SMIS Corporation Berhad Q1 2025: Navigating Headwinds Amidst Shifting Sands
Greetings, fellow investors! Today, we’re diving deep into the latest financial report from SMIS Corporation Berhad for the first quarter ended 31 March 2025. This report provides a crucial snapshot of the company’s performance, revealing a quarter that, while challenging, also highlights strategic shifts and management’s efforts to adapt to a dynamic market. While overall profitability saw a significant decline compared to the previous year, certain segments showed resilience, and the company completed a notable corporate exercise. Let’s break down the numbers and understand what this means for SMIS.
Core Financial Performance: A Mixed Bag
SMIS Corporation Berhad experienced a notable decrease in revenue and profit before tax (PBT) in Q1 2025 compared to the same period last year. This was largely influenced by weaker demand in the Malaysian carpet segment and the broader automotive industry slowdown, as reported by the Malaysian Automotive Association (MAA).
Year-on-Year (Q1 2025 vs Q1 2024) Performance
Q1 2025
Revenue: RM34.01 million
Profit Before Taxation (PBT): RM0.92 million
Profit After Taxation (PAT): RM0.37 million
Profit Attributable to Owners: RM0.10 million
Basic Earnings Per Share: 0.25 sen
Q1 2024
Revenue: RM42.50 million
Profit Before Taxation (PBT): RM3.91 million
Profit After Taxation (PAT): RM3.63 million
Profit Attributable to Owners: RM2.18 million
Basic Earnings Per Share: 5.17 sen
As you can see, revenue dipped by 20.0%, and PBT saw a sharper decline of 76.5%. This significant drop in profitability also led to a substantial decrease in earnings per share, from 5.17 sen to just 0.25 sen.
Quarter-on-Quarter (Q1 2025 vs Q4 2024) Performance
While the year-on-year comparison shows a decline, looking at the immediate preceding quarter (Q4 2024) offers a different perspective. Despite a slight revenue decrease of 5.9% (RM2.14 million), the Group’s PBT significantly improved from RM0.13 million in Q4 2024 to RM0.92 million in Q1 2025. This improvement is attributed to the absence of inventory write-downs that impacted Q4 2024, indicating better operational efficiency in the current quarter.
Diving Deeper: Segmental and Geographical Performance
Understanding the performance of individual business units and geographical markets is key to grasping SMIS’s overall health.
Business Segments:
- Malaysian Carpet Segment: This segment faced the brunt of the slowdown, with revenue decreasing by RM7.53 million to RM17.39 million. This aligns with the 15.30% reduction in production volume reported by MAA for the automotive industry. Consequently, its PBT dropped to RM1.40 million from RM3.82 million in Q1 2024.
- Automotive Braking Components: This segment showed more stability, with revenue marginally decreasing by RM0.24 million to RM11.20 million. Its PBT also saw a slight dip to RM0.27 million from RM0.40 million in Q1 2024.
- Machinery Parts: A bright spot in the report, this segment improved its revenue by RM0.26 million to RM1.12 million and turned a profit before tax of RM0.07 million in Q1 2025, compared to a loss in Q1 2024.
Geographical Segments:
- Malaysia: Remains the largest contributor to revenue at RM26.64 million, but it’s also where the carpet segment’s challenges are most pronounced.
- Indonesia: Revenue decreased by RM0.98 million to RM4.29 million, primarily due to lower customer demand and the depreciation of the Indonesian Rupiah. This resulted in a loss before tax of RM0.33 million, a reversal from a profit in Q1 2024.
- Thailand: Contributed RM3.07 million in revenue.
Financial Health Check: Balance Sheet and Cash Flow
As at 31 March 2025, SMIS’s total assets stood at RM136.38 million, a slight decrease from RM138.14 million at 31 December 2024. Total equity, however, increased to RM106.52 million from RM102.58 million, largely driven by changes in non-controlling interests. Net assets per share remained relatively stable at RM1.78.
Looking at cash flows, the company reported net cash used in operating activities of RM0.86 million, a significant increase from RM0.08 million used in Q1 2024. This reflects the challenging operational environment. However, net cash generated from financing activities saw a substantial increase to RM3.79 million from a net cash used of RM0.23 million in Q1 2024. This positive shift in financing cash flow is primarily due to proceeds from equity interest to non-controlling interests (RM4.56 million), which stems from the completion of the disposal of a 46% stake in Sanyco Grand Industries Sdn. Bhd. on March 25, 2025. This strategic move has made Sanyco a 54.0%-owned subsidiary, altering the group’s composition and bringing in significant cash.
Risks and Prospects: Navigating the Road Ahead
SMIS Corporation Berhad operates in a competitive and evolving landscape. The management has outlined its outlook and highlighted key challenges:
Industry Outlook:
The Malaysian Automotive Association (MAA) forecasts a 5.0% decline in passenger vehicle sales volume for 2025 compared to 2024. This trend will likely impact SMIS’s automotive parts segment, which is expected to perform in line with this industry forecast. For machinery parts, management remains cautious due to market competitiveness but is committed to pursuing sales.
Key Challenges and Strategies:
The primary challenge remains the weaker customer demand, especially in the Malaysian carpet segment, directly linked to the automotive industry’s production volumes. The depreciation of the Indonesian Rupiah also negatively impacted the Indonesian market’s revenue and profitability. To counter these, SMIS is focusing on strengthening its sales efforts and adapting to market shifts.
Material Litigation:
The company is involved in two tax court disputes in Indonesia concerning additional import duty tariffs. While the first case’s appeal was rejected, and the additional duty of approximately RM0.46 million remains payable (provision already made in FY2023), the second case (totaling approximately RM0.92 million) is still awaiting a decision. SMIS, in consultation with its tax solicitors, believes it has reasonable grounds to disagree and is evaluating further legal recourse. It’s important to note that the company has already made provisions for these amounts in prior periods, mitigating immediate financial impact.
Dividends: No Payout for Q1 2025
The Board of Directors did not recommend any dividend for the current period ended 31 March 2025. This is consistent with the challenging profit environment experienced in the quarter.
Summary and Outlook
SMIS Corporation Berhad’s Q1 2025 results reflect a period of significant challenges, primarily driven by a slowdown in the automotive industry and specific segment weaknesses. The substantial drop in profit before tax and earnings per share highlights the impact of these external factors. However, the completion of the Sanyco disposal brought in a healthy cash inflow, strengthening the company’s financial position, and the quarter-on-quarter PBT improvement suggests some operational recovery from the previous quarter’s one-off impacts.
Key points to consider:
- Profitability Pressure: The significant year-on-year decline in profit and EPS is a major concern, largely tied to the Malaysian carpet segment and overall automotive market conditions.
- Strategic Restructuring: The partial disposal of Sanyco Grand Industries Sdn. Bhd. is a strategic move that has bolstered cash reserves and reconfigured the group’s composition.
- Industry Headwinds: The MAA’s forecast for a decline in 2025 vehicle sales suggests that the automotive parts segment will continue to face a tough operating environment.
- Litigation Watch: While provisions have been made, the ongoing tax disputes in Indonesia remain a point of attention, though their immediate financial impact is contained.
Looking ahead, SMIS will need to continue navigating a competitive and slowing market. The management’s focus on maintaining sales and addressing operational challenges will be crucial. Investors should closely monitor the company’s ability to adapt to the automotive industry’s trends and how its strategic changes, like the Sanyco disposal, will contribute to long-term stability and growth.
From my perspective as a financial blogger, while the Q1 2025 results for SMIS Corporation Berhad certainly indicate a challenging period, the increase in total equity and the positive cash flow from financing activities due to the Sanyco disposal show the company is actively managing its portfolio and strengthening its balance sheet. The improvement in PBT quarter-on-quarter, despite lower revenue, also suggests underlying operational improvements once one-off items are excluded. The key will be how the company leverages this stronger financial footing to counter the ongoing market headwinds and drive demand in its various segments.
What are your thoughts on SMIS’s latest performance? Do you believe the company can maintain its operational improvements and navigate the forecasted industry slowdown effectively in the coming quarters? Share your views in the comments below!
