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Melati Ehsan’s Revenue Soars, But Profits Feel the Squeeze: A Deep Dive into the Q3 2025 Report
Melati Ehsan Holdings Berhad, a notable player in Malaysia’s construction and property development sectors, has just released its financial results for the quarter ended May 31, 2025. The report paints a picture of remarkable top-line growth, with revenue more than doubling year-to-date. However, a closer look reveals that this impressive sales performance hasn’t translated into higher profits, as rising costs and margin pressures take a toll on the bottom line. Let’s break down the key figures and what they mean for the company moving forward.
The standout figure from the report is the cumulative revenue for the nine months, which surged by an impressive 119% to RM64.76 million compared to the same period last year.
Core Financial Performance: A Tale of Two Metrics
In the third quarter, Melati Ehsan witnessed a dramatic increase in revenue compared to the same quarter last year. However, this growth was overshadowed by a significant drop in profitability, primarily attributed to higher administrative expenses and finance costs.
Quarterly Performance (vs. Same Quarter Last Year)
Q3 FY2025 (Current Quarter)
- Revenue: RM 38.50 million
- Profit Before Tax (PBT): RM 0.03 million
- Profit After Tax (PAT): RM 0.12 million
- Earnings Per Share (EPS): 0.11 sen
Q3 FY2024 (Comparative Quarter)
- Revenue: RM 5.65 million
- Profit Before Tax (PBT): RM 0.83 million
- Profit After Tax (PAT): RM 0.17 million
- Earnings Per Share (EPS): 0.15 sen
While revenue grew by over 580% quarter-on-quarter, pre-tax profit plummeted by 97%. This stark contrast highlights the cost pressures the company is currently facing.
Dissecting the Business Segments
To understand the full story, we need to look at the performance of Melati Ehsan’s individual business units for the nine-month period ended May 31, 2025.
Construction: Higher Revenue, Lower Margins
The construction arm was the primary revenue driver, contributing RM41.38 million. This is a substantial increase from RM11.43 million in the corresponding period last year. Despite the strong revenue, its pre-tax profit fell to RM0.67 million from RM2.07 million, a result of lower profit margins on its ongoing construction projects.
Property Development: Sales Up, but Costs Bite
The property development segment also saw healthy revenue growth, rising to RM22.67 million from RM13.72 million last year. This was largely thanks to increased progressive billings from the Bayu Selayang Heights project. However, the segment recorded a pre-tax loss of RM0.75 million, reversing a small profit from last year. The company cited higher marketing and finance costs as the main culprits behind this loss.
Trading: A Surprising Profit Boost
The trading division presented an interesting case. While its revenue decreased to RM0.71 million from RM4.37 million, its pre-tax profit jumped to RM1.09 million from just RM0.11 million. This unusual outcome was due to a significant “reversal of impairment,” which is an accounting adjustment that adds back a previously recorded loss, boosting the profit for the period.
Risk and Prospect Analysis: A Balancing Act
Melati Ehsan’s management acknowledges a challenging external environment but remains optimistic about Malaysia’s domestic economy. Several factors could influence the company’s future performance:
- Domestic Tailwinds: The government’s commitment to infrastructure development, affordable housing schemes, and initiatives like the National Energy Transition Roadmap and New Industrial Master Plan 2030 are expected to stimulate construction and development activities, providing a steady stream of opportunities.
- Market Trends: The property market shows positive signs, especially in the affordable housing segment where Melati Ehsan has a presence. Favourable take-up rates in desirable locations are a good sign for future projects.
- External Headwinds: A key risk highlighted is the uncertainty surrounding US reciprocal tariffs. These could increase export costs for Malaysian businesses and intensify local competition if other affected countries redirect their exports to Malaysia. This could indirectly impact the construction and property sectors through broader economic pressure.
The company’s strategy appears to be focused on leveraging domestic growth drivers while navigating the complexities of the global economic landscape.
Summary and Investment Recommendations
Melati Ehsan’s latest report presents a mixed but clear picture. The company has successfully grown its revenue streams, particularly in its core construction and property development segments. However, this growth has come at a cost, with profitability being significantly eroded by lower margins and higher operating expenses. The reversal of an over-provision of tax helped salvage the net profit figure for the quarter, but the underlying pressure on pre-tax profit is a key concern.
Looking ahead, the company’s fortunes are closely tied to the execution of national infrastructure projects and the resilience of the domestic property market. While the outlook is supported by government initiatives, investors should remain mindful of the risks posed by margin compression and external economic uncertainties. The key will be whether Melati Ehsan can translate its strong top-line momentum into sustainable bottom-line growth.
Key points to monitor going forward:
- Profit Margin Trajectory: Can the company improve profitability in its construction segment or will margin pressure persist?
- Cost Management: The ability to control administrative, marketing, and finance costs will be crucial for the property development segment to return to profitability.
- Impact of External Risks: How the company navigates potential fallout from global trade tensions, particularly the US tariffs.
- Project Pipeline: Success in securing new projects will be essential to maintain its revenue growth momentum.
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