Sunview Group Berhad: Capital Efficiency Collapse Threatens Long-Term Value Creation

The investment case for Sunview Group Berhad (KLSE:SUNVIEW) has grown increasingly precarious as its Return on Capital Employed (ROCE) has collapsed over the past five years, from a peak of 54% to just 6.1% as of March 2025. This precipitous decline—from an industry-leading metric to below the Electrical sector average of 11%—signals a profound misallocation of capital. The question now is whether the company's reinvestment strategy has become a liability, undermining its ability to generate sustainable value.

The ROCE Deterioration: A Story of Capital Overreach

The root of Sunview's troubles lies in its capital structure. Over the past five years, capital employed surged by a staggering 3,051%, as the firm raised significant funds to fuel growth. Yet this capital has not translated into earnings: ROCE has cratered, with the March 2025 trailing twelve-month (TTM) figure hitting just 6.1%. Even more alarming, quarterly ROCE briefly dipped to 0.64% in early 2025—the lowest in over a decade—while peers like Supercomnet Technologies Berhad (7.22%) and Malaysian Pacific Industries Berhad (9.26%) maintain healthier margins.

This disconnect between capital and returns suggests two critical flaws:
1. Poor Project Selection: The capital raised appears to have been invested in ventures that either underperformed or failed to materialize into earnings.
2. Over-Leveraged Growth: The company's debt-to-equity ratio has climbed to 63.1%, with interest coverage at a precarious 1.8x. This financial strain limits flexibility and amplifies risks if revenues continue to falter.

Revenue Volatility and Profit Margins: A Losing Formula

Sunview's revenue trajectory has been equally erratic. After a brief surge to RM347 million in 2022, revenue collapsed by 51% to RM226.8 million in 2025. Meanwhile, net income has dwindled to RM6.35 million—a 34% drop from 2024—while earnings per share (EPS) have halved since 2023, reaching just RM0.012 in June 2025.

The erosion of margins and EPS points to a strategy at odds with reality. Cost-cutting has stabilized the margin at 2.8%, but this is a temporary fix. The core issue remains: Sunview is struggling to scale operations profitably. Its reliance on equity financing—11% more shares issued in the past year—has diluted shareholder value, further squeezing EPS.

Governance and Leadership: Adding to the Headwinds

Compounding these financial challenges are governance concerns. Leadership changes and committee restructurings hint at internal instability, raising doubts about strategic coherence. With analysts noting two “warning signs”—shareholder dilution and governance issues—the board's ability to steer a turnaround is in question.

Investment Implications: Caution Until Proof of Turnaround

For investors, the path forward is fraught with uncertainty. Key considerations:
- ROCE Recovery: A sustained rebound in ROCE above 10% would signal renewed capital efficiency. Until then, the stock—down 43% year-to-date—remains risky.
- Debt Management: Reducing leverage to below 50% and improving interest coverage to 3x or higher would alleviate liquidity risks.
- Revenue Stability: Consistent top-line growth above RM300 million annually is essential to justify current valuations.

Conclusion: A Crossroads for Value Creation

Sunview Group Berhad's decline underscores a fundamental truth: capital employed without commensurate returns is a value destroyer. Its reinvestment strategy has failed to deliver on growth, leaving shareholders with dwindling margins, rising debt, and eroded EPS. Until management demonstrates discipline in capital allocation and operational execution, the company's long-term prospects remain dim. For now, investors should proceed with caution—this is not a story of recovery, but of reckoning.

Investment Advice: Avoid Sunview Group Berhad until ROCE stabilizes above 10%, debt is reduced, and revenue growth resumes. Current metrics suggest the stock remains vulnerable to further declines.