Lii Hen Industries Bhd's Long-Term Underperformance: Structural Challenges and Financial Sustainability Concerns

Lii Hen Industries Bhd (KLSE:LIIHEN), a key player in Malaysia's furniture export sector, has faced a prolonged decline in earnings per share (EPS) and profitability, despite a modest short-term rebound in late 2025. While recent quarterly data shows some stabilization in revenue and net income, the company's long-term underperformance-marked by a -24.9% average annual EPS decline since 2020-highlights deeper structural challenges. These include external macroeconomic pressures, operational inefficiencies, and financial sustainability risks that threaten its ability to compete in a rapidly shifting global market.

Declining EPS and Profitability: A Trend, Not an Anomaly

Lii Hen's financial performance has deteriorated sharply over the past five years. In 2024, the company reported an EPS of RM0.033, down from RM0.11 in 2023. This trend worsened in 2025, with the third-quarter EPS reporting a loss of RM0.005 per share, a marginal improvement from a RM0.012 loss in the same period in 2024. The second-quarter of 2025 saw a loss of RM0.017 per share, contrasting with a RM0.013 profit in 2024. Even the first quarter of 2025 showed a sharp decline, with EPS at RM0.009 compared to RM0.025 in 2024. These figures underscore a consistent erosion of profitability, exacerbated by the company's decision to suspend dividends in Q1 2025-a stark departure from its prior dividend policy.

Structural Operational Challenges: Tariffs, Currency, and Labor Costs

External factors have compounded Lii Hen's struggles. The imposition of 19% U.S. tariffs on Malaysian furniture exports in August 2025 has directly impacted its competitiveness in the North American market, its primary revenue source. Additionally, the weakening U.S. Dollar (down 4.8% against the Malaysian Ringgit) has reduced export earnings, further squeezing margins. Rising labor costs, driven by a minimum wage increase effective February 2025, have also strained the company's cost structure.

While Q3 2025 revenue rose 7.29% year-over-year to RM164.58 million as customers rushed to place orders before the new tariffs took effect, this temporary surge masks underlying vulnerabilities. For instance, Q2 2025 revenue fell to RM120.4 million from RM149.1 million in Q2 2024, accompanied by a pre-tax loss of RM9.99 million. These fluctuations suggest that Lii Hen's operations remain highly sensitive to external shocks, with limited capacity to absorb or mitigate them.

Short-Term Rebound, Long-Term Uncertainty

The recent stabilization in Lii Hen's financials-such as improved net income in Q3 2025 and a 3% annual growth in total assets-offers a glimmer of hope. However, these gains are fragile. The Q3 revenue boost was driven by a one-time surge in pre-tariff orders, and the company's net margins remain negative. Without addressing structural issues like tariff exposure, currency volatility, and rising labor costs, Lii Hen's ability to sustain profitability remains questionable.

Conclusion: A Cautionary Tale for Investors

Lii Hen Industries Bhd's short-term rebound in late 2025 provides a temporary reprieve but does not resolve its long-term underperformance. The company's declining EPS, operational vulnerabilities, and weak interest coverage ratio highlight a business model that is increasingly ill-suited to global market dynamics. While its liquidity position and low debt levels offer some buffer, these advantages may not offset the compounding effects of external headwinds. For investors, the key takeaway is clear: Lii Hen's structural challenges demand urgent strategic overhauls, and its financial sustainability hinges on its ability to adapt to a rapidly evolving industry landscape.