GCAP Navigates Q1 2025 Amidst Strategic Shifts and Market Dynamics

Greetings, fellow investors! Today, we’re diving deep into G CAPITAL BERHAD’s (GCAP) latest financial report for the first quarter ended 31 March 2025. This report offers a crucial glimpse into the company’s performance as it navigates significant strategic shifts and evolving market conditions. While the numbers reflect a challenging quarter, particularly in revenue, GCAP’s strategic pivots and positive Adjusted EBITDA are certainly worth a closer look.

Core Financial Highlights: A Mixed Bag

Let’s begin by examining GCAP’s top-line and bottom-line figures for the first quarter of 2025 compared to the same period last year. The picture is one of significant change, driven by both operational adjustments and market factors.

As the comparison shows, GCAP’s revenue saw a sharp decline of 59.3% year-on-year, primarily due to the conclusion of the transportation division’s contract with the Ministry of Defence Malaysia (Mindef) on 31 March 2024. This significant shift naturally impacted the overall top-line. However, a notable positive is the Group’s Adjusted EBITDA, which swung from a loss of RM237k in Q1 2024 to a positive RM235k in Q1 2025. This indicates improved operational efficiency in certain segments.

Despite the operational improvements, the Group’s net loss widened by 4.4% to RM4.699 million. The primary culprit here was a substantial fair value loss on equity investments at Fair Value Through Profit or Loss (FVTPL) amounting to RM3.217 million in Q1 2025, an increase from RM2.591 million in the prior year’s corresponding quarter. This non-cash item significantly impacted the reported net loss, leading to a higher loss per share of 1.36 sen for the quarter.

Segmental Performance: A Deeper Dive

Understanding GCAP’s performance requires a look at its diverse business units:

• Transportation Division: As anticipated, this segment recorded no revenue in Q1 2025 following the end of its Mindef contract. However, lower administrative costs helped turn its Adjusted EBITDA positive to RM44k, a significant improvement from a loss of RM19k in Q1 2024. The Group is actively exploring alternative sustainable transportation solutions.
• Hydropower Division: Still in the development phase, this division continues to incur Adjusted EBITDA losses (RM179k in Q1 2025 vs. RM280k in Q1 2024), mainly from costs associated with engineers, administration, and regulatory approvals. Revenue generation awaits the completion and commissioning of its small hydropower projects.
• Solarpower and Energy Efficiencies Division: This segment remains a significant revenue contributor, though its Q1 2025 revenue of RM1.416 million was 10.9% lower than Q1 2024 (RM1.589 million). Its Adjusted EBITDA also saw a decrease of 22.5% to RM1.091 million from RM1.408 million in Q1 2024, reflecting a normalization after a strong Q4 2024 driven by energy efficiency solution deliveries.
• Water Division: This segment showed impressive growth, with revenue soaring by over 100% to RM1.139 million in Q1 2025 from RM220k in Q1 2024. More impressively, it swung from an Adjusted EBITDA loss of RM418k in Q1 2024 to a positive RM149k, largely due to the absence of impairment on receivables and provision for foreseeable losses recognized in the previous quarter.
• Investment Holding and Others: This segment’s Adjusted EBITDA improved significantly to a loss of RM870k from RM928k in Q1 2024, primarily due to the absence of impairment losses on advances to other businesses that were recognized in Q4 2024.

From a balance sheet perspective, total assets marginally dropped by 1.3% from Q4 2024, influenced by the aforementioned fair value losses on equity instruments. Total liabilities increased by 3.3% from Q4 2024, with borrowings accounting for a significant portion of total liabilities.

Risks and Future Prospects: Charting the Course Ahead

GCAP’s report highlights both the challenges it faces and the strategic initiatives it is undertaking to secure future growth. The company is clearly aligning its operations with Malaysia’s national energy and sustainability goals.

Future Prospects: Riding the Green Wave

GCAP is poised to benefit from several government initiatives and industry trends:

• Government Support: The Budget 2024 continues to provide tailwinds, including Bank Pembangunan Malaysia Berhad’s strategic financing for sustainable development, extension of Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE) until 2026, and the Green Technology Financing Scheme (GTFS 4.0).
• New Energy Market Initiatives: The establishment of Energy Exchange Malaysia (ENEGEM) for cross-border green electricity sales, the Corporate Renewable Energy Supply Scheme (CRESS) for corporate access to green energy, and the Community Renewable Energy Aggregation Mechanism (CREAM) for residential rooftop solar potential, all present significant opportunities.
• Hydropower Revival: The company has handed back its Feed-In Approvals (FiA) certificates to SEDA Malaysia to re-bid under the new FiT 2.0 scheme. This new two-phase tariff system offers potentially higher tariffs (23%+ higher than FiT 1.0), which is expected to significantly improve the Group’s revenue and cash flow from its small hydropower projects. GCAP is actively preparing for upcoming SEDA e-biddings and exploring alternative off-takers, especially heavy carbon emitters.
• Solarpower & Energy Efficiencies: GCAP is expanding its portfolio to include energy efficiency solutions, aligning with Malaysia’s Net Zero Carbon Emissions target and the National Energy Policy 2022-2040. This strategic direction aims to empower clients to optimize energy consumption.
• Water Division: The Group is in various stages of negotiations to reduce Malaysia’s Non-Revenue Water (NRW), indicating potential growth in this critical sector.

Potential Risks and Challenges: The Road Less Traveled

While the future looks green, GCAP must navigate several potential headwinds:

1. Revenue Diversification: The complete cessation of transportation revenue highlights the need for successful replacement and diversification. The Group’s reclassification of sectors on Bursa Securities might be necessary if the transportation division does not regain its prominence.
2. Project Execution and Commissioning: The hydropower division’s profitability hinges on the successful completion and commissioning of its projects, which are currently incurring costs without generating revenue. Delays could impact financial performance.
3. Market Volatility: The significant fair value losses on equity investments underscore the sensitivity of the Group’s financials to market fluctuations, especially in its investment holding activities.
4. Litigation Risks: GCAP is involved in several material litigations. While one case (GPB vs. Defendants) recently saw a favorable appeal outcome, others (PHREC/CHRE vs. Plaintiffs regarding customary land, Solarcity/Eleaps vs. Apex/AD Power regarding solar supply agreement, GCWS vs. RAIU for debt recovery) are ongoing and could impact financial position or operational focus.
5. Competitive Landscape: The renewable energy and water sectors are becoming increasingly competitive. GCAP will need to maintain its competitive edge and secure new contracts effectively.

What are your thoughts on GCAP’s strategic direction? Do you believe the company can successfully leverage the burgeoning renewable energy sector in Malaysia to drive future profitability and growth? Share your insights and perspectives in the comments below!

Stay tuned for more in-depth analysis of Malaysian companies!