the business, both using up cash.
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  Exactly. They're pulling cash from operations, which we're generating less,
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  and using it for shareholder returns and future investment. Okay,
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  that explains the cash movement.
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  What about their overall financial standing, their balance sheet?
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  Shareholders' equity, the company's net worth dipped slightly,
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  right? Right. By about $7 million?
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  That's correct. It went from $284.46 million at the end of 2024 down to $283.91
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  million at June 30th, 2025.
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  A small decrease. Is that worrying or is it explained by those cash movements?
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  It's mostly explained by the things we just discussed.
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  The biggest hit to equity was that $9.2 million dividend payment.
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  Equity also reduced slightly from buying back treasury shares,
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  about $0.2 million worth.
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  Right. Dividends and buybacks reduce equity. But offsetting that outflow,
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  you had the net profit for the period, the $8.5 million, which gets added back to equity.
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  And also a small fair value gain on investment securities recognized in comprehensive
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  income, about $0.2 million.
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  So the profit helped cushion the blow from the dividend and buyback.
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  Pretty much, yeah. It resulted in that small net decrease. But importantly,
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  looking at their assets, their non-current assets actually increased.
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  Oh, how much? By $3.2 million.
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  And that was mainly driven by buying $2.3 million worth of new plan and equipment
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  after accounting for depreciation and disposals.
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  Investing in their core capability. Yes. And also adding $2.0 million to their
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  long-term investment securities.
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  So despite the profit squeeze, they are still putting money into assets for
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  the future? That's a good sign, I suppose.
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  Investing through the tough times. Okay, so that's the snapshot of the last
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  six months. What about looking forward?
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  What's the outlook for HLSH?
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  Well, first, the company says these results, while challenging,
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  were broadly in line with the outlook they gave previously for the 2024 financial year-end.
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  So perhaps not a total shock to management.
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  Okay, they kind of expected some headwinds. Seems like it. And the big positive
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  is still that civil engineering segment.
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  As of June 30th, 2025, they had an order book of roughly $335 million.
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  $335 million. That's substantial. It is. And it's mostly those two big station
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  projects, Aviation Park and Sarangoon North.
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  That provides a pretty solid pipeline of work and revenue visibility for the near term.
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  So the main engine still has fuel in the tank. What about the property side?
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  Any update on Shine at 2SL?
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  Yeah, they gave an update to date. They've sold 59.2% of the units and leased
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  out another 39%. Okay, so nearly 60% sold, nearly 40% leased.
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  That's most of it accounted for in some way.
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  Progress, albeit maybe slow. Steady progress, perhaps.
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  Industrial property can take time to fill, but...
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  And it's a significant but. The broader industry context is still tough.
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  The cost pressures aren't going away. Doesn't sound like it.
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  They explicitly mention the construction industry remains challenging.
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  Why? What are the main issues they see?
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  The usual suspects, really. A very competitive environment, meaning tight bidding for projects.
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  Ongoing labor shortages, which pushes up wages. And, of course,
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  rising material and labor costs persisting.
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  So those same factors that squeeze their profits in the first half are likely to stick around.
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  That seems to be the expectation. It's not just an HLSH issue.
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  It's impacting the whole sector.
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  It really raises the question of how companies manage in this kind of environment.
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  Yeah, with a strong order book. But facing these constant cost battles,
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  it sounds like a tightrope walk for profitability on every project. It really does.
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  So what's management saying they'll do? What's their strategy to navigate this
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  and, as they say, enhance shareholder value?
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  Their stated plan is basically twofold.
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  First, keep competing for those big infrastructure projects,
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  but doing so competitively.
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  That suggests a real focus on cost control and efficiency in bidding and execution.
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  Got to be sharp on the numbers. Absolutely.
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  And second, they plan to explore other business opportunities.
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  That's a bit more open-ended, but it suggests they're looking beyond just their
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  traditional work, maybe seeking diversification or higher margin activities
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  to bolster the bottom line.
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  Interesting. So sticking Speaking to their knitting in civil engineering while
• 13:02
  keeping an eye out for new paths.
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  That seems to be the strategy. Proactive, but within a challenging landscape.
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  Wow. So quite the deep dive. We started with what looked like a simple revenue
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  increase, maybe a bit modest.
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  Yeah, 3.5%. And uncovered this whole complex story underneath.
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  Strong civil engineering activity, yes, but hammered by costs.
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  Property development slowing down.
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  Other income streams shrinking. Leading to that really sharp drop in profits
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  and a squeeze on operating cash flow.
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  Even while they continue to invest in equipment and pay dividends.
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  It really shows how misleading just looking at revenue can be.
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  It absolutely does. And it leaves us and you, the listener, with a really important
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  question to think about, doesn't it?
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  Which is? How do companies like HLSH, operating in these tough,
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  capital-intensive industries with persistent headwinds like cost inflation and
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  labor shortages, How do they genuinely balance growth and winning new work against
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  the absolute necessity of maintaining profitability and healthy cash flow?
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  And how do they manage that difficult tradeoff between investing for the long
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  term, buying that equipment, securing those future assets versus the immediate
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  pressure on their financial resources today?
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  It's a fundamental challenge. And HLSH's recent performance is a really vivid
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  example of just how tricky that balancing act is right now.
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  Thank you.