LSH Capital’s Q2 FY2025: A Deep Dive into Strong Profitability Amidst Revenue Shifts

Greetings, fellow investors and market enthusiasts! Today, we’re taking a closer look at the latest financial performance of LIM SEONG HAI CAPITAL BERHAD (LSH Capital) for its second quarter ended 31 March 2025. This report reveals a fascinating picture of a company navigating revenue shifts while significantly enhancing its profitability and laying the groundwork for future growth. While overall revenue saw a dip, the impressive surge in profit after taxation and a remarkable improvement in gross profit margins are certainly eye-catching, along with a healthy cash position and a declared dividend.

Financial Performance: A Tale of Two Segments

LSH Capital’s second quarter results show a nuanced performance. While revenue experienced a contraction, the company demonstrated exceptional efficiency and strategic gains in profitability. Let’s break down the numbers:

Quarterly Performance (Q2 FY2025 vs. Q2 FY2024)

For the individual quarter, revenue decreased by RM16.29 million (13.26%) primarily due to the completion of the LSH33 project in the construction segment. However, this was more than offset by a significant 41.89% increase in gross profit, reaching RM43.46 million. This led to a substantial 39.83% jump in profit after taxation to RM21.73 million. The impressive improvement in overall gross profit margin from 24.93% to 40.77% highlights the company’s improved operational efficiency and higher-margin projects.

Cumulative Performance (6 Months FY2025 vs. 6 Months FY2024)

Looking at the six-month cumulative period, LSH Capital’s revenue declined by 5.46% to RM203.36 million, again impacted by the construction segment’s revenue reduction. Nevertheless, gross profit climbed by 26.44% to RM78.34 million, and profit after taxation rose by 29.61% to RM40.27 million. The cumulative gross profit margin also saw a healthy increase from 28.81% to 38.52%.

Comparison with Immediate Preceding Quarter (Q2 FY2025 vs. Q1 FY2025)

Compared to the immediate preceding quarter, LSH Capital recorded a 10.16% increase in revenue, primarily driven by substantial progressive construction milestones achieved for the LSH Segar project under the property development segment. This also translated into a 15.17% rise in profit before taxation and a 17.19% increase in profit after taxation, showcasing consistent operational performance and effective project execution.

Segmental Performance: The Driving Forces

The report highlights the distinct contributions of LSH Capital’s core business segments:

• Construction Segment: While revenue decreased due to the completion of the LSH33 project, the segment’s gross profit margin significantly improved from 23.59% to 35.10% for the quarter. This was largely attributable to the substantial construction progress of earthwork performed by Astana Setia Sdn. Bhd. (ASSB) for the Tangkak project, which carries higher gross profit margins, along with effective management of subcontractor costs. The commencement of the Gemas infrastructure project and Transkrian’s earthwork project also contributed positively.
• Property Development Segment: This segment was a major growth driver, with revenue increasing by 60.93% for the quarter, largely from the LSH Segar project. Its gross profit margin soared from 29.33% to 48.48%, mainly due to a downward revision of budgeted costs for the LSH Segar project upon near-completion, resulting from cost savings in subcontractor fees, construction material, and machinery rental.

Financial Health: A Stronger Balance Sheet and Cash Flow

LSH Capital’s financial position as of 31 March 2025 shows considerable strengthening. Total assets increased to RM836.86 million from RM641.88 million as at 30 September 2024, reflecting growth in inventories and receivables. Total equity also rose significantly to RM615.38 million from RM475.32 million, partly due to the issuance of shares from the initial public offering (IPO).

A notable highlight is the substantial improvement in cash and cash equivalents, which jumped from RM40.29 million at the beginning of the period to RM139.69 million. This positive swing was driven by a healthy net cash inflow from operating activities (RM26.02 million compared to a RM20.52 million outflow in the prior period) and significant net cash from financing activities (RM80.16 million), primarily from the IPO proceeds of RM112.74 million.

Net assets per ordinary share also saw a healthy increase from RM0.67 to RM0.73.

Prospects and Potential Headwinds

LSH Capital is strategically positioning itself for future growth, but it’s important for investors to be aware of the potential challenges:

Future Outlook: Building Momentum

• Robust Orderbook: The Group boasts a strong construction orderbook of approximately RM1.44 billion as of 30 April 2025, which is expected to generate revenue progressively until FY2030. This provides excellent revenue visibility.
• New Project Acquisitions: LSH Capital plans to actively submit tenders and proposals to secure more construction and engineering works, as well as construction-related services.
• Infrastructure Concession Opportunities: The company is exploring potential infrastructure concession ownership, aiming for recurring income through operations and maintenance of assets.
• Property Development: Existing projects like LSH Segar (RM395.86 million GDV) and Lake Side Homes (RM1.15 billion GDV) are expected to contribute significantly.
• New Business Segment: The recent concession agreement to operate, manage, and maintain the Kuala Lumpur Tower signifies the establishment of a new facility management services segment, offering a source of recurring income and diversifying the Group’s revenue streams.

Key Risks and Challenges

Despite the positive operational performance and strategic growth initiatives, the report highlights material litigations that warrant close attention:

1. Lake Side Homes Project Litigation: A judicial review application seeks to quash the development order and bridge approval for the Lake Side Homes Project. While initial stay applications were dismissed, the substantive hearing is fixed for 10 December 2025. A negative outcome could lead to a loss of development rights and a write-off of property development costs. The company’s solicitors believe there is a “fair chance of success.”
2. Kuala Lumpur Tower Concession Lawsuit: A lawsuit has been filed challenging the award of the Kuala Lumpur Tower concession to LSH Service Master Sdn Bhd (LSHSM). The plaintiffs are seeking declarations that the award is void and damages, including RM17.44 million for Value Management Lab expenditure and RM2.69 million for employee layoffs. An interim injunction to halt the concession’s implementation was dismissed, but an appeal is ongoing. LSHSM’s solicitors also believe there is a “fair chance of success.”

Shareholder Returns: Dividends Declared

LSH Capital continues to demonstrate its commitment to shareholder returns. The Board declared an interim single-tier dividend of RM0.0067 per ordinary share on 19 March 2025 (paid on 18 April 2025), and a further interim single-tier dividend of RM0.0078 per ordinary share on 29 May 2025 (entitlement date 16 June 2025, payment date 25 June 2025). This brings the total dividend declared for the financial year ending 30 September 2025 to RM0.0145 per ordinary share, amounting to approximately RM12.16 million.

From my perspective as a financial blogger, LSH Capital has shown commendable resilience and strategic foresight in a dynamic market. The ability to significantly improve profitability despite a revenue decline is a testament to effective management and project selection. The diversification into facility management is also a smart move to create recurring income streams. However, the legal challenges are a critical overhang. Investors will need to weigh the strong operational performance and future growth prospects against the potential adverse impacts of these litigations.

What are your thoughts on LSH Capital’s latest results? Do you believe their strategy of focusing on higher-margin projects and diversifying into new segments will continue to pay off, or do the litigation risks present too much uncertainty? Share your insights in the comments below!