Darco Water Technologies Limited (SGX:BLR) has made a turnaround in its financial performance for FY2024, returning to profitability after a challenging FY2023.
The Mainboard-listed water treatment specialist reported a net profit of S$0.5 million for the financial year ended 31 December 2024, reversing the previous year’s net loss of S$6.0 million.
Despite a 16% decrease in total revenue from S$70.2 million for FY2023 to S$59.1 million for FY2024, Darco has achieved significant improvement in its gross profit margin, which increased from 14% for FY2023 to 20% for FY2024.
This margin expansion, driven by optimised procurement processes, strengthened risk control measures, and enhanced project cost management, resulted in a 24% increase in gross profit to S$11.9 million, despite the lower revenue base.
A closer look at Darco’s revenue streams reveals a strategic shift that positions the Company for more sustainable growth. While the Engineering Projects segment saw a decline to S$44.4 million due to fewer projects secured in China amidst intense competition, the Operation and Maintenance (O&M) Services segment demonstrated robust growth of 21%, increasing from S$12.2 million for FY2023 to S$14.8 million for FY2024. The increase was primarily driven by higher sales from the Group’s Malaysian subsidiary, which focused on post-project services in FY2024.
Darco enters 2025 with a resilient financial position that enables the Company to pursue new growth opportunities. As of 31 December 2024, the Group’s net asset value stood at S$30.2 million, representing a slight increase from S$29.6 million as at 31 December 2023.
In July 2024, PV Vacuum Engineering Pte. Ltd., a wholly-owned subsidiary of Darco, secured a significant Design, Build and Operate (DBO) project worth S$5.8 million. The project involves the design, construction, and operation of a District Pneumatic Waste Conveyance System (PWCS) for Singapore’s Housing Development Board (HDB).
Importantly, this contract value only reflects the design and build phases of the project. Upon completion, a 10-year Operation and Maintenance agreement will commence, providing Darco with an additional source of recurring income – further strengthening its business model.
This latest win strengthens Darco’s impressive track record with a portfolio of 16 Smart District PWCS projects from HDB, with 4 already in operation and 12 currently in execution phase.
While China’s slower-than-expected economic recovery has affected Darco’s water treatment and supply solutions business there, the Company continues to see encouraging growth potential across Southeast Asia. The Company is strategically positioned to benefit from the increasing demand for water and waste solutions in the region, driven by economic development, population growth, and urbanisation trends.
Looking ahead, Darco has outlined a clear strategy for long-term sustainable growth. The Company will focus on enhancing operational efficiencies and leverage its established brand and expertise to capture new opportunities in the region. Darco also plans to intensify its business development and marketing efforts to expand revenue through multiple channels, including:
While Darco appears well-positioned to build on its FY2024 turnaround to capture new opportunities in the essential and expanding water and waste management sectors, recent developments have raised investor concerns.
The cessation of an Independent Non-Executive Director and an Executive Director, both effective 31 December 2024, has raised eyebrows. A Darco spokesperson shared with Investor-One that this is simply part of a prudent exercise to reduce the size of the Board, in effect reducing total Directors’ fees, to better align with shareholders’ interests. The slimmed-down Board will continue to uphold Corporate Governance standards and work towards enhancing shareholder value.
Separately, Darco Ba Lai Water Supply Limited, a subsidiary of the Company, is in breach of certain financial covenants. The subsidiary has not received any notice or letter of demand as of the publication of this article and the Group is currently in discussions with the banker to remedy the situation. The Company will make further announcements to update its shareholders when there are material updates.
On one hand, the Company has demonstrated a significant financial turnaround with improved margins and profitability, growing recurring revenue streams, and meaningful new contract wins. The Company’s strategic focus on Southeast Asian markets also positions it well to capitalise on regional growth trends in water treatment and waste management. In addition, the slimmed-down Board reflects the Group’s alignment with shareholders’ interests.
On the other hand, financial covenant issues with its Vietnam subsidiary warrant careful monitoring. If Darco can successfully address the issue while continuing to improve operational efficiency and securing new high-margin projects, the Company’s turnaround story may offer interesting potential in an essential sector with long-term growth prospects.
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