Radiant Globaltech Berhad’s Earnings Quality Under Scrutiny: Can Strategic Moves Offset Weak Cash Flow and Share Dilution?

Radiant Globaltech Berhad (KLSE:RGTECH) has reported robust earnings growth in recent quarters, with Q2 2025 revenue surging to MYR 40.5 million—a 36.4% increase from MYR 29.69 million in Q2 2024—and net income rising to MYR 1.23 million [3]. However, a closer examination of the company’s financials reveals a troubling disconnect between reported earnings and free cash flow, raising questions about the sustainability of its performance.

Earnings vs. Free Cash Flow: A Growing Gap

While Radiant’s Q2 2025 free cash flow hit MYR 2.27 million, up 156% year-over-year [5], this figure masks a deeper issue. For FY2024, the company reported a net income of MYR 8.01 million but burned MYR 7.3 million in free cash flow, resulting in an accrual ratio of 0.27—a metric indicating that earnings were largely driven by non-cash accounting adjustments rather than operational cash generation [5]. This divergence suggests that Radiant’s earnings quality may be weaker than its top-line growth implies, as cash flow is a critical indicator of a company’s ability to fund operations, debt, and shareholder returns.

Share Dilution: A Silent Earnings Eroder

Compounding the issue is Radiant’s aggressive share issuance. Over the past 12 months, the company has diluted its share count by 5.8%, reducing the proportion of profits attributable to each shareholder [5]. Despite a 4.6% rise in net income in FY2024, earnings per share (EPS) growth stagnated at 4.6%, mirroring the dilution rate [5]. This pattern indicates that while the company is generating modest profit growth, the benefits are being eroded by expanding share capital, which weakens the EPS metric—a key driver of investor confidence.

Strategic Moves: Rymnet Acquisition as a Double-Edged Sword

Radiant’s acquisition of 80% of Rymnet Solutions Sdn Bhd for MYR 52.5 million could be a turning point. The deal, structured as MYR 42.5 million in cash and MYR 10 million in new shares, includes a profit guarantee of MYR 11 million over two years (FY2024–2025) [2]. If Rymnet meets its targets, it could contribute nearly half of Radiant’s future profits [2], potentially bridging the earnings-cash flow gap. However, the acquisition also exacerbates share dilution, with 30.3 million new shares issued at 33 sen per share [3]. This raises concerns about whether the incremental profits from Rymnet will offset the dilution’s drag on EPS.

Balancing Risks and Opportunities

For investors, the key question is whether Radiant’s strategic bets—like the Rymnet acquisition—can generate sufficient cash flow to validate its earnings. While the company’s Q2 2025 free cash flow improved significantly [5], this may reflect one-time gains or temporary operational efficiencies rather than a sustainable trend. The low return on equity (ROE) of 9.6% and a payout ratio of 35% [5] further suggest that Radiant is prioritizing reinvestment over shareholder returns, which could delay the realization of value.

In conclusion, Radiant Globaltech’s earnings growth is commendable, but its weak historical free cash flow and share dilution practices cast doubt on the durability of its performance. The Rymnet acquisition offers a path to value creation, but its success hinges on the acquired firm’s ability to deliver on its profit guarantees. Investors must weigh these risks against the potential for long-term growth, ensuring that the company’s strategic moves align with cash flow generation and earnings sustainability.

Source:
[1] Rymnet to drive half of Radiant Globaltech's future profits [https://theedgemalaysia.com/node/737953]
[2] Impressive Earnings May Not Tell The Whole Story For ... [https://finance.yahoo.com/news/impressive-earnings-may-not-tell-225906382.html]
[3] RADIANT GLOBALTECH BERHAD Reports Strong Q2 Financial Results for FY 2025 [https://klse.i3investor.com/web/announcement/detail/1989021]
[4] Radiant Globaltech Berhad Reports Earnings Results for the Second Quarter and Six Months Ended June 30, 2025 [https://www.marketscreener.com/news/radiant-globaltech-berhad-reports-earnings-results-for-the-second-quarter-and-six-months-ended-june-ce7c50d8de8bf421]