Hello fellow investors and market enthusiasts! Today, we’re taking a closer look at the latest financial report from Tanco Holdings Berhad (Tanco) for its third quarter ended 31 March 2025 (Q3 FY2025). This report offers a compelling narrative of growth, strategic advancements, and the inherent challenges within a dynamic market. From a significant surge in profits to key corporate exercises, Tanco’s latest disclosures provide much to unpack.

The headline? Tanco has demonstrated impressive profit growth for both the quarter and the cumulative nine-month period, driven by strong performances in its core segments. Furthermore, the recently completed bonus issue and warrants adjustment are significant developments that reshape the company’s capital structure and shareholder base. Let’s dive into the numbers and what they mean for Tanco’s journey ahead.

Core Data Highlights: A Closer Look at Tanco’s Financial Performance

Tanco’s Q3 FY2025 results showcase a notable improvement in profitability, particularly when compared to the same period last year. Let’s break down the key figures:

Quarterly Performance (Q3 FY2025 vs. Q3 FY2024)

The company’s revenue saw a modest increase of approximately 5.7% from RM36.74 million to RM38.85 million. However, the real story here is the significant jump in profitability. Profit Before Taxation (PBT) soared by an impressive 149.2% to RM1.66 million, while Profit After Taxation (PAT) grew by an astounding 142.9% to RM1.66 million. This substantial improvement highlights enhanced operational efficiency and better cost management.

Cumulative Nine-Month Performance (9M FY2025 vs. 9M FY2024)

For the cumulative nine months, while revenue saw a slight dip of 0.86% to RM96.02 million, PBT surged by 89.98% to RM7.73 million. Similarly, PAT more than doubled, increasing by 124% to RM6.08 million. This sustained growth in profitability over a longer period underscores the positive trajectory of Tanco’s core operations.

Quarter-on-Quarter Comparison (Q3 FY2025 vs. Q2 FY2025)

Segmental Performance: Who’s Driving Growth?

Tanco’s diverse business segments play varying roles in its overall performance. For the cumulative nine months ended 31 March 2025:

• Construction: This segment was the largest revenue contributor at RM65.70 million and a significant profit driver with RM4.42 million in operational profit.
• Business Consulting Services: This segment generated RM19.64 million in external sales and contributed significantly to profits with RM8.21 million in operational profit.
• Property Development/Management: This segment brought in RM8.49 million in external sales and RM0.32 million in operational profit.
• Resorts and Club Operation/Management: This segment generated RM2.18 million in external sales but recorded a loss of RM0.55 million.
• Investment Holding: This segment, with minimal external sales of RM0.02 million, recorded a loss of RM3.79 million.

The report highlights that the increase in overall PBT was mainly attributable to higher revenue from the property development, construction, and business consulting segments.

Financial Health: Balance Sheet and Cash Flow

Tanco’s financial position as at 31 March 2025 shows a mixed but generally improving picture:

On the cash flow front, for the nine months ended 31 March 2025:

The company experienced negative net operating cash flows, which worsened compared to the previous year. Net investing cash flows also showed a higher outflow, primarily due to additions in property, plant, and equipment. However, strong net financing cash flows, largely driven by the conversion of warrants, helped to offset some of these outflows, though overall cash and cash equivalents still saw a decrease.

Total Group Borrowings stood at RM44.71 million as at 31 March 2025, which includes bank overdrafts, lease liabilities, hire purchase payables, and term loans.

Risks and Prospects: Navigating the Future Landscape

Tanco operates within a dynamic economic environment, and its future prospects are shaped by both opportunities and potential challenges.

Positive Economic Outlook

According to the Malaysian Institute of Economic Research (MIER), the Malaysian economy is projected to remain resilient and optimistic in 2025. Key indicators such as domestic demand, exports, investor confidence, and inflation are expected to align with global trends. The government’s initiatives under PLANMalaysia, the New Industrial Master Plan (NIMP), and the MADANI Economy framework are anticipated to further support economic growth. This broad positive economic backdrop provides a conducive environment for Tanco’s diversified businesses.

Group’s Strategic Initiatives

Amidst this encouraging landscape, Tanco remains confident in the growth prospects of its various segments:

• Property Segment: Current projects are nearing operational readiness, with preparations for a new project already underway, signaling continued growth in this core area.
• Construction Segment: The segment is making steady progress on ongoing works and is strategically positioned to secure additional contract opportunities.
• Pharmaceutical Segment: Tanco is actively advancing clinical trials to assess the efficacy of its Noden™️ product against Dengue, which could open up a new significant revenue stream if successful.

These strategic moves, coupled with the overall economic resilience, position the Group to further strengthen and expand its core businesses, barring any unforeseen circumstances.

Key Developments and Corporate Actions

A significant event during and subsequent to the quarter was the completion of the proposed bonus issue of up to 3.85 billion new ordinary shares on a basis of 7 Bonus Shares for every 5 existing Tanco Shares held. This exercise, completed on 8 April 2025, also led to an adjustment in the warrants’ exercise price from RM0.31 to RM0.13. This move significantly increases the company’s share capital and could enhance liquidity.

Additionally, Tanco announced the incorporation of a joint venture company, PDFZ Sdn. Bhd., where its indirect subsidiary, Tanco Land Sdn. Bhd., holds an 80% equity interest. Updates were also provided on the Memorandum of Agreement (MOA) and Memorandum of Understanding (MOU) related to the Proposed Port Project, with discussions still ongoing to finalize key agreements and potential collaborations.

Potential Risks and Challenges

While the outlook is positive, several factors warrant attention:

• Negative Operating Cash Flow: The continued negative operating cash flow is a concern, indicating that core operations are not generating sufficient cash to cover expenses and investments. The company relies on financing activities (like warrant conversions) to manage its liquidity.
• Quarter-on-Quarter Profit Dip: The lower profit after taxation in Q3 compared to Q2, attributed to specific segments, suggests that performance can be volatile and requires close monitoring.
• Material Litigation: Tanco is involved in a court proceeding concerning disputed dissolution and disposal fees with Pacific Trustees Bhd totaling RM1.02 million. While the company’s solicitors believe they have a strong case, litigation always carries inherent uncertainties.
• Project Dependence: The success of new property and construction projects, as well as the pharmaceutical product, depends heavily on market demand, regulatory approvals, and successful execution.
• Finance Costs: The increase in finance costs for both the quarter and cumulative period could impact overall profitability if not managed effectively.

Your Thoughts?

What are your impressions of Tanco Holdings Berhad’s latest financial results? Do you think the company can maintain this growth momentum in the next few years, especially with its new projects and the evolving economic landscape? Share your insights and questions in the comments section below!

Stay tuned for more in-depth analyses of Malaysian companies!