| A Foot In Every Door |
The pressure on construction resources and the shortage of labour have resulted in the hold up of some public sector building projects. And with the end of the property boom and an onset of a recession, construction companies brace themselves for some slowdown ahead.
According to the Building and Construction Authority (BCA), public sector projects have been scaled down by $4.7 billion. Th is is to free up resources for the Integrated Resorts, Downtown MRT Line and the Marina Bay Financial Centre. It is during times like these that bidding for government infrastructure projects have become increasingly competitive. Demand remains high – a staggering $23 to $27 billion based on figures from the BCA.
Koh Brothers is one among the many property developers that seek to have a slice of the government infrastructure pie. An A1-rated homegrown construction player established in 1960, the company has made infrastructure its strategic focus.
The Singapore government spares no expense when it comes to infrastructure projects and relies on companies with expertise in civil engineering. An elite circle that Koh Brothers belongs to, as civil engineering has been part of its core unit since the company’s early days. And with some prominent developments such as the Changi Water Reclamation Plant, the Common Service Tunnel at the Business Financial Centre and the Marina Bay Barrage to their name, chief executive officer Francis Koh is confi dent the company will win more mega contracts.
“Infrastructure is a very strong point,” says Mr Koh, explaining that the segment will be one of their bigger revenue drivers for the coming years. “And we are quite strong in terms of public projects, so we can benefi t from all these contracts,” he adds.
Koh Brothers was founded as a sole proprietor on a modest sum of $10,000 by chairman Koh Tiat Meng. The Group undertook various sub-contracting works for civil engineering and building projects. Almost fifty years later, Koh Brothers boasts of more than 50 subsidiaries in Singapore, China and Indonesia. It has also diversified its operations into three key segments, namely Construction and Building materials, Real estate and Leisure and Hospitality. The company listed on the Mainboard of the Singapore Exchange in 1994.
The property boom of 2007 saw shares trade at $0.50, almost five times the price of $0.12 in October 2008 and more than two times the current price of S$0.20 (July 2009). For Financial Year 2007 (FY07), the Group posted $295.5 million, with a net profit of $38.7 million. The first half of this year (1H08), however, saw revenue decline by 14 per cent to $118.2 million.
The Group attributed this to the completion of projects in 2007. Still, gross profi t grew 22.2 per cent to $2.2 million for the fi rst six months, on the back of an improved performance from the Leisure and Hospitality and Construction and Building Materials arms.
The weakening real estate market for this year also contributed to lower revenue, but Mr Koh says local demand within construction and tourism will be key drivers. “We will continue to exercise prudence as we leverage on our established brand name and expertise to grow our business,” he highlights. STRENGTHENING ITS INFRASTRUCTURE SEGMENTTo weather headwinds such as the market slowdown and the increasing cost of materials, Koh Brothers has expanded its construction division to include sales of building components. The Group recently acquired Construction Consortium Private Limited (CCPL) as a wholly owned subsidiary – increasing its stake at 46.58 per cent from an initial 53.42 per cent. CCPL’s group operations include the “manufacture and supply of materials, construction equipment rental and the transportation and procurement of construction materials for the construction industry”. Its order book stands at $506.83 million.
Most importantly, CCPL sells products such as ready mix concrete and pre-cast concrete, an off ering that Mr Koh says will help achieve complete ownership of their supply chain. With such high demand for construction, Koh Brothers’ latest acquisition is also likely to benefit from such a development. CCPL is a key supplier of concrete products in Singapore. Mr Koh believes this will further drive revenue for Koh Brothers.
“All the time, the building materials side supply to others more than [to] our related companies,” he says. The move stems from streamlining their operations and retaining profi table ones.
Koh Brothers will leverage on synergy with CCPL, reducing costs throughout its supply chain and increasing their competitive edge. Besides a strong fl eet of machinery, Mr Koh says Koh Brothers utilises its own workforce amid a trend of outsourcing to keep costs down and give the Group more bargaining power. DIVERSIFYING INTO REAL ESTATE AND TOURISMOne market that Koh Brothers has diversified into is tourism. While most construction companies build hotels for commercial property developers, the company has taken a step further with a very prudent choice. Oxford Hotel Group, a no-frills off ering for tourists on a shoestring, is one of the projects within the Leisure and Hospitality arm of Koh Brothers. Its line of budget hotels includes the Asian Hotel Saigon in Vietnam, the Oxford Hotel at Waterloo Street and Changi Hotel in Changi. Mr Koh says with the Downtown MRT Line coming up, he foresees more business for the Oxford Hotel.
With their Vietnamese hotel, the company is looking to launch similar projects in China. Mr Koh foresees the tourist infl ux in 2010 to benefi t his line of hotels in Singapore. As of 1H08, the Leisure and Hospitality arm contributed about 20 per cent to Koh Brothers’ total revenue. While the property market has reached a standstill, Koh Brothers is still looking to launch its latest real estate project, the Lincoln Suites, by the end of this year or early next year. Mr Koh maintains that Lincoln Suites, which he describes as prime district mid-luxury homes, will be less aff ected by the slowdown than super prime district luxury residences in the Orchard Road area. The 175-unit twin tower condominium is located in Newton and boasts a gym in a connecting sky bridge. Th e project is a joint eff ort with fellow construction companies Heeton Holdings, KSH Holdings and Lian Beng Group.
Building innovative homes also remains a strategic focus for Koh Brothers. Th e Montana, a project completed in 2002, is one of the fi rst few homes to have broadband cable outfi tted, while the Starville in Kembangan has an added stargazing observatory. “With this period of slower growth in real estate, it gives us a breather time in a sense – that we can come up with better products,” says Mr Koh.
Apart from residential property, Koh Brothers also owns half of Sun Plaza, a heartland shopping centre in Sembawang. Mr Koh says this subsidiary is source of recurring income, which he feels are “covering their overheads”. As of December 2007, Sun Plaza’s occupancy rate is 100 per cent and contributes $1 million in net income monthly.
But throughout his entire business, Koh Brothers has made investment decisions that will reinforce their fundamentals and adds value to their brand. “I think it will boost it in a sense that Koh Brothers is being perceived as a diversifi ed company,” he says. “During this time now, because it’s uncertain in the market, [being] diversifi ed is seen as good…[But] I’d like to keep it in this way regardless of market conditions,” he ends.
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