Ahmad Zaki Resources Berhad: A Deep Dive into Earnings Collapse and Future Viability

The earnings collapse at Ahmad Zaki Resources Berhad (AZRB) in 2025 has sent shockwaves through Malaysia’s capital goods sector. What began as a promising turnaround in FY2024—marked by a 24% net profit margin and RM88.9 million in net income—has unraveled into a crisis, with FY2025 net income plummeting to RM3.32 million and a profit margin of just 0.7% [1]. This collapse, driven by a combination of rising costs, operational inefficiencies, and external industry headwinds, raises urgent questions about the company’s long-term viability.

The Profit Margin Compression: A Perfect Storm

AZRB’s margin compression is stark. In Q3 2025 alone, the company’s profit margin fell to 1.0%, down from 6.1% in the same period in 2024 [2]. Despite a 42% year-over-year revenue increase to RM133.1 million in that quarter, net income dropped 77% to RM1.35 million [2]. Management attributes this to “higher expenses,” but the lack of granular detail obscures the root causes [3].

The broader industry context is equally troubling. Malaysia’s oil and gas sector, a key revenue driver for AZRB, faces a decade-low outlook due to softening crude prices, U.S. tariff risks, and reduced capital expenditure by state-owned Petronas [4]. Commodity price declines have further pressured margins, with Malaysia’s producer price index falling 3.8% year-on-year in July 2025 [5]. For a company with a 0.11 asset turnover ratio in 2025—indicating weak asset utilization—these external shocks compound existing operational weaknesses [6].

Operational Efficiency: A Tale of Two Strategies

AZRB’s operational inefficiencies are evident in its financial metrics. The company’s SG&A expenses, while not explicitly disclosed, appear to have surged relative to industry benchmarks. In the construction sector, SG&A ratios typically range between 5.60% and 52.64% of revenue, with a median of 10.79% [7]. If AZRB’s SG&A expenses exceed this range, it would explain the sharp margin compression. A would clarify this critical metric.

The company’s strategic response has been to shift its financial year-end from June 30 to December 31, aiming to improve resource management and financial evaluation [8]. While this adjustment may provide short-term clarity, it does not address deeper issues. For instance, AZRB’s Oil and Gas segment, which includes marine fuels and lubricants, operates in a market projected to grow at a modest 1.40% CAGR through 2030 [9]. Without cost-cutting measures or diversification, AZRB risks being outpaced by peers leveraging digitalization and automation to enhance efficiency [10].

Legal and Financial Red Flags

Compounding these challenges is a winding-up petition served on AZRB’s subsidiary, Ahmad Zaki Sdn Bhd, raising concerns about liquidity and debt management [11]. The company’s reliance on debt—highlighted by a trailing twelve-month ROE of 28% supported by leverage—further exacerbates risks [12]. Analysts note that AZRB’s operating cash flow does not adequately cover debt obligations, a warning sign for investors [13].

The Path Forward: A Test of Resilience

AZRB’s survival hinges on its ability to reinvent its cost structure and operational model. The recent shift in financial reporting timelines is a step in the right direction, but more aggressive measures—such as restructuring underperforming segments or renegotiating supplier contracts—are needed. The company must also address its SG&A inefficiencies, ideally bringing them in line with industry averages.

For now, the outlook remains bleak. With profit margins at historic lows and external pressures mounting, AZRB’s 2025 performance underscores the fragility of its business model. Investors should monitor the company’s ability to execute its strategic adjustments and navigate the volatile oil and gas landscape.

Source:
[1] Ahmad Zaki Resources Berhad Full Year 2025 Earnings: EPS [https://finance.yahoo.com/news/ahmad-zaki-resources-berhad-full-000802754.html]
[2] Ahmad Zaki Resources Berhad Third Quarter 2025 Earnings [https://finance.yahoo.com/news/ahmad-zaki-resources-berhad-third-222435786.html]
[3] Ahmad Zaki Resources Berhad (AZRB) Stock Overview [https://simplywall.st/stocks/my/capital-goods/klse-azrb/ahmad-zaki-resources-berhad-shares]
[4] Malaysia's oil and gas sector faces worst outlook in decade [https://english.news.cn/20250605/fb72b91efcfe4a2ba93be982794e3c1b/c.html]
[5] Malaysia's Producer Prices Slip As Oil And Gas Weaken [https://finimize.com/content/malaysias-producer-prices-slip-as-oil-and-gas-weaken]
[6] 7078.MY | Ahmad Zaki Resources Bhd Financial Statements [https://www.wsj.com/market-data/quotes/MY/XKLS/7078/financials?gaa_at=eafs&gaa_n=ASWzDAinAK-fzcrhWgBu9V6k4-32adgwmc2IU-dE79csYl20YGKaHQpSqmkn&gaa_sig=-9lGyUoU2pO2n0OfEaqYr-3HTqpI_37S-aRMUTa0iKoLJnU_-RJhHJw9nbBLTHPTVQi1R__NP-zTPl3EE1NiVQ%3D%3D&gaa_ts=68b510d4]
[7] 2025 Performance Benchmarks: Construction Companies [https://www.jmco.com/articles/construction/performance-benchmarks-construction-companies/]
[8] AHMAD ZAKI RESOURCES BERHAD Announces Change in Financial Year End [https://klse1.i3investor.com/web/announcement/detail/1980555]
[9] Malaysia Oil and Gas Market Size & Share Analysis [https://www.mordorintelligence.com/industry-reports/malaysia-oil-and-gas-market]
[10] Malaysia Oil and Gas Engineering Services Market [https://www.6wresearch.com/industry-report/malaysia-oil-and-gas-engineering-services-market]
[11] AHMAD ZAKI RESOURCES BERHAD Announces Winding [https://klse.i3investor.com/web/announcement/detail/1979263]
[12] Ahmad Zaki Resources Berhad (KLSE:AZRB) Delivered A [https://finance.yahoo.com/news/ahmad-zaki-resources-berhad-klse-233242019.html]
[13] Ahmad Zaki Resources Berhad (AZRB) Stock Overview [https://simplywall.st/stocks/my/capital-goods/klse-azrb/ahmad-zaki-resources-berhad-shares]
[14] SG&A Benchmarks Archives - SAI Books [https://saibooks.com/product-category/sga-2020/]