SOLAR DISTRICT COOLING GROUP BERHAD: A Look into Their First Quarter 2025 Performance

Greetings, fellow investors and market enthusiasts! Today, we’re diving into the latest financial report from SOLAR DISTRICT COOLING GROUP BERHAD (SDC Group) for their first quarter ended 31 March 2025. As a relatively new entrant to the ACE Market, having listed in September 2024, SDC Group’s performance is keenly watched. This report provides us with an initial glimpse into their operational and financial health post-listing, revealing both promising aspects and areas that warrant a closer look.

While this marks their fourth interim financial report, it’s important to note that direct year-on-year comparisons for the first quarter are not available due to their recent listing. Therefore, our analysis will focus on the performance in the current quarter and a comparison against the immediate preceding quarter (Q4 2024) where relevant data is provided.

Q1 2025 Financial Snapshot: A Profitable Start, Yet with Sequential Declines

SDC Group has reported a profitable first quarter for 2025. Let’s break down the key figures:

These figures represent a solid start to the financial year, demonstrating the company’s ability to generate revenue and maintain profitability. The gross profit margin of 49.25% is particularly noteworthy, indicating strong cost management relative to sales.

Quarter-on-Quarter Performance: Navigating Project Cycles

Comparing the first quarter of 2025 with the immediate preceding quarter (Q4 2024) reveals a sequential decrease in revenue and profits. This is a common occurrence in project-based businesses, where revenue recognition can be lumpy depending on project completion and billing cycles.

As you can see, revenue decreased by RM4.48 million or 48.41% from the immediate preceding quarter. This was primarily attributed to a significant reduction in revenue from the “maintenance of other systems and equipment” segment, which saw a decline of RM3.04 million to RM0.07 million. Additionally, the Building Management Systems (BMS) segment also experienced a RM1.12 million decrease in revenue. The company explains this by pointing to the commencement of new projects that have yet to generate progress billings, which is a typical aspect of project work. Despite the lower revenue, the Group’s overall gross profit margin actually saw a slight improvement, rising from 48.45% in Q4 2024 to 49.25% in Q1 2025, largely due to finalisation of variation orders and low material/installation costs in certain BMS projects.

Segmental Performance: BMS Leads the Way

In Q1 2025, the BMS segment remained the primary revenue driver, contributing RM3.74 million, or 78.32% of total revenue. The solar thermal systems and energy saving services segment contributed RM0.97 million (20.30%), with the remaining RM0.07 million (1.38%) coming from the maintenance of other systems and equipment segment.

Financial Health: Stronger Cash Position and Reduced Liabilities

Looking at the balance sheet as at 31 March 2025, SDC Group appears financially sound. Total assets stood at RM65.14 million, slightly down from RM65.91 million at the end of 2024. However, total liabilities saw a significant reduction, decreasing from RM3.22 million to RM1.78 million. This reduction in liabilities, coupled with an increase in cash and bank balances from RM2.63 million to RM7.86 million, indicates a healthier liquidity position. Net assets per share remained stable at RM0.15.

The cash flow statement further reinforces this positive trend. Net cash generated from operating activities was a healthy RM0.86 million, contributing to a net increase of RM0.82 million in cash and cash equivalents, bringing the total to RM48.56 million by the end of the quarter. This strong cash generation is crucial for funding their ongoing expansion plans and new project investments.

Risks and Prospects: Building on a Strong Foundation

As a newly listed company, SDC Group has clear strategies for growth, largely funded by their recent IPO proceeds. Their business plans for 2024-2027 are focused on expanding their core competencies in BMS and solar thermal systems, while also venturing into solar PV systems. Key initiatives include:

• Headquarters Expansion: Utilizing RM1.90 million for a new extension, increasing built-up area from 8,320 sq. ft. to approximately 14,000 sq. ft.
• Tools and Equipment: Investing in new tools and equipment, including drones with thermal sensors and solar panel cleaning equipment, to enhance productivity.
• ICT Software and Services: Improving ICT resources to expand their command and control centre for monitoring connected systems.
• Solar PV Systems: Commencing solar PV system business under the Power Purchase Agreement (PPA) model. They have already received confirmation under the Net Energy Metering (NEM) 3.0 Nora program for a project in Cyberjaya and signed a PPA with Wana Properties Sdn Bhd in Melaka.

The company has a substantial portion of its IPO proceeds (RM31.84 million out of RM45.09 million) yet to be utilized, which provides a strong financial backing for these strategic initiatives. This unutilized capital is earmarked for crucial areas such as tender bonds, material purchases, general working capital, and capital expenditure, suggesting a pipeline of future growth.

However, it’s essential to acknowledge potential risks. The company is currently involved in a material litigation case where their subsidiary, SDC, is seeking to recover RM542,591.60 for unpaid work, while also facing a counterclaim of RM72,895.69. The trial dates have been postponed to June 2025. While SDC’s counsel is optimistic about the success of their main claim and the unsustainability of the counterclaim, this ongoing legal matter introduces an element of uncertainty. Investors should monitor the outcome of this case as it could impact the company’s financial position.

Despite the sequential dip in performance, which appears to be a normal part of their project-based business cycle, the Board remains optimistic about the Group’s prospects. The strategic investments in expanding their capabilities and venturing into new segments like solar PV systems align well with the growing demand for energy efficiency and renewable energy solutions in Malaysia.

What are your thoughts on SDC Group’s Q1 2025 performance? Do you believe their strategic initiatives, especially in the solar PV space, will drive significant growth in the coming quarters? Share your insights in the comments section below!