Q1 2025 Financial Snapshot: A Mixed Bag

Panda Eco System Berhad, a key player in retail management solutions, reported a decline in its top and bottom lines for the first quarter of 2025 when compared to the same period last year. Here’s a quick overview of the key figures:

As you can see, revenue saw a modest decrease of approximately RM0.32 million, or about 3.8%. However, the impact on profitability was more pronounced, with gross profit falling by about 39.5%, and profit before tax declining by a significant 57.9%. This led to a 58.8% drop in profit after tax and a corresponding halving of basic earnings per share.

Deeper Dive into Performance Drivers

Segmental Performance: Shifting Contributions

The report attributes the overall revenue decrease primarily to a decline in the core “Retail Management Eco-system (HQ centralised management, store operations and financial management)” segment, which saw its contribution drop by RM1.22 million to RM4.86 million. This suggests some headwinds in their flagship offering.

However, it wasn’t all negative. The company saw encouraging growth in other areas:

• Outright sale of IT hardware and third-party software: Revenue from this segment surged by RM0.61 million to RM1.02 million.
• xBridge B2B solution: This segment also showed healthy growth, increasing by RM0.30 million to RM1.59 million.

These offsetting gains highlight the company’s diversified revenue streams, even as its primary segment faces challenges.

Profitability Challenges: Higher Costs and Impairments

The significant drop in gross profit and pre-tax profit warrants a closer look. The report explicitly states that the decrease in gross profit was mainly due to higher staff costs incurred in view of additional headcount hired for the current quarter. This suggests an investment in human capital, which, while impacting short-term profitability, could be crucial for future growth and expansion initiatives.

Comparing with the immediate preceding quarter (Q4 2024), the trend of decreasing profitability continued:

Beyond staff costs, the company also experienced an increase in net impairment losses on trade receivables, moving from a reversal of RM0.43 million in the preceding quarter to an impairment of RM0.17 million in Q1 2025. This indicates a more cautious stance on collectability of receivables, which can impact reported profits.

However, there was a silver lining: administrative and other expenses decreased by RM0.42 million compared to the immediate preceding quarter. This was largely due to professional fees related to proposed acquisitions that were incurred in the previous quarter, indicating a one-off nature of those higher costs.

Financial Health and Cash Flow Dynamics

While the profit figures saw a decline, the balance sheet remains relatively stable. Total assets slightly increased to RM45.30 million (from RM45.19 million as at 31 December 2024), and total equity grew to RM38.51 million (from RM37.20 million), reflecting an increase in retained earnings. This indicates that the company’s underlying asset base and shareholder equity are holding steady.

However, the cash flow statement tells a different story. The Group recorded a net cash outflow from operating activities of RM1.73 million in Q1 2025, a significant shift from the RM1.28 million inflow in Q1 2024. This was primarily driven by the lower profit before tax and adverse changes in working capital, particularly increases in trade and other receivables and decreases in trade and other payables. Coupled with negative cash flow from investing activities (RM0.48 million outflow), the company saw a net decrease of RM2.25 million in cash and cash equivalents during the quarter. This is an area that investors will want to monitor closely.

Strategic Outlook: Expansion and Diversification

Despite the challenging quarter, Panda Eco System Berhad remains focused on its long-term growth strategy. The company is actively pursuing expansion across several fronts:

• Solution Development: Investing in the development of cloud-based modules and expanding its existing solution offerings.
• Workforce and Facilities: Expanding its workforce and operational facilities within Malaysia to support business growth.
• Regional Expansion: Eyeing growth in ASEAN countries, specifically Indonesia and the Philippines, which represent significant new market opportunities.

Crucially, the company is executing on its strategic acquisitions. The proposed acquisitions of GSSB and DOTSB for RM17.1 million (a combination of cash and shares) received shareholder approval on May 26, 2025, and are expected to be completed by June 30, 2025. Additionally, the company acquired a 51% equity interest in Centra Solutions Sdn. Bhd. (CSSB) in January 2025, which specializes in reselling third-party Point-Of-Sales and Enterprise Resource Planning software to reputable retailers, including multinational departmental stores and convenience stores.

These strategic moves are anticipated to:

• Expand the existing customer base and diversify product offerings.
• Strengthen the Group’s position as a leading retail management solutions provider in Malaysia.
• Potentially secure higher-value contracts with reputable customers.

The Board expresses confidence in achieving satisfactory performance moving forward, barring unforeseen circumstances, suggesting that these strategic investments are expected to bear fruit.

Dividend Announcement: A Return to Shareholders

On a positive note for shareholders, the Board proposed a final single-tier dividend of 0.25 sen per ordinary share for the financial year ended 31 December 2024. This proposal was approved by shareholders during the Annual General Meeting on May 26, 2025, with the entitlement date set for June 11, 2025, and payment on June 26, 2025. This demonstrates the company’s commitment to returning value to its shareholders despite the recent quarterly performance challenges.