Hong Fok's Earnings Drop: A Closer Look at the Numbers

In the world of investing, it's not uncommon for companies to experience fluctuations in their financial performance. One such company that has recently caught the attention of investors is Hong Fok Corporation Ltd (SGX:H30), which reported its full-year 2024 earnings on February 28, 2025. The company's earnings per share (EPS) for the year was S$0.037, a significant decrease from the S$0.14 reported in FY 2023. Let's take a closer look at the numbers and try to understand what drove this change.

Revenue and Profit Margin Trends
Hong Fok's revenue for the full year 2024 was SGD 105.22 million, a decrease of -4.89% compared to the previous year's SGD 110.63 million. The company's profit margin also decreased significantly, from 79.61% in 2023 to 22.57% in 2024. This decline in both revenue and profit margin is a clear indication that the company faced challenges in its operations during the year.

Key Factors Contributing to the Decline
Several factors contributed to the significant decline in Hong Fok's EPS:

1. Decrease in Revenue: Hong Fok's revenue decreased by 4.89% from SGD 110.63 million in FY 2023 to SGD 105.22 million in FY 2024. This decrease in top-line growth directly impacted the company's profitability and EPS.
2. Increase in Operating Expenses: Despite the decrease in revenue, Hong Fok's total operating expenses increased by 7.44% from SGD 58.61 million in FY 2023 to SGD 62.79 million in FY 2024. This increase in expenses, particularly in property expenses (up by 11.11%) and other operating expenses (up by 20.13%), negatively affected the company's operating margin and EPS.
3. Decrease in Operating Income: As a result of the decrease in revenue and the increase in operating expenses, Hong Fok's operating income decreased by 18.83% from SGD 52.01 million in FY 2023 to SGD 42.43 million in FY 2024. This decrease in operating income directly contributed to the decline in EPS.
4. Increase in Interest Expense: Hong Fok's interest expense increased by 39.27% from SGD -38.56 million in FY 2023 to SGD -37.64 million in FY 2024. This increase in interest expense further negatively impacted the company's pretax income and EPS.
5. Decrease in Gain on Sale of Investments: Hong Fok's gain on sale of investments decreased by 83.53% from SGD 1.33 million in FY 2023 to SGD 0.22 million in FY 2024. This decrease in non-operating income also contributed to the decline in EPS.

These factors combined led to a significant decrease in Hong Fok's EPS from S$0.14 in FY 2023 to S$0.037 in FY 2024.

Risks and Challenges Ahead
As we look ahead, Hong Fok faces several risks and challenges that could impact its financial performance:

1. Market Conditions: The real estate market is cyclical and sensitive to economic conditions. A downturn in the property market could lead to reduced demand for Hong Fok's properties, impacting its revenue and profitability.
2. Interest Rate Fluctuations: Changes in interest rates can affect Hong Fok's borrowing costs and, consequently, its net income. Higher interest rates could increase Hong Fok's interest expenses, reducing its net income.
3. Currency Exchange Fluctuations: As a company with operations in both Singapore and Hong Kong, Hong Fok is exposed to currency exchange rate fluctuations. Adverse currency movements could negatively impact Hong Fok's financial performance.
4. Asset Writedowns: Hong Fok has experienced significant asset writedowns in the past, which can negatively impact its net income. Future asset writedowns could further impact Hong Fok's financial performance.
5. Regulatory Risks: Changes in regulations and policies, particularly in the real estate sector, could impact Hong Fok's operations and financial performance.
6. Competition: The real estate market is competitive, and Hong Fok faces competition from other property developers and investors. Increased competition could lead to lower profit margins and reduced market share for Hong Fok.

To mitigate these risks, Hong Fok could diversify its revenue streams, manage its debt portfolio, hedge against currency fluctuations, maintain a strong balance sheet, and stay informed about regulatory changes and market trends.

Conclusion
In conclusion, Hong Fok Corporation Ltd's earnings per share (EPS) for the full year 2024 was S$0.037, a significant decrease from the S$0.14 reported in FY 2023. This decline was driven by a combination of factors, including a decrease in revenue, an increase in operating expenses, a decrease in operating income, an increase in interest expense, and a decrease in gain on sale of investments. As we look ahead, Hong Fok faces several risks and challenges that could impact its financial performance. To mitigate these risks, Hong Fok could take steps to diversify its revenue streams, manage its debt portfolio, hedge against currency fluctuations, maintain a strong balance sheet, and stay informed about regulatory changes and market trends. By doing so, Hong Fok can work towards improving its financial performance and ensuring the long-term success of the company.