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Melati Ehsan’s Revenue Soars, But Why Did Profits Tumble? A Deep Dive into the Q3 2025 Report
Melati Ehsan Holdings Berhad, a notable name in Malaysia’s construction and property development landscape, has just released its financial results for the third quarter ended May 31, 2025. The report paints a fascinating, albeit complex, picture for investors. On one hand, the company achieved a spectacular surge in revenue, signaling a high level of business activity. On the other hand, profits have taken a significant hit.
So, what’s really going on behind these numbers? Let’s break down the key figures to understand the story of this quarter.
The headline takeaway: While quarterly revenue skyrocketed by over 580%, pre-tax profit plummeted by more than 96%, raising questions about profitability and cost management.
Core Data Highlights: A Tale of Two Tapes
The most striking aspect of this report is the stark contrast between the company’s top-line (revenue) and bottom-line (profit) performance. This divergence is crucial for understanding the company’s current operational health.
Quarterly Performance: Revenue Growth vs. Profit Contraction
When we compare this quarter’s results to the same period last year, the numbers speak for themselves. The revenue figure is impressive, but it’s overshadowed by shrinking profits.
Q3 2025 (Current Quarter)
- Revenue: RM 38.50 million
- Gross Profit: RM 2.14 million
- Profit Before Tax (PBT): RM 27,590
- Profit After Tax (PAT): RM 124,313
Q3 2024 (Corresponding Quarter)
- Revenue: RM 5.65 million
- Gross Profit: RM 4.19 million
- Profit Before Tax (PBT): RM 832,434
- Profit After Tax (PAT): RM 170,845
The massive revenue increase was almost entirely consumed by a surge in the cost of sales, which ballooned from RM1.46 million to RM36.36 million. This squeezed the gross profit, causing it to fall by nearly 50%. Consequently, the profit before tax was reduced to a marginal RM28k. Interestingly, the company recorded a tax credit this quarter, which helped the final net profit (PAT) stay in the black at RM124k, although still lower than the previous year.
Cumulative 9-Month Performance
Looking at the bigger picture for the first nine months of the financial year, the trend of high revenue and compressed margins continues. This confirms that the challenges seen this quarter are part of a broader pattern this year.
| Indicator (9-Month Period) | Current Period (Ended 31 May 2025) | Previous Period (Ended 31 May 2024) |
|---|---|---|
| Revenue | RM 64.76 million | RM 29.52 million |
| Profit Before Tax (PBT) | RM 628,690 | RM 1.57 million |
| Profit for the Period | RM 344,413 | RM 478,539 |
| Basic Earnings Per Share (sen) | 0.30 | 0.41 |
Year-to-date, revenue has more than doubled, which is a positive sign of strong project execution. However, the pre-tax profit has been halved, indicating persistent pressure on profitability across its operations.
Financial Health Check: A Glance at the Balance Sheet
A company’s health isn’t just about profits; its balance sheet reveals its stability. As of May 31, 2025, Melati Ehsan’s total assets grew to RM426.4 million. This was largely driven by a significant increase in ‘Contract Assets’ (from RM9.0 million to RM55.5 million), which typically represents revenue earned from completed work that has not yet been billed to clients. This aligns with the high revenue figures.
On the flip side, total liabilities also increased, primarily due to a rise in ‘Trade and other payables’ (from RM72.3 million to RM113.0 million). This suggests the company is utilising more credit from its suppliers to fund its operations. The company’s cash and bank balances decreased to RM11.3 million, while the net assets per share saw a marginal dip to RM2.17.
Following the Money: Cash Flow Analysis
Cash flow is the lifeblood of any company. For the nine-month period, Melati Ehsan generated a healthy RM12.16 million from its operating activities, which is a positive signal of its core business’s ability to produce cash.
However, the company saw a substantial cash outflow of RM16.86 million in financing activities. This was mainly due to significant repayments of term loans amounting to RM15.4 million, a move that strengthens the balance sheet by reducing debt. The company also paid dividends of RM1.16 million and conducted share buybacks. These activities resulted in a net decrease in cash for the period, with the closing cash balance standing at RM8.87 million.
Summary and Outlook
In summary, Melati Ehsan’s Q3 2025 report is a story of aggressive growth meeting significant cost pressures. The impressive revenue growth demonstrates strong operational activity and demand for its projects. However, this growth has not translated into higher profits, as margins have been severely compressed. The management’s focus on repaying debt is a prudent long-term strategy, but it is currently straining the company’s cash position.
Looking ahead, the key challenge for Melati Ehsan will be to convert its high revenue into sustainable profitability. Investors should keep a close eye on the following areas:
- Profit Margin Recovery: The most critical factor will be the company’s ability to manage its cost of sales and improve its gross and net profit margins in the coming quarters.
- Working Capital Efficiency: The sharp increase in contract assets and trade payables needs careful management to ensure a healthy cash conversion cycle and avoid liquidity issues.
- Cash Flow Management: Balancing debt repayment with operational cash needs will be crucial. Monitoring the cash flow statement will provide insights into the company’s financial discipline.
Disclaimer: This article is for informational purposes only and should not be considered as financial or investment advice.
What’s Your Take?
This quarter has certainly been eventful for Melati Ehsan. The path of high growth coupled with shrinking profits is a challenging one to navigate. The strategic decision to reduce debt while managing operational costs will be pivotal for its future success.
Do you think the company can maintain this growth momentum and steer its profitability back on track in the coming year? Share your views and analysis in the comments section below!
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