HSCB Navigates Headwinds in Q1 2025: A Deep Dive into Their Latest Earnings Report

The first quarter of 2025 has drawn to a close, and HSCB has released its latest financial report, offering a glimpse into the company’s performance amidst a dynamic economic landscape. While the headline figures show a dip in revenue and profitability compared to the same period last year, a closer look reveals a company actively navigating challenges and strategically positioning itself for the future. Impressively, the Board has also announced a first interim dividend of 10 sen per ordinary share, signaling a continued commitment to shareholder returns.

Core Financial Highlights: A Mixed Picture

HSCB’s Q1 2025 results present a nuanced narrative. The group experienced a decline in overall revenue and profit compared to the preceding year corresponding quarter, primarily influenced by various divisional performances. Let’s break down the key figures:

Overall, revenue decreased by 12%, operating profit by 20%, profit before tax by 24%, profit for the period by 25%, and profit attributable to owners by 26%. Basic earnings per share also saw a 26% decline.

Diving Deeper: Segmental Performance Breakdown

Understanding the group’s performance requires a look at its diverse business segments:

Plantation Division

The Plantation Division delivered a strong performance, with revenue increasing by 13% to RM179.4 million compared to the preceding year corresponding quarter. This was primarily due to significantly higher average selling prices for Crude Palm Oil (CPO) and Palm Kernel (PK), despite lower sales volume. CPO averaged RM4,866 per tonne (compared to RM4,023 in Q1 2024) and PK at RM3,741 per tonne (compared to RM2,329 in Q1 2024). However, operating profit decreased by 38% to RM30.5 million, largely impacted by a RM16.7 million loss from fair value adjustments of biological assets, a reversal from a gain in the prior year.

Property Division

Revenue for the Property Division was 19% lower at RM184.9 million, with operating profit down 8% at RM110 million. This was mainly due to a 56% decline in property development revenue from lower sales of project stocks. On a positive note, the investment property segment showed improved rental yields, and the hospitality segment saw a 66% revenue growth, boosted by the new Hyatt Centric Kuala Lumpur and higher average room rates from Hyatt Centric Kota Kinabalu.

Credit Financing Division

The Credit Financing Division’s revenue and operating profit both saw declines of 10% and 14% respectively, reaching RM40.6 million and RM34.4 million. This was in line with a lower total loan base, which stood at RM2.05 billion (compared to RM2.42 billion in Q1 2024). The non-performing loan (NPL) ratio slightly increased to 2.95% due to the smaller loan base, despite a lower gross NPL.

Automotive Division

Facing a competitive environment, the Automotive Division’s revenue dropped by 23% to RM117.1 million, with operating profit falling 43% to RM5.1 million. Both passenger car and commercial vehicle segments experienced lower sales volume and throughput.

Trading Division

The Trading Division’s revenue was 24% lower at RM490.2 million, and operating profit decreased by 17% to RM29 million. This was attributed to lower sales in both fertilizers (due to wet weather impacting deliveries in East Malaysia and normalizing prices) and general trading businesses (due to streamlining product offerings and branch networks).

Building Materials Division

A brighter spot, the Building Materials Division saw its revenue increase by 7% to RM237.9 million, with operating profit up 2% at RM35 million. This was driven by higher revenue from Hafary (up 22%), particularly from Malaysian operations, which offset reduced sales from quarry operations. Quarry operations were affected by divestments and cessation of certain activities in 2024.

Financial Health: Balance Sheet & Cash Flow Snapshot

As of 31 March 2025, HSCB’s total assets stood at RM18,938,548,000, a slight decrease from RM19,035,525,000 as at 31 December 2024. Total equity increased to RM9,503,022,000 (from RM9,420,211,000), while total liabilities saw a reduction to RM9,435,526,000 (from RM9,615,314,000). Net assets per share improved to RM3.25 from RM3.20.

From a cash flow perspective, the group recorded net cash flows *used in* operating activities of (RM41,118,000) for the year-to-date ended 31 March 2025, a shift from generating RM59,120,000 in the preceding year corresponding period. Net cash flows used in investing activities significantly decreased to (RM157,592,000) from (RM576,598,000), while net cash flows generated from financing activities were RM153,601,000 (compared to RM361,938,000 in Q1 2024). Overall, there was a net decrease in cash and cash equivalents of (RM45,109,000).

Risks and Prospects: Navigating a Complex Environment

HSCB acknowledges the prevailing uncertainties in both the domestic and global economies, particularly concerning the reciprocal US trade tariffs and ongoing US-China trade tensions. Despite these headwinds, the Board remains cautiously optimistic about achieving satisfactory results for the financial year ending 31 December 2025.

• Plantation Division: Expects palm oil production to recover after Q1’s wet weather. While CPO prices have softened, they are expected to be supported by rising soybean oil prices, enhancing palm oil’s competitiveness and potentially boosting demand from major importing countries. The division will focus on operational efficiencies to mitigate higher production costs.
• Property Division: The Malaysian property market is anticipated to remain resilient, supported by government initiatives like tax relief on housing loan interest and the Step Up Financing Scheme. The division will drive sales of existing property stocks and focus on its Klang Valley mixed development. The hospitality segment is set to benefit from tourism promotion and the upcoming Hyatt Regency Kuala Lumpur.
• Credit Financing Division: Will continue its prudent lending strategy, focusing on loan collections, NPL rehabilitation, and improving net interest margin to maintain a stable and sustainable quality loan portfolio.
• Automotive Division: Expects a challenging year due to a forecasted decline in total industry volume and intense competition, especially in the premium EV segment. The division plans to optimize asset utilization and enhance customer service to drive sustainable growth.
• Trading Division: Anticipates demand for fertilizers to recover, with prices remaining relatively stable. While China’s export restrictions easing may help, the outcome of US trade tariffs on Canadian potash could impact global potash prices. The division will manage inventories and receivables to protect margins.
• Building Materials Division: Hafary’s operations are subject to global economic uncertainties. However, the Malaysian construction sector’s growth forecast (9.4% in 2025) and infrastructure projects like Pan Borneo Sabah Phase 1B could provide opportunities for the division’s quarry operations in Sabah.

Shareholder Returns: A Consistent Dividend

In a positive move for shareholders, the Board of Directors has approved a first interim dividend of 10 sen per ordinary share for the financial year ending 31 December 2025. This single-tier dividend is tax-exempt in the hands of shareholders and will be payable in cash on 25 June 2025. The entitlement date for this dividend is 12 June 2025.

What are your thoughts on HSCB’s performance this quarter? Do you believe the company can maintain its strategic momentum and achieve satisfactory results by the end of the year?

Share your views in the comments section below!