F-1: Founder Group Navigates Growth Amidst Financial Headwinds

Founder Group Limited reports significant revenue growth in H1 2025 driven by C&I projects and related party contracts, despite an overall net loss and increased administrative expenses.

Summary

• Total revenue for the six months ended June 30, 2025, increased by 82% to RM55,465,994 (USD13,167,002) from RM30,439,585 in H1 2024.
• Revenue from contract services for related parties saw a substantial increase of 1275% to RM14,669,420 (USD3,482,355) in H1 2025.
• The company recorded a net loss of RM1,929,598 (USD458,063) for H1 2025, compared to a net loss of RM1,711,822 in H1 2024, primarily due to higher administrative expenses.
• Selling and administrative expenses increased by 81% to RM6,343,580 (USD1,505,894) in H1 2025, driven by IPO-related legal fees, increased directors' fees, and expanded headcount.
• The debt-to-equity ratio increased from 1.78 as of December 31, 2024, to 2.50 as of June 30, 2025, due to additional borrowings for business expansion.
• A 100-for-1 share combination was effective February 10, 2026, to regain Nasdaq compliance.
• The company issued a secured convertible promissory note of $16,070,000 in December 2025, with $15,000,000 in aggregate gross proceeds received, including an original issue discount and transaction expenses.
• Founder Group is an emerging growth company and a foreign private issuer, allowing for reduced reporting and corporate governance requirements.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this filing with cautious optimism. While significant revenue growth in H1 2025 and strategic expansion plans are positive, the persistent net losses, rising administrative and finance costs, increased leverage, and identified internal control weaknesses present notable concerns for investors.

Positives

• Total revenue increased by 82% to RM55,465,994 (USD13,167,002) for the six months ended June 30, 2025, compared to the same period in 2024.
• Revenue from contract services for related parties surged by 1275% to RM14,669,420 (USD3,482,355) in H1 2025, indicating strong internal project flow.
• Gross profit increased by 163% to RM5,863,396 (USD1,391,905) in H1 2025, demonstrating operational profitability from core services.
• Commercial and industrial (C&I) projects showed significant growth, with gross profit increasing by 192% to RM3,261,726 (USD774,298) in H1 2025.
• The company successfully closed its IPO on October 24, 2024, raising gross proceeds of USD4,886,252.
• Expansion into new markets is underway with the establishment of Founder Assets (Thailand) Company Limited in January 2025 and Founder Solar Solution Sdn Bhd in February 2025 for residential solar projects.
• The company plans to expand its EPCC services to other renewable energy types like hydropower and biogas, starting in Q3 2025.

Negatives

• The company reported a net loss of RM1,929,598 (USD458,063) for the six months ended June 30, 2025, a negative growth rate of 13% from the prior year's net loss.
• Selling and administrative expenses increased significantly by 81% to RM6,343,580 (USD1,505,894) in H1 2025, impacting overall profitability.
• Revenue from sales of goods decreased by 67% to RM2,507,413 (USD595,232) in H1 2025 due to a strategic decision to scale down trading activities.
• Finance costs increased by 64% to RM2,149,416 (USD510,247) in H1 2025, primarily due to interest expense on convertible securities and increased utilization of term loans.
• The debt-to-equity ratio increased from 1.78 to 2.50, indicating higher leverage and potential increased credit and liquidity risk.
• The company has identified material weaknesses in internal control over financial reporting, including a lack of accounting staff with IFRS and SEC reporting knowledge and deficiencies in journal entry procedures.
• The company incurred a net loss of RM5,150,005 (USD1,150,711) for the fiscal year ended December 31, 2024, a negative growth rate of 172% from 2023.

Risks

• Limited operating history in a rapidly evolving industry makes future operating results difficult to forecast.
• Business is project-based, and continuous securing of large-scale solar projects to support high revenue and profit growth is uncertain.
• Dependence on subcontractors for physical construction and installation works exposes the company to risks of non-performance, late performance, or poor performance.
• Concentration of revenue from a few large clients means any interruption in their operations could adversely affect financial results.
• Reliance on a few major suppliers, particularly Xiamen Solar First Energy Technology Co. Ltd., poses risks if supply arrangements are terminated or terms change.
• Unanticipated increases in project costs due to factors like MYR depreciation against USD, slower progress, or higher material/labor costs could affect profit margins.
• Risk of claims and/or penalties for liquidated damages and pre-set penalties for late project completion.
• Dependence on retention and procurement of certain approvals, registrations, permits, and licenses (e.g., from CIDB, Energy Commission of Malaysia).
• Founder Energy (Malaysia) breached Section 34(1) of the CIDBA 1994 by failing to declare and submit 31 contracts, potentially facing fines up to RM1,550,000 or suspension/revocation of registration.
• Founder Assets needs to secure written approval from the Energy Commission of Malaysia for changes in shareholding structure due to the IPO, with potential license suspension/revocation if not obtained.
• Inherent risks in the solar energy industry, including changes in government policies, regulations, subsidies, and volatility in component costs.
• Technological improvements in other power generation methods (e.g., wind, hydro, biogas) could make solar PV systems less competitive.
• Highly competitive solar energy industry in Malaysia, with risks of reduced market share and pricing pressure.
• Geographic concentration in Malaysia subjects the business to greater risks from changes in local or regional political, social, and economic conditions.
• Risks associated with international expansion into Southeast Asia, including varied legal/regulatory restrictions, staffing difficulties, longer collection cycles, and currency fluctuations.
• Potential claims of intellectual property infringement by third parties could lead to significant legal expenses and harm reputation.
• Failure to attract, recruit, or retain key personnel, including executive officers and senior management, could affect ongoing operations and growth.
• Future acquisitions may expose the company to integration risks, unforeseen liabilities, and diversion of resources.
• Exposure to claims, controversies, lawsuits, and legal proceedings could incur defense costs and divert management attention.
• Risk of negative publicity, harassment, or detrimental conduct by third parties harming reputation and market share.
• Current insurance policies may not provide adequate coverage against all claims, leading to uninsured losses.
• Dependence on relationships with project awarders for large-scale solar projects, with risks of contract termination.
• Work variations due to changes in Malaysian laws and regulations could lead to project delays and increased costs.
• Risks associated with loan and financing arrangements, including interest rate fluctuations, covenant compliance, and refinancing uncertainties.
• Sales of a substantial number of Class A Ordinary Shares by the Selling Shareholder could cause the price to fall and dilute existing shareholders.
• The Selling Shareholder may acquire Class A Ordinary Shares at a discount to the current trading price, potentially leading to a positive return for them while other investors face declines.
• Obligation to make cash payments or issue substantial Class A Ordinary Shares under the Purchase Agreement could reduce cash for operations or dilute ownership.
• Inability to predict the actual number of Class A Ordinary Shares to be sold to the Selling Shareholder under the Purchase Agreement.
• Investors buying from the Selling Shareholder at different times may pay different prices and experience varying levels of dilution.
• Management has broad discretion over the use of funds from the Purchase Agreement, which may not always enhance operating results or share price.
• Dual class share structure concentrates voting control with Class B Ordinary Shareholders, potentially diluting Class A voting power.
• Substantial future sales of Class A Ordinary Shares or anticipation thereof could depress the market price.
• No intention to pay dividends for the foreseeable future, meaning returns depend on share price appreciation.
• Market price volatility of Class A Ordinary Shares, regardless of operating performance.
• Failure to implement and maintain effective internal controls or remediate material weaknesses could lead to inaccurate reporting and fraud.
• Increased costs as a public company due to compliance requirements.
• Loss of foreign private issuer status would require full compliance with U.S. domestic issuer reporting, incurring significant additional expenses.
• Exemption from certain Nasdaq corporate governance standards as a foreign private issuer provides less protection than for U.S. domestic issuers.
• Risk of delisting from Nasdaq Capital Market if listing requirements are not met (e.g., minimum bid price).
• Anti-takeover provisions in M&A may discourage, delay, or prevent a change in control.
• Exclusive jurisdiction provision in M&A may limit shareholders' ability to obtain a favorable judicial forum for disputes.
• Board of directors may decline to register transfers of Class A Ordinary Shares in certain circumstances.
• As an emerging growth company, reduced disclosure requirements may make it difficult to compare performance with other public companies.
• Difficulty enforcing judgments against the company due to incorporation in BVI and assets/management primarily in Malaysia.
• BVI laws may not provide shareholders with benefits comparable to those in the United States.
• Limited shareholder rights to requisition general meetings or put proposals before them under BVI law.
• Recently introduced BVI economic substance legislation may adversely impact operations or incur additional costs.
• Potential classification as a Passive Foreign Investment Company (PFIC) could lead to adverse U.S. federal income tax consequences for U.S. taxpayers.

Future Outlook

The company intends to expand its workforce, increase investment in renewable energy assets like solar PV systems, and broaden its geographical footprint from Malaysia to other Southeast Asian countries such as Vietnam and the Philippines, starting in Q3 2025. It also plans to diversify its EPCC services to include hydropower and biogas projects in Q3 2025. The company expects its equity position to improve and debt-to-equity ratio to reduce following the conversion of convertible notes into ordinary shares.

Management Comments

• Our mission is to provide customers innovative solar installation services, promote eco-friendly resources and achieve carbon-neutrality.
• We believe our competitive strengths, including excellent track records, a dedicated design and engineering team, and an experienced management team, are essential for our success.
• We intend to develop our business and strengthen brand loyalty by expanding our workforce, investing in renewable energy assets, and expanding into other Southeast Asian countries.
• We plan to kickstart initiatives in hydropower and biogas in the third quarter of 2025, showcasing our commitment to meeting the evolving needs of the renewable energy market.
• We will seek to improve our liquidity position by potentially improving collection of outstanding trade and other receivable balances.
• We expect to satisfy our capital requirements through a combination of cash on hand, cash flow from operations, borrowings, convertible securities, and additional equity issuance.

Industry Context

StockSavvy.ai notes that Founder Group operates in a highly competitive and rapidly evolving solar energy industry in Southeast Asia, particularly Malaysia. The company's strategy to expand into other renewable energy sectors like hydropower and biogas aligns with broader regional and global trends towards diversified clean energy portfolios. The increasing demand for renewable energy and supportive regulatory policies in Southeast Asia present significant growth opportunities, which Founder Group aims to capitalize on through geographical expansion and service diversification. However, the industry also faces challenges such as volatile component costs, intense competition, and the need to adapt to technological advancements in power generation.

Comparison to Industry Standards

• Founder Group's reported 82% revenue growth in H1 2025 is strong, especially compared to its negative 39% growth in FY 2024, indicating a potential rebound in project execution, which could outperform some regional peers facing project delays.
• The increase in the debt-to-equity ratio to 2.50 suggests a higher leverage profile compared to more established, less growth-oriented companies in the renewable energy sector, which typically maintain lower leverage for stability. However, for an 'emerging growth company' actively expanding, this leverage might be considered within acceptable risk parameters if growth prospects materialize.
• The company's focus on end-to-end EPCC solutions for large-scale and C&I solar projects in Malaysia is a standard model, but its planned expansion into hydropower and biogas could differentiate it from pure-play solar competitors, potentially mirroring diversified energy players like Tenaga Nasional Berhad (TNB) in Malaysia, though on a much smaller scale.
• The identified material weaknesses in internal controls are a concern, as leading industry players typically have robust internal control frameworks to ensure financial reporting accuracy and prevent fraud, a standard Founder Group is actively working to meet as a public company.

Management Changes

Corporate Governance

Legal Proceedings

• Founder Energy (Malaysia) breached Section 34(1) of the CIDBA 1994 by failing to declare and submit 31 contracts to CIDB, potentially facing a fine of up to RM1,550,000 or suspension/revocation of its certificate of registration. The non-compliance has been rectified by submitting the contracts, but the risk of fines/regulatory actions remains.
• Founder Assets is in the process of seeking written approval from the Energy Commission of Malaysia concerning changes in shareholding structure resulting from Founder Group's IPO. Failure to secure approval may lead to suspension or revocation of its License for Public Installation.

Related Party Transactions

• Revenue from contract services from related parties increased by 1275% to RM14,669,420 (USD3,482,355) for the six months ended June 30, 2025, primarily from rooftop solar projects for entities related to Reservoir Energy Link Bhd.
• Purchases from Reservoir Link Renewable Sdn. Bhd. amounted to RM386,972 (USD91,863) in H1 2025 for project management services.
• Expenses charged by Reservoir Link Energy Bhd. included RM216,352 (USD51,360) in H1 2025, covering IPO-related reimbursement and management fees.
• Rental payments of RM156,000 (USD37,033) were made to Mr. Lee Seng Chi (CEO and Director) for the principal office lease in H1 2025.
• Finance costs charged by related parties amounted to RM59,223 (USD14,059) in H1 2025, primarily interest expenses on funds advanced to the Group.
• Advances of RM1,500,000 (USD356,083) were provided to Solar Bina Engineering Sdn. Bhd. (an entity controlled by Mr. Lee Seng Chi) for short-term working capital needs in H1 2025.
• In FY 2024, significant related party transactions included sales of renewable energy products and services to RL Sunseap Energy Sdn. Bhd. and Reservoir Link Renewable Sdn. Bhd., and advances from Reservoir Link Energy Bhd. and Solar Bina Engineering Sdn. Bhd.

Stakeholder Impact

• **Shareholders:** The 100-for-1 share combination aims to maintain Nasdaq listing, potentially stabilizing share price, but the dual-class structure concentrates voting power, limiting influence for Class A shareholders. Persistent net losses and increased leverage could negatively impact shareholder value. The Selling Shareholder's ability to convert notes at a discount and sell shares could cause dilution and downward price pressure.
• **Employees:** Expansion plans (workforce, new energy types, international markets) suggest potential job creation and career development opportunities. However, the identified material weaknesses in internal controls could indicate operational inefficiencies that might affect employee morale or workload.
• **Customers:** The company's focus on end-to-end EPCC services and expansion into new energy types and geographies could offer a broader range of solutions and improved service delivery. However, reliance on subcontractors and potential project delays could impact customer satisfaction.
• **Suppliers:** Concentration of suppliers, particularly Xiamen Solar First Energy Technology Co. Ltd., creates a dependency that could affect project timelines and costs if supply is disrupted. Expansion plans may lead to new supplier relationships.
• **Creditors:** Increased debt-to-equity ratio and higher finance costs indicate increased financial risk. The secured convertible note and other borrowings are critical for liquidity, and any failure to meet conditions could impact creditors.
• **Regulatory Bodies:** Non-compliance with CIDBA 1994 and the need for Energy Commission approval highlight regulatory risks that could lead to fines or license revocations, impacting the company's operational legitimacy.

Next Steps

• Expand workforce by recruiting skilled professionals and establishing strategic partnerships with contractors.
• Expand investment in renewable energy assets, such as solar PV systems, to generate recurring income.
• Expand business from Malaysia to other countries in the Southeast Asia region, specifically Vietnam and the Philippines, starting in Q3 2025.
• Offer EPCC services to other types of renewable energy, such as hydropower and biogas, starting in Q3 2025.
• Implement regular and continuous IFRS accounting and financial reporting training programs for accounting and financial reporting personnel.
• Engage an external consulting firm to assist with Sarbanes-Oxley compliance assessment and overall internal control improvement.
• Seek written approval from the Energy Commission of Malaysia concerning changes in Founder Assets' shareholding structure.
• Launch new marketing activities, including establishing a robust social media presence and partnering with external organizations.
• Renew existing permits and licenses before expiration.
• Continue negotiations with customers to conclude final billing for large-scale solar projects with impairment losses on contract assets.

Key Dates

Recommendation

Founder Group Limited presents a mixed financial picture. While the 82% revenue growth in H1 2025 and strategic expansion into new markets and renewable energy types are positive indicators for future potential, the company's persistent net losses, significant increase in administrative and finance costs, and rising debt-to-equity ratio raise concerns about profitability and financial stability. The identified material weaknesses in internal controls and regulatory non-compliance issues add to the risk profile. The recent 100-for-1 share combination to maintain Nasdaq listing is a necessary step but doesn't fundamentally alter the underlying financial challenges. A 'hold' recommendation is appropriate as the company navigates its growth strategies and addresses operational and financial weaknesses, suggesting investors monitor progress on profitability, cost control, and internal governance improvements before making further investment decisions.

Keywords

Solar Energy, EPCC, Photovoltaic, Renewable Energy, Malaysia, Nasdaq, SEC Filing, Convertible Note, Private Placement, Corporate Governance, Risk Factors, Financial Performance, Share Combination, Emerging Growth Company, Foreign Private Issuer