Yongmao Holdings Limited: Financial Analysis and Investment Recommendations (Net Profit Decline of 68.9%)

Business Description

Yongmao Holdings Limited is a Singapore-incorporated investment holding company listed on the Singapore Exchange Mainboard. The Group operates in two primary business segments:

• Manufacturing and Sales: The production and sale of tower cranes and related components.
• Rental and Servicing: Rental and maintenance services for tower cranes and other construction machinery.

The company has a prominent geographic footprint in the PRC, Hong Kong, Macau, and other parts of Asia, with minor operations in Singapore, the USA, Europe, and the Middle East. Revenue contributions are concentrated in Asia, with the PRC and the rest of Asia accounting for 75.9% of total revenue in 1H FY2025.

Industry Position

Yongmao operates in the construction machinery industry, a sector heavily influenced by infrastructure spending, economic cycles, and real estate development. The company faces competition from other crane manufacturers and rental service providers. The PRC’s slowing property market and global economic pressures pose challenges to its market position.

Revenue Streams and Competitive Advantage

Yongmao’s revenue streams are divided into:

• Sales of Manufactured Tower Cranes and Components: RMB328.7 million in 1H FY2025, accounting for 70.9% of total revenue.
• Rental and Service Income: RMB135.1 million in 1H FY2025, contributing 29.1% of total revenue.

The company benefits from vertical integration, manufacturing its products while servicing and renting them, which provides a competitive edge. However, its dependency on the PRC market (33.7% of revenue) remains a risk due to the country’s current economic slowdown.

Financial Statement Analysis

Income Statement

• Revenue: Decreased by 3.6% to RMB463.8 million in 1H FY2025 compared to RMB481.1 million in 1H FY2024, driven by lower sales in the PRC and a decrease in rental and service income.
• Net Profit: Declined sharply by 68.9% to RMB14.8 million in 1H FY2025 from RMB47.6 million in 1H FY2024 due to increased operating expenses and exchange losses.
• Operating Expenses: Increased by 35.3% to RMB129.2 million, driven by higher freight costs, exchange losses, and debt write-offs.
• Gross Profit Margin: Marginally decreased to 30.4% in 1H FY2025, down from 30.9% in 1H FY2024.

Balance Sheet

• Total Assets: Increased to RMB2,230.0 million as of 30 September 2024, up from RMB2,063.4 million as of 31 March 2024, primarily due to higher trade receivables and property, plant, and equipment.
• Equity: Increased to RMB1,015.7 million due to total comprehensive income of RMB41.7 million, offset by dividend payouts.
• Liabilities: Non-current liabilities rose to RMB183.2 million due to higher borrowings and lease liabilities.

Cash Flow Statement

• Net Cash Used in Operating Activities: RMB47.0 million due to increased receivables and inventory.
• Net Cash Used in Investing Activities: RMB3.2 million, primarily for property and equipment acquisitions.
• Net Cash Generated from Financing Activities: RMB17.2 million, driven by hire purchase proceeds and loans from a corporate shareholder.

Dividend Policy

No interim dividend was declared for 1H FY2025. The company historically declares dividends annually based on full-year results.

Special Activities

The company disposed of its 75% interest in Yongmao Machinery (Cambodia) Co., Ltd. on 3 September 2024 as part of a restructuring initiative. This transaction is not expected to materially impact earnings or assets.

Key Findings

Strengths

• Geographic diversification mitigates risks from the PRC’s economic slowdown.
• Vertical integration provides competitive advantages in manufacturing, rental, and servicing.
• Strong comprehensive income of RMB41.7 million due to fair value gains on financial assets.

Risks

• Net profit declined significantly by 68.9%, signaling profitability challenges.
• High exposure to the PRC market, which is experiencing economic and property sector weakness.
• Increased operating expenses, particularly from freight costs and exchange losses.
• No interim dividend declared, which may deter income-focused investors.

Recommendations

If You Are Currently Holding This Stock

Recommendation: Hold.

While the decline in net profit and growing risks in the PRC market are concerning, the company’s comprehensive income and strategic restructuring efforts suggest a cautiously optimistic outlook in the medium term. Existing investors should monitor recovery in profitability and execution of cost-saving initiatives.

If You Are Not Currently Holding This Stock

Recommendation: Avoid for now and re-evaluate after full-year results.

The sharp decline in net profit and lingering economic uncertainty in the PRC make this a high-risk investment. Investors should wait for signs of stabilization in key markets and improved financial performance before considering entry.

Disclaimer

The above analysis is based solely on the company’s financial report for 1H FY2025 and does not constitute financial advice. Investors should conduct their own research or consult with a professional advisor before making any investment decision.

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