SERSOL BERHAD Q3 FY2025: Navigating Challenges with a Strategic Pivot

Greetings, fellow investors! SERSOL BERHAD has just released its unaudited condensed consolidated financial statements for the third quarter ended 31 March 2025. This report provides a crucial glimpse into the company’s performance, highlighting both the challenges it faces and the strategic initiatives it’s undertaking to forge a new path forward. While the numbers reflect a period of adjustment, SERSOL is clearly not standing still.

Core Financial Performance: A Mixed Bag

Let’s dive into the numbers to get a clearer picture of SERSOL’s financial health. The third quarter saw a contraction in top-line revenue, but some operational improvements were observed. It’s important to note that due to a change in the financial year end from 31 December to 30 June, direct year-on-year comparisons for the cumulative period (Year-To-Date) are not available.

Quarterly Performance (Q3 FY2025 vs. Q3 FY2024)

Comparing the current quarter with the same period last year reveals a significant shift:

As you can see, revenue for the current quarter dropped by approximately 31.4% from RM4.388 million to RM3.011 million. This decline in sales was the primary contributor to the overall financial outcome. However, it’s interesting to note that the Loss Before Tax (LBT) actually improved, narrowing by 10.9% from RM0.898 million to RM0.801 million. This suggests some level of operational efficiency or cost management despite the revenue dip. Unfortunately, a higher income tax expense led to a wider Loss After Tax (LAT) for the period, increasing by 27.4% to RM1.138 million, which consequently resulted in a higher basic loss per share.

Year-To-Date Performance (FY2025)

For the nine months ended 31 March 2025, SERSOL recorded a cumulative revenue of RM9.806 million. The Loss Before Tax for this period stood at RM2.460 million, with a Loss After Tax of RM2.788 million, translating to a basic loss per share of 0.38 sen. As mentioned, direct comparisons to the preceding year’s cumulative period are not available due to the change in the financial year end.

Segmental Insights: Shifting Sands

A deeper look into the geographical and business segments reveals varying performances:

• Geographical Revenue: While Malaysia’s revenue saw a decrease from RM4.401 million to RM2.346 million in the current quarter, the Thailand segment demonstrated resilience, growing its revenue from RM1.194 million to RM1.436 million.
• Segment Results: The Coatings Manufacturing segment, the Group’s core business, saw its segment results shift from a profit of RM1.004 million in Q3 FY2024 to a loss of RM0.106 million in Q3 FY2025. This indicates increased pressure on profitability within its traditional operations.

Financial Health: Balance Sheet and Cash Flow

As at 31 March 2025, the Group’s total assets stood at RM23.429 million, down from RM26.880 million as at 30 June 2024. Total equity also decreased from RM22.152 million to RM19.375 million, primarily due to the accumulated losses which have grown to RM37.719 million. Cash and bank balances also saw a significant decrease, from RM6.467 million to RM3.685 million.

From a cash flow perspective, the Group utilized RM4.752 million in its operating activities for the year-to-date. However, it generated RM2.213 million from investing activities, largely due to proceeds from the disposal of other investments. Financing activities saw a net outflow of RM0.255 million, primarily from repayment of lease liabilities. Overall, this led to a net decrease in cash and cash equivalents of RM2.794 million for the period.

Strategic Outlook and Potential Hurdles

SERSOL’s report isn’t just about past performance; it also sheds light on its future direction. The company is clearly aware of its challenges and is taking proactive steps.

Prospects: Diversification is Key

The Group remains committed to driving continuous growth and improving its market position within its existing coatings manufacturing business. However, the most significant strategic move highlighted is its expansion into the money lending business through its newly acquired subsidiary, Happy Capital Sdn. Bhd. This subsidiary received approval from the Ministry of Local Government Development on 8 April 2024 to operate its money lending business. This diversification signals SERSOL’s intent to broaden its revenue streams and reduce reliance on its traditional segment, which has faced headwinds.

Additionally, the company has undertaken several corporate proposals, including the completion of Private Placements which raised funds for working capital, machinery, and R&D. A proposed reduction of share capital is also underway, likely aimed at optimizing the balance sheet structure.

Risks: Navigating the New Landscape

While diversification offers new opportunities, it also introduces new risks. Entering the money lending business means SERSOL will be exposed to credit risk, regulatory compliance complexities, and competition within a different industry landscape. The continued decline in revenue and shift to losses in the core coatings manufacturing segment, coupled with increasing accumulated losses and a reduction in cash reserves, present ongoing operational and financial challenges. The Group will need to carefully manage its capital and operational efficiency as it integrates and scales its new venture.

Summary and

SERSOL BERHAD’s Q3 FY2025 report paints a picture of a company in transition. While the core coatings manufacturing business faces revenue and profitability pressures, reflected in the overall decline in revenue and increasing accumulated losses, the Group has shown some operational resilience by narrowing its operating loss before tax in the current quarter compared to the previous year. The strategic expansion into the money lending business via Happy Capital Sdn. Bhd. is a bold move, signifying a proactive approach to seeking new growth avenues and diversifying its business portfolio. This pivot could be a game-changer, but it also comes with its own set of inherent risks associated with a new industry.

Key points to consider:

1. Revenue Contraction: The significant drop in quarterly revenue for the core business highlights ongoing market challenges.
2. Operational Efficiency: Despite revenue decline, the narrower Loss Before Tax indicates some success in managing operational costs.
3. Strategic Diversification: The entry into money lending is a crucial development that could reshape the company’s future revenue streams.
4. Cash Flow Pressure: Net cash used in operations and declining cash balances suggest a need for careful cash management.
5. No Dividends: The company did not propose any dividends for the quarter, which is common for companies in a growth or restructuring phase.

As a blogger, I cannot offer investment advice. However, it’s clear that SERSOL is at an interesting juncture. Its ability to successfully execute its diversification strategy while stabilizing its core business will be critical to its long-term performance.

What’s Your Take?

SERSOL BERHAD is clearly charting a new course. The strategic pivot into money lending is a significant development, but can it offset the challenges in its traditional business? Do you think the company can successfully navigate the complexities of a new industry while turning around its core operations?

Share your thoughts in the comments section below! Your insights are valuable to the community.