20-F: Linkers Industries Reports Widened Losses, Nasdaq Compliance Risk

Linkers Industries Limited reported a significant increase in net loss for fiscal year 2025, alongside a Nasdaq bid price non-compliance notice, despite completing its initial public offering.

Summary

• Linkers Industries Limited (LIL) reported a net loss of RM4,933,697 (US$1,172,344) for the fiscal year ended June 30, 2025, a substantial increase from the RM1,999,462 loss in 2024.
• Revenue remained relatively stable at RM22,421,335 (US$5,327,758) in 2025, compared to RM22,428,825 in 2024, but significantly down from RM34,269,482 in 2023.
• Gross profit decreased by 18.5% to RM1,819,564 (US$432,365) in 2025 from RM2,233,770 in 2024.
• General and administrative expenses surged by 83.7% to RM6,120,480 (US$1,454,348) in 2025, primarily due to increased professional services fees related to marketing, business development, audit, US counsel, and Nasdaq annual fees, as well as director fees and salary adjustments.
• The company completed its Initial Public Offering (IPO) on Nasdaq Capital Market on December 6, 2024, raising net proceeds of approximately RM25.7 million (US$6.1 million).
• As of June 30, 2025, LIL had strong liquidity with cash and bank balances of RM23.7 million (US$5,637,222) and net current assets of RM35.1 million (US$8,346,104).
• LIL received a Nasdaq notification on March 10, 2025, for non-compliance with the minimum bid price rule ($1 per share) and was granted an extension until March 9, 2026, to regain compliance.
• The company's top five customers accounted for 89.4% of total revenue in 2025, highlighting significant customer concentration risk.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to a significant increase in net loss, decreased gross profit, and the Nasdaq bid price non-compliance. While the IPO provided a strong cash injection and management is addressing challenges, the core financial performance and listing risk are concerning.

Positives

• Successfully completed an Initial Public Offering (IPO) on Nasdaq Capital Market in December 2024, raising approximately US$6.1 million in net proceeds.
• Maintained a strong liquidity position with RM23.7 million (US$5,637,222) in cash and bank balances and RM35.1 million (US$8,346,104) in net current assets as of June 30, 2025.
• Management believes current financial resources are sufficient to meet anticipated cash needs for at least the next twelve months.
• Demonstrated commitment to corporate governance by establishing audit, compensation, and nominating & corporate governance committees, and adopting a clawback policy.
• Actively implementing measures to mitigate inflationary pressures on material and labor costs, such as proposing alternative materials, monitoring market prices, strengthening negotiations, and optimizing production planning.

Negatives

• Net loss significantly increased to RM4,933,697 (US$1,172,344) in 2025 from RM1,999,462 in 2024.
• Gross profit decreased by 18.5% to RM1,819,564 (US$432,365) in 2025, following a 51.0% decrease in 2024.
• General and administrative expenses rose sharply by 83.7% in 2025, driven by higher professional services fees post-IPO.
• Received a Nasdaq bid price non-compliance notice on March 10, 2025, indicating the share price closed below $1 for 30 consecutive business days, posing a delisting risk.
• Revenue in 2024 decreased by 34.6% compared to 2023, attributed to global economic uncertainties and postponed sales orders.
• High customer concentration, with the top five customers accounting for 89.4% of total revenue in 2025, creating significant dependence.
• Experienced a loss on foreign exchange of RM478,904 (US$113,797) in 2025, compared to a gain in previous years.

Risks

• Operations are subject to various laws and regulations in Malaysia, with potential for fines, administrative penalties, or prosecution for non-compliance.
• Socio-political, regulatory, and economic developments in Malaysia, including war, terrorism, and changes in government policies, could adversely impact business.
• Fluctuations in exchange rates, particularly RM against USD and EUR, could adversely affect margins and financial results, as the company does not hedge foreign exchange risks.
• Foreign exchange control policies in Malaysia may restrict the ability of subsidiaries to repatriate dividends or other payments.
• Failure to comply with the U.S. Foreign Corrupt Practices Act (FCPA) and Malaysia anti-corruption laws could lead to substantial fines and reputational damage.
• Reliance on dividends and other distributions from subsidiaries to fund cash and financing requirements, with potential limitations on their ability to make payments.
• Difficulty for U.S. investors to enforce rights based on U.S. federal securities laws against the company or its officers and directors in Malaysia or BVI.
• Fluctuations in the prices of major raw materials (e.g., copper, wires, plastic) could materially and adversely affect business if price increases cannot be passed to customers.
• Unanticipated or prolonged interruption of operations at the production facility due to equipment failures, power disruptions, accidents, or natural calamities.
• Failure to acquire raw materials or fill customer orders in a timely and cost-effective manner due to reliance on third-party suppliers without long-term contracts.
• Slowdown in the international economy, particularly in the Asia Pacific Region, could diminish demand for products.
• Ineffective implementation of production plans or obsolete inventories could adversely affect future performance.
• Significant competition in the wire/cable harness manufacturing market due to low entry barriers.
• Exposure to credit risks of customers, potentially affecting working capital and requiring provisions for impairment.
• Dependence on key executives and personnel, with potential negative impacts from their loss.
• Inability to achieve business objectives or implement growth strategies due to business, economic, and competitive uncertainties.
• Potential for litigation, arbitration, or other legal proceedings, leading to substantial costs and reputational harm.
• Internal control system may become ineffective or inadequate, leading to undetected errors or fraud.
• Sustained outbreak of health epidemics, including COVID-19, could disrupt operations, reduce market demand, and affect financial results.
• The war in Ukraine could materially and adversely affect global economic markets and, indirectly, the company's business and supply chain.
• The dual-class voting structure limits the ability of Class A Ordinary Shareholders to influence corporate matters, as the Controlling Shareholder holds 91.62% of total voting power.
• The dual-class structure may result in a lower or more volatile market price for Class A Ordinary Shares and exclusion from certain stock indices.
• Future sales of Class A Ordinary Shares by existing shareholders, including those registered for resale, could cause the market price to decline.
• Potential conflicts of interest arising from the Controlling Shareholder's shareholdings in companies with similar businesses.
• Directors allocating time to other businesses, potentially distracting from company affairs.
• Failure to meet Nasdaq listing requirements, specifically the minimum bid price rule, could lead to delisting.
• Volatility in the Class A Ordinary Share price may subject the company to securities litigation.
• Small public float may lead to greater stock price volatility, lower trading volume, and less liquidity.
• Management has broad discretion over the use of IPO funds, which may not always enhance operating results or share price.
• Disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
• No dividends are expected to be paid for the foreseeable future, meaning returns depend solely on share price appreciation.
• Lack of favorable research or reports from securities analysts could cause share price or trading volume to decline.
• As a foreign private issuer, the company is exempt from certain U.S. proxy rules and reporting obligations, potentially affording less protection to shareholders.
• Loss of foreign private issuer status in the future could result in significant additional costs and expenses.
• Qualifying as an emerging growth company allows for reduced reporting requirements, which may limit information available to investors.
• Increased costs are expected as a public company, particularly after ceasing to qualify as an emerging growth company.
• There is a risk of being classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, which could result in adverse tax consequences for U.S. investors.

Future Outlook

The company intends to use the remaining IPO proceeds for potential acquisitions or joint ventures (30%), purchase of machinery/equipment (20%), marketing promotion and setting up global sales offices (10%), and funding working capital (40%). Management believes working capital will be sufficient for at least the next twelve months. The company will continue to monitor the situation regarding the COVID-19 pandemic and global economic conditions throughout 2025 and beyond. Efforts are underway to regain compliance with Nasdaq's minimum bid price requirement by March 9, 2026.

Management Comments

• "We believe that overseas risks and uncertainties could lead to reduced overseas sales and reduced profitability associated with such sales, which would reduce our overall sales and profits."
• "Our management will maintain and enhance our long-standing relationships with our customers and diversify our products and services to our customers in order to reduce the level of customer concentration."
• "We will continue to closely monitor the situation throughout 2025 and beyond [regarding COVID-19]."
• "Our board of directors will continue to monitor any potential risks that might arise due to the war in Ukraine which are specific to the Company, including but not limited to risks related to cybersecurity, sanctions, and supply chain, suppliers, or service providers in affected regions as well as risks connected with ongoing or halted operations or investments in affected regions."
• "We believe that any disclosure controls and procedures, no matter how well-conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of the control system are met."
• "Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of June 30, 2025."
• "The Company is currently evaluating options to regain compliance and intends to timely regain compliance with Nasdaqs continued listing requirement."

Industry Context

The company operates in a highly competitive wire/cable harness manufacturing market in Malaysia, characterized by rapid technological change, new product development, and evolving industry standards. There is a growing demand for complex and customized solutions, requiring technical expertise and advanced manufacturing capabilities. Market players are investing in R&D and advanced technologies, with a strong emphasis on innovation and customization. The industry is susceptible to global economic cycles, as evidenced by the company's sales decrease in 2024 due to global uncertainties like the Gaza/Israel conflict and the war in Ukraine. The Malaysian government's minimum wage policy and changes in service tax rates also impact operating costs within the industry.

Comparison to Industry Standards

• The company's reliance on a limited number of major customers (89.4% of revenue from top five in 2025) is a significant concentration risk, potentially higher than industry averages for diversified manufacturers.
• The company's ISO 9001:2015 and IATF 16949:2016 certifications for quality management systems demonstrate adherence to international quality standards, which is a competitive strength in the manufacturing industry.
• The increase in general and administrative expenses, particularly professional fees post-IPO, is a common occurrence for newly public companies as they incur costs for compliance, legal, and advisory services, aligning with typical public company operational adjustments.
• The company's strategy to widen its customer base in home appliances and diversify into the automotive industry aligns with broader industry trends of seeking growth opportunities and reducing dependence on specific sectors or clients.
• The implementation of measures to mitigate inflationary pressures on material and labor costs (e.g., proposing alternative materials, strengthening price negotiations, optimizing production) reflects standard industry practices for cost management in a volatile economic environment.

Management Changes

Corporate Governance

Legal Proceedings

• As of the date of this Annual Report, the company is not a party to, and is not aware of any threat of, any legal proceeding that is likely to have a material adverse effect on its business, financial condition, or operations.

Related Party Transactions

• Sales to TEM Electronics (Jiangmen) Co Ltd (common controlled by substantial shareholder): RM1,562,674 (2025), RM814,848 (2024), RM1,312,681 (2023).
• Purchases from BAP Trading Co Ltd (common controlled by substantial shareholder): RM492,565 (2025), RM377,647 (2024), RM115,308 (2023).
• Interest expenses to SEAP Trading Pte Ltd (common controlled by substantial shareholder): RM60,246 (2025), RM240,153 (2024), RM344,155 (2023).
• Loan from Linkers Industries Limited to TEM Electronics (M) Sdn. Bhd. of US$550,000 on January 6, 2025, interest-free, due January 5, 2028.
• Loan from Linkers Industries Limited to TEM Electronics (M) Sdn. Bhd. of RMB1,000,000 on April 24, 2025, interest-free, due April 21, 2028.
• Advances from New Universe Industries Ltd (common controlled by substantial shareholder) for IPO expenses: RM3,206,402 (2024), RM2,044,063 (2023). These advances were unsecured and interest-free.
• Loans from SEAP Trading Pte Ltd were fully settled in January 2025.
• The company states that all related party transactions are on terms no more or less favorable than those available from unaffiliated third parties.

Stakeholder Impact

• **Shareholders:** Face increased financial risk due to widened losses and the Nasdaq bid price non-compliance, which could lead to delisting and reduced liquidity. The dual-class voting structure limits influence for Class A shareholders. However, the IPO provided capital, and management is working to address listing issues.
• **Employees:** Affected by the Malaysian minimum wage policy increase, leading to higher labor costs for the company. The company aims to increase labor productivity and optimize workforce management to mitigate this.
• **Customers:** May experience impacts from supply chain disruptions due to global events or production interruptions, though the company emphasizes maintaining high quality standards and meeting delivery schedules. Customer concentration remains a risk if major customers reduce orders.
• **Suppliers:** The company's reliance on third-party suppliers without long-term contracts exposes them to price fluctuations and potential supply disruptions, which could affect the company's ability to meet customer demand.
• **Creditors:** The company's strong cash position post-IPO and sufficient working capital are positive for creditors, but the overall financial losses and market volatility could be a concern for future creditworthiness.

Next Steps

• Regain compliance with Nasdaq's minimum bid price requirement by March 9, 2026.
• Utilize IPO proceeds for strategic initiatives including potential acquisitions, machinery purchases, marketing expansion, and working capital.
• Continue to monitor and mitigate risks related to global economic conditions, raw material price fluctuations, and labor costs.
• Maintain and enhance customer relationships while diversifying products and services to reduce customer concentration.
• Monitor potential risks arising from the war in Ukraine, including cybersecurity, sanctions, and supply chain disruptions.

Key Dates

Recommendation

The company's financial performance for fiscal year 2025 shows a significant increase in net loss and a decrease in gross profit, which are strong negative indicators. The Nasdaq bid price non-compliance is a critical issue that could lead to delisting and severely impact shareholder value. However, the company recently completed an IPO, resulting in a strong cash position and healthy net current assets, providing a buffer and resources for strategic initiatives. Management is actively addressing the Nasdaq compliance and implementing cost mitigation measures. Given the conflicting signals of poor operational performance versus strong liquidity and ongoing efforts to stabilize, a 'hold' recommendation is appropriate. Investors should monitor the company's progress in regaining Nasdaq compliance, improving profitability, and diversifying its customer base before making further investment decisions.

Keywords

Wire Harness, Cable Assembly, Manufacturing, Malaysia, SEC Filing, 20-F, Nasdaq, Financial Results, Loss, Revenue, IPO, Liquidity, Corporate Governance, Risk Factors, Foreign Private Issuer, Dual-Class Shares, Supply Chain, Home Appliances, Automotive Industry, Industrial Products