Decoding Hiap Huat Holdings’ Earnings: Beyond the Statutory Figures

The earnings narrative of Hiap Huat Holdings Berhad (HHHCORP) appears promising at first glance. Revenue rose 8.9% to RM87.2 million in 2023, and net income for the first half of 2025 hit MYR 1.67 million, up from MYR 1.13 million in the same period in 2024 [4]. However, a deeper dive into operating cash flow and debt metrics reveals a more nuanced—and concerning—picture.

The Cash Flow Conundrum

Operating cash flow, a critical indicator of earnings quality, tells a different story. In 2023, the company generated MYR 7.41 million in operating cash flow, but this surged to MYR 20.28 million in 2024 [4]. While the 2024 figure suggests improved cash flow conversion, it also masks a significant drop in net income (from MYR 7.78 million in 2023 to MYR 4.01 million in 2024) [1]. This discrepancy raises questions about the sustainability of earnings. A company that relies on non-cash adjustments or working capital shifts to boost cash flow may struggle to maintain profitability in the long term.

Rising Debt and Marginal Coverage

The company’s debt-to-equity ratio climbed from 29.2% in 2023 to 38.1% in 2025, reflecting a growing reliance on leverage [6]. While an interest coverage ratio of 3.3x suggests manageable debt obligations, the narrowing net profit margin—from 10% in 2022 to 2.9% in 2024—indicates rising operational pressures [1]. Higher expenses, whether from inflation or mismanagement, threaten to erode cash flow and amplify debt risks.

Valuation: Attractive or Misleading?

HHHCORP’s valuation metrics appear compelling. A P/E ratio of 10.8x is significantly lower than the industry average of 16.6x [3], and its P/OCF ratio of 3.92 in 2025 suggests reasonable value [6]. However, these figures assume stable cash flow and earnings. If operating cash flow declines or debt costs rise, the stock’s apparent cheapness could evaporate. The Peter Lynch fair value estimate of 0.26 MYR (vs. a current price of 0.13 MYR) implies a 107% upside [5], but this assumes earnings power remains intact—a questionable assumption given the recent volatility.

Conclusion: A Cautionary Outlook

While HHHCORP’s revenue and net income growth are encouraging, the divergence between cash flow and profits, coupled with rising debt, signals underlying fragility. Investors should scrutinize the quality of earnings and the sustainability of cash flow before betting on the stock’s valuation. The market may be underestimating the risks of a company whose financial health is more precarious than its statutory figures suggest.

Source:
[1] Hiap Huat Holdings Berhad Full Year 2023 Earnings: EPS, https://finance.yahoo.com/news/hiap-huat-holdings-berhad-full-225049186.html
[2] Hiap Huat Holdings Berhad Reports Earnings Results for the Second Quarter and Six Months Ended June 30, 2025, https://www.marketscreener.com/news/hiap-huat-holdings-berhad-reports-earnings-results-for-the-second-quarter-and-six-months-ended-june-ce7c50dbd98cf12c
[3] Hiap Huat Holdings Berhad Valuation, https://simplywall.st/stocks/my/commercial-services/klse-hhhcorp/hiap-huat-holdings-berhad-shares/valuation
[4] Hiap Huat Holdings Bhd (HIAP) Cash Flow, https://www.reuters.com/markets/companies/HIAP.KL
[5] HHHCORP.KL Fair Value | Hiap Huat Holdings Bhd, https://www.valueinvesting.io/HHHCORP.KL/valuation/fair-value
[6] Hiap Huat Holdings Berhad Balance Sheet Health, https://simplywall.st/stocks/my/commercial-services/klse-hhhcorp/hiap-huat-holdings-berhad-shares/health