Key Financial Highlights: A Profitable Turnaround Amidst Shifting Sands

Hextar Capital Berhad’s Q2 2025 results showcase a notable rebound in profitability, even as the company navigates a challenging revenue landscape. Here’s a closer look at the numbers:

Quarter-on-Quarter Performance (Q2 2025 vs. Q2 2024)

While revenue for Q2 2025 decreased by 42.2% to RM14.78 million compared to RM25.57 million in the same period last year, the Group achieved a remarkable turnaround from a loss of RM0.29 million to a profit after tax of RM3.68 million. This significant improvement was primarily attributed to the absence of amortization of intangible assets related to the acquisition of T & J Engineering Sdn. Bhd. (which has been fully recognized), alongside robust positive contributions from HCB’s associate companies.

Immediate Preceding Quarter Comparison (Q2 2025 vs. Q1 2025)

On a quarter-on-quarter basis, revenue declined by 44.6% from RM26.69 million in Q1 2025. This was mainly due to slower progress in the construction and project management segment, caused by a sub-contractor’s underperformance. Despite this, HCB managed to slightly increase its profit after tax by 0.5% to RM3.68 million, once again supported by the strong performance of its associate companies.

Cumulative Performance (YTD 31 March 2025 vs. YTD 31 March 2024)

For the cumulative six months ended 31 March 2025, HCB’s revenue stood at RM41.47 million, a 30.7% decrease from RM59.86 million previously. However, the Group’s profit after tax surged by over 100% to RM7.34 million, significantly higher than RM0.94 million in the prior year’s corresponding period. This highlights the effectiveness of the company’s strategies in enhancing overall profitability despite revenue headwinds.

Segmental Performance: Diversification as a Strategic Advantage

HCB’s diversified business portfolio continues to play a pivotal role in its financial resilience. Here’s a look at how each segment performed for the financial period ended 31 March 2025 (Year-to-Date):

• Telecommunication Network Infrastructure Solutions: This segment, primarily through T & J Engineering Sdn. Bhd. (TJE), is nearing completion of its JENDELA Phase 1 obligations. While this contributed to the overall revenue decline this quarter, HCB remains optimistic about potential participation in JENDELA Phase 2, which would further bolster Malaysia’s 5G infrastructure.
• Construction and Project Management: TJE continues to focus on the RM97 million Universiti Malaysia Kelantan student hostel project. Despite a temporary slowdown due to subcontractor issues (which management is actively addressing), the project is progressing as expected, reinforcing HCB’s position in large-scale infrastructure.
• Power Generation and Transmission (via Associate): A significant highlight comes from HCB’s associate, Transgrid Ventures Sdn. Bhd. Transgrid has been awarded a massive RM427.5 million contract by Tenaga Nasional Berhad to establish Malaysia’s first 500/275kV Gas Insulated Substation at Gurun East, Kedah. This adds to Transgrid’s existing portfolio of data centre substation projects (RM197 million for TNB Vantage, RM137 million for GDS, and RM104 million for Microsoft), significantly enhancing HCB’s potential to benefit from Malaysia’s growing high-voltage energy demand. The substantial increase in “Share of results of equity-accounted associates” (RM7.26 million YTD 2025 vs RM1.69 million YTD 2024) clearly reflects this strength.
• Money Lending: A newer diversification, this business continues to deliver positive contributions to earnings, aligning with HCB’s goal of building recurring income streams while maintaining prudent risk management.
• Manufacturing (Fibre Optic Cables): This segment continues to face subdued market demand, leading to an operating loss. HCB is focusing on cost optimization and expanding engineering capabilities to support digital infrastructure.

Financial Health and Strategic Capital Management

HCB’s balance sheet reflects a strategic approach to capital management and financial stability:

The Group’s total equity has increased from RM216.32 million to RM240.88 million, leading to an improved net assets per share of RM0.51. This strengthening of the equity base is partly supported by the ongoing private placement exercise. Notably, total liabilities have decreased, indicating improved financial leverage.

Cash Flow and Private Placement

Net cash from operating activities significantly improved to RM10.74 million for the financial period ended 31 March 2025, compared to RM3.44 million in the same period last year. This positive cash generation underscores the Group’s operational efficiency.

HCB is actively undertaking a private placement of up to 134,089,200 new shares. As of the report date, 40.1 million placement shares have been issued across two tranches, raising gross proceeds that are being utilized for proposed acquisitions, working capital, and estimated expenses. This capital injection is crucial for funding strategic initiatives and strengthening the company’s financial position for future growth.

Risks and Prospects: Navigating the Future Landscape

Hextar Capital Berhad operates in dynamic sectors, presenting both opportunities and challenges:

Opportunities:

• Infrastructure Development: The ongoing JENDELA program and significant power infrastructure projects (like Transgrid’s new TNB contract) present substantial growth avenues for HCB’s telecommunication, construction, and power segments.
• Strategic Diversification: The Group’s expansion into construction, project management, and money lending is proving effective in mitigating reliance on a single sector and building recurring income streams.
• Associate Contributions: The strong performance and new contract wins by associates like Transgrid are a powerful catalyst for HCB’s overall profitability, highlighting the strategic value of these investments.
• Capital Strengthening: The private placement exercise provides the necessary capital to fund future growth, acquisitions, and bolster working capital.

Challenges:

• Cyclical Nature of Fibre Optic Business: The manufacturing segment, focused on fibre optic cables, faces cyclical demand and remains subdued. HCB needs to continue its focus on cost optimization and innovation to navigate this.
• Project Execution Risks: As seen with the subcontractor issue in the construction segment, project delays or underperformance can impact revenue and profitability. Effective project management and risk mitigation remain crucial.
• Market Competition: Operating in diverse sectors means facing varied competitive pressures that require continuous innovation and operational excellence.

Despite these challenges, HCB expresses confidence in its ability to navigate the market. Its strong market positioning and continued project wins are a testament to its strategy of sustainable growth and long-term value creation for shareholders.