KHEE SAN BERHAD (KSB) Navigates Challenging Waters: Q3 FY2025 Performance Review

Q3 FY2025: A Snapshot of Growth

For the individual quarter, KSB demonstrated a commendable increase in its top-line revenue, signaling improved market demand, particularly from the local segment. While profit before tax showed a modest increase, the cumulative nine-month performance truly highlights a significant turnaround in profitability.

Comparing the third quarter of FY2025 against the same period last year, KSB’s revenue grew by 6.6% to RM14.51 million from RM13.60 million. This increase is primarily attributed to higher market demand from the local segment. Profit before tax saw a substantial 43.9% jump from RM98,000 to RM141,000, and profit for the period improved by 4.1% to RM102,000.

Year-to-Date Performance: A Stronger Showing

The cumulative nine-month results paint an even more encouraging picture of KSB’s financial recovery and operational efficiency.

For the nine months ended 31 March 2025, KSB’s revenue increased by 6.3% to RM43.42 million compared to RM40.86 million in the previous corresponding period. More significantly, profit before tax surged by 134.9% to RM1.60 million, and profit for the financial period grew by a remarkable 136.5% to RM1.61 million. This robust improvement translated into basic earnings per share of 1.17 sen, up from 0.50 sen.

Quarter-on-Quarter Performance: A Dip from the Immediate Preceding Quarter

While the year-on-year and cumulative figures are positive, a comparison with the immediate preceding quarter (Q2 FY2025) shows a slight slowdown.

Revenue for Q3 FY2025 decreased by 15.2% compared to Q2 FY2025, mainly due to a reduction in sales orders from both local and export markets. This naturally led to a significant drop in profit before tax by 83.3%, also impacted by reduced other income and lower gross profit.

Segmental Performance: Manufacturing Leads the Way

KSB’s operations are segmented into Investment Holding, Manufacturing, and Trading. For the nine months ended 31 March 2025, the Manufacturing segment continues to be the primary revenue driver, contributing RM43.39 million in external revenue and RM5.15 million in operating profit. Both Investment Holding and Trading segments reported operating losses.

Financial Health and Outlook: Navigating PN17 and External Headwinds

KSB’s balance sheet as of 31 March 2025 shows total assets of RM74.20 million, with total equity still in a deficit at (RM75.02 million), though an improvement from the (RM76.63 million) deficit as of 30 June 2024. The net liabilities per ordinary share also improved slightly to (54.64 sen) from (55.82 sen). The company’s current liabilities continue to exceed current assets, a key factor in its Practice Note 17 (PN17) status.

From a cash flow perspective, KSB generated positive net cash from operating activities of RM2.08 million for the nine months ended 31 March 2025, an increase from RM1.65 million in the previous corresponding period. This positive operational cash flow is crucial for its ongoing efforts to stabilize its financial position.

Risks and Prospects

The Board remains confident in achieving positive and satisfactory operating results for the financial year ending 30 June 2025. This confidence is underpinned by the strategic allocation of internal capital to expand its distribution network, particularly in export markets. However, the company acknowledges significant external challenges:

• Geopolitical Instability: Global events can impact supply chains and market demand.
• Fluctuations in Raw Material Prices: Volatility in commodity prices directly affects production costs.
• Foreign Currency Volatility: Exposure to currency fluctuations impacts import costs and export revenues.
• Potential Supply Disruptions: Increased tariffs could lead to supply chain issues.

The PN17 Journey and Regularisation Plan

A critical aspect of KSB’s journey is its PN17 status. The company’s Regularisation Plan (RP) was approved by Bursa Securities on 19 August 2024 and subsequently by shareholders on 21 October 2024. KSB has secured an extension from Bursa Securities until 18 August 2025 to complete the implementation of this plan, and the Board is committed to its full execution within 2025. This plan is vital for KSB to exit its PN17 status and restore investor confidence.

Ongoing Material Litigation

KSB is currently involved in several material litigations, primarily concerning its subsidiary Khee San Food Industries Sdn Bhd (KSFI). These cases involve disputes with a Former Interim Judicial Manager (FIJM) and another entity, Tunai Impian Enterprise Sdn Bhd.

The litigations broadly cover:

1. FIJM’s Remuneration Claim: A claim of approximately RM2.0 million by the FIJM against KSFI for remuneration. KSFI believes it has a fair chance of resisting this action, citing questionable appointment validity and unreasonable cost claims.
2. FIJM’s Winding-Up Petition: A demand for RM432,167.08 by the FIJM, potentially leading to a winding-up petition against KSFI. KSFI is confident it can succeed in preventing this, arguing the debt is disputed and a winding-up court is not the appropriate forum.
3. Appeal Against Scheme of Arrangement: Tunai Impian Enterprise Sdn Bhd is appealing a court decision related to KSB Group’s Scheme of Arrangement, seeking to set aside a previous sanction order. KSB believes it has a fair chance of success, asserting a lack of justification for the appeal.

These legal proceedings introduce an element of uncertainty, but the company’s management expresses a fair chance of success in resisting these claims, which is an important consideration for stakeholders.

Dividends

For the financial quarter under review, the directors did not declare any interim dividend.