Econframe Berhad — Third Quarter Results Analysis

Aluminum frame manufacturer Econframe Berhad (EFRAME) announced financial results for the third quarter ended May 31, 2024 (third quarter of fiscal year 2024).

To the surprise of many, EFRAME's profit for the quarter fell to RM1.47 million, while revenue was RM24.94 million. Why is that?

Let's take a deep dive into their financial performance.

In the current quarter, EFRAME's revenue was RM24.94 million, up about 27.0% from the third quarter of fiscal year 2023. This increase was mainly due to an increase of RM3.73 million in revenue from the manufacturing sector, which is commendable.

In terms of profit by sector, the profit from the EFRAME manufacturing business was RM6.59 million, and the profit from the trading business was RM0.9 million, an overall increase of 18.0% over the same period last year.

In other words, EFRAME's performance has indeed improved compared to the third quarter of fiscal year 2023.

However, the increase was affected by amortization of intangible assets, amounting to RM2.99 million, which was generated according to MFRS3: “Business Merger”. This was mainly due to the acquisition of 70.0% of Lee & Yong Aluminium Sdn Bhd (LYASB) shares.

For readers with a non-accounting background, amortization of a business acquisition is like buying an asset; its cost needs to be amortized over its useful life (same as depreciation). This is a non-cash, non-operational impact project for EFRAME itself.

In fact, during the nine-month financial period ending May 31, 2024, EFRAME generated a net operating cash flow of RM9.09 million, which shows the company's strong ability to generate cash.

However, compared to the previous quarter, EFRAME's revenue fell from RM26.98 million to RM24.94 million, and segmental profit fell from RM8.52 million to RM7.49 million—again, this is not a serious problem, but it was affected by a one-time RM2.99 million project on the book.

EFRAME's business itself is closely linked to the real estate market. In the first quarter of 2024, real estate transactions in Malaysia reached RM56.53 billion, a significant increase compared to the value of RM14.22 billion, and the transaction volume reached 104,000. This shows positive signs for EFRAME's future orders and LYASB's further contribution to the company.

If the market reacts negatively, this would be a good opportunity to invest in the company!