HSS Engineers Berhad Q1 2025: Revenue Climbs, But Profitability Takes a Hit
Greetings, fellow investors! Today, we’re diving deep into the unaudited condensed consolidated financial results of HSS Engineers Berhad (HEB) for the first quarter ended 31 March 2025. This report offers a fascinating, albeit mixed, picture of the company’s performance, showcasing robust revenue growth while simultaneously highlighting a significant dip in profitability. It’s a classic case of ‘growth at what cost?’ that demands our attention. Let’s unpack the numbers and see what’s truly driving HEB’s trajectory.
Core Data Highlights: A Closer Look at the Numbers
Overall Financial Performance
At first glance, HEB’s revenue growth for Q1 2025 is certainly encouraging. The company reported a healthy increase in its top line compared to the same period last year. However, a deeper dive into the profit figures reveals a more challenging environment.
Q1 2025
Revenue: RM51,556,000
Gross Profit: RM12,519,000
Profit Before Taxation (PBT): RM2,443,000
Profit for the Financial Period: RM1,395,000
Profit Attributable to Owners: RM1,574,000
Basic Earnings Per Share (EPS): 0.31 sen
Q1 2024
Revenue: RM47,378,000
Gross Profit: RM15,260,000
Profit Before Taxation (PBT): RM6,215,000
Profit for the Financial Period: RM4,381,000
Profit Attributable to Owners: RM4,415,000
Basic Earnings Per Share (EPS): 0.88 sen
Revenue grew by 8.8% to RM51.56 million compared to RM47.38 million in the corresponding quarter last year. This indicates a strong top-line expansion.
However, Gross Profit saw an 18.0% decline, dropping to RM12.52 million from RM15.26 million. This significant contraction in gross profit directly impacted the bottom line.
Consequently, Profit Before Taxation (PBT) plummeted by 60.7% to RM2.44 million from RM6.22 million. The Profit for the Financial Period followed suit, dropping by 68.2%, and Profit Attributable to Owners of the Company fell by 64.3% to RM1.57 million.
This stark decline in profitability is primarily attributed to a decrease in gross profit, which the company states is “in line with project mix.” This suggests that while revenue increased, the new projects might be carrying lower margins or higher direct costs.
Quarter-on-Quarter Performance
Comparing the current quarter’s performance to the immediate preceding quarter (Q4 2024) provides additional context:
Q1 2025
Revenue: RM51,556,000
Gross Profit: RM12,519,000
Profit Before Taxation: RM2,443,000
Q4 2024
Revenue: RM59,672,000
Gross Profit: RM23,297,000
Profit Before Taxation: RM14,245,000
Revenue decreased by 13.6% and PBT saw a significant 82.9% drop compared to Q4 2024. This further reinforces the impact of project mix on gross profit and overall profitability.
Revenue Breakdown by Activity
HEB’s revenue sources show varied performance:
| Activity | Q1 2025 (RM’000) | Q1 2024 (RM’000) | Variance (%) |
|---|---|---|---|
| Engineering design | 14,223 | 9,073 | +56.8 |
| Construction supervision | 11,718 | 14,189 | -17.4 |
| Project management | 22,653 | 21,249 | +6.6 |
| Digital services | 359 | 496 | -27.6 |
| Reimbursable income | 2,603 | 2,371 | +9.8 |
| TOTAL | 51,556 | 47,378 | +8.8 |
The impressive growth in Engineering Design (+56.8%) was driven by contributions from the Bayan Lepas LRT project and a Proposed Data Centre at Cyberjaya. Project Management also saw a 6.6% increase, largely due to the Baghdad Metro and KTP Data Centre projects. However, a decline in Construction Supervision revenue (down 17.4%) from the Langat II Water Supply Scheme partially offset these gains.
Geographical Revenue Split
Malaysia continues to be the dominant market, contributing 81.2% of total revenue. Interestingly, the Middle East saw a 100% increase in revenue, albeit from a zero base in the previous year, highlighting the impact of new international projects like the Baghdad Metro.
Financial Position: Balance Sheet Snapshot
As of 31 March 2025, HEB’s financial health appears stable, with growth in total assets:
As at 31 Mar 2025
Total Assets: RM438,379,000
Total Equity: RM293,093,000
Total Liabilities: RM145,286,000
As at 31 Dec 2024
Total Assets: RM418,128,000
Total Equity: RM291,708,000
Total Liabilities: RM126,420,000
Total assets increased by 4.8%, while total liabilities saw a 14.9% increase, mainly driven by higher current loans and borrowings, and trade and other payables. This suggests increased operational funding needs or project-related expenditures.
Cash Flow Insights
The cash flow statement reveals some key trends:
Q1 2025
Net Cash Used in Operating Activities: (RM12,569,000)
Net Cash Used in Investing Activities: (RM1,244,000)
Net Cash From Financing Activities: RM8,265,000
Q1 2024
Net Cash Used in Operating Activities: (RM4,878,000)
Net Cash Used in Investing Activities: (RM355,000)
Net Cash From Financing Activities: RM2,171,000
Net cash used in operating activities significantly increased by 157.7%, primarily due to changes in contract assets and trade receivables. This indicates that more cash is being tied up in ongoing projects and receivables. The positive net cash from financing activities is largely due to a net drawdown from revolving credit, which helped offset the operational cash burn.
Navigating the Future: Risks and Prospects
While the profit figures for Q1 2025 present a concern, HEB’s long-term prospects appear robust, backed by a strong order book and strategic initiatives. The company operates in a dynamic sector, facing both opportunities and inherent challenges.
Industry Tailwinds and Project Pipeline
The Malaysian construction sector is poised for continued growth, fueled by government infrastructure spending and private sector investments. HEB stands to benefit significantly from several large-scale projects:
- Infrastructure Projects: The Perak-Penang Raw Water Transfer, Pan Borneo Highway Sabah Phase 1B, Sarawak-Sabah Link Road Phase 2, PLUS Expressway expansion, and high-priority flood mitigation projects across various states.
- Sarawak’s Mega Projects: Sarawak’s ambitious plans for a new international airport and deep-sea port in Kuching, with an estimated RM100 billion investment over the next 5-10 years, present substantial opportunities for HEB. The company has already secured its first project in Sarawak through an associate.
- Data Centre Boom: HEB has secured two new data centre projects in Bagan Dato and Sedenak, adding to four other ongoing projects. This aligns with Malaysia’s growing digital infrastructure needs.
- Key Rail and Water Projects: Progress on the Pan Borneo Sabah project, feasibility studies for the Selangor Railway, final stages of design work for ECRL Package A, and supervision roles for Klang Valley Double Tracking Phase 2. In the water sector, HEB is involved in numerous projects for PAAB and Air Selangor, aiming to enhance water supply and reduce Non-Revenue Water.
- Port Sector: Appointments for Project Management and Engineering Consultancy Services for Westport 2 Expansion and Project Management Consultant for Port Klang Cruise Terminal.
Digital Transformation and Regional Expansion
HEB is not just relying on traditional engineering; it’s actively embracing digital solutions and expanding its geographical footprint:
- HSS ProPick Technologies: This new entity focuses on intelligent drone-driven solutions powered by AI, particularly for the agriculture sector (e.g., identifying FFB ripeness for oil palm plantations) and digital twin solutions for telco towers. This diversification into high-tech services could provide new revenue streams.
- Regional Growth: A Joint Venture with OPUS International (M) Berhad aims to accelerate expansion into high-growth infrastructure markets across Southeast Asia and the the Middle East. The acquisition of a 12% stake in PT Oriental Consultants Indonesia further strengthens its presence in Indonesia. The USD315.9 million (RM1.5 billion) contract for the Baghdad Metro rail system in Iraq, secured through a joint venture, is a testament to HEB’s growing international capabilities.
- Recurring Income Strategy: HEB is venturing into the Large Scale Solar (LSS) Photovoltaic Power Plant sector through its subsidiary HEB Energy Sdn Bhd, with projects in Hilir Perak and Kuala Muda, Kedah. This strategy aims to build a more stable, recurring revenue base.
Order Book and Future Outlook
As of 31 March 2025, HEB’s unbilled order book stood at approximately RM2.07 billion, with project management contributing a significant 83%. This substantial order book provides excellent revenue visibility for the next eight years. The tender book value of approximately RM475 million suggests a healthy pipeline of potential new projects.
The company anticipates potential mega project roll-outs through Public-Private Partnerships (PPPs), aligning with the government’s PPP Master Plan 2030, which aims to generate RM78 billion worth of PPP investments. This macro-level support for infrastructure development bodes well for HEB.
Summary and
HSS Engineers Berhad’s Q1 2025 report paints a picture of a company actively growing its top line and strategically positioning itself for future opportunities, both domestically and regionally. The increase in revenue, particularly from engineering design and project management, underscores the company’s success in securing new mandates in key sectors like rail, water, and data centers. The massive unbilled order book provides a strong foundation for future revenue streams, and the diversification into digital services and recurring income projects (like LSS) demonstrates a forward-thinking approach to sustainable growth.
However, the significant drop in gross profit and net profit is a clear area of concern that warrants close monitoring. The explanation of “project mix” suggests that while the company is winning new business, the profitability of these projects may be lower, or they incur higher initial costs. The increased cash usage in operating activities also highlights the need for efficient working capital management as projects scale up.
Overall, HEB is in a growth phase, expanding its reach and capabilities. The challenge will be to translate this growth into improved profitability and positive operating cash flows in the coming quarters.
Key areas to watch for HSS Engineers Berhad:
- Margin Improvement: The company needs to demonstrate how it plans to improve gross profit margins, especially given the current “project mix” impact. Are there strategies to optimize costs or secure higher-margin projects?
- Working Capital Management: With increased cash used in operations and a rise in contract assets, monitoring the company’s ability to convert these assets into cash efficiently will be crucial.
- Integration of New Ventures: The success of new digital services (HSS ProPick) and recurring income projects (LSS) will be key to diversifying revenue and profit streams.
- Execution of Large Projects: The ability to successfully execute mega projects like the Baghdad Metro and various domestic infrastructure initiatives on time and within budget will be critical for sustained performance.
- Effective Tax Rate: The higher effective tax rate due to losses in new subsidiaries and non-deductible expenses should be monitored to see if it normalizes as new ventures mature.
From a professional standpoint, HEB’s strategic direction towards regional expansion, digital adoption, and recurring income streams is commendable and positions it well for the long term. The current quarter’s profit contraction, while significant, could be a short-term blip related to the onboarding of new projects or a shift in project type. The sheer volume of its order book and the pipeline of upcoming infrastructure projects suggest a promising future for the engineering consultancy giant.
What are your thoughts on HSS Engineers Berhad’s latest results? Do you believe the current dip in profitability is a temporary setback, or does it signal a more fundamental shift in their project dynamics? Share your views in the comments below!
