Monday, September 30, 2013

Koh Brothers: Bolstering Growth Backed By Strong Accolades And Track Record

Koh Brothers: Bolstering Growth Backed By Strong Accolades And Track Record
By Nicholas Tan

Ever been to the Marina Barrage for a family outing or strolled along the 4.2 kilometres man-made waterway at Punggol? You will be marvelled by the beauty of these new areas of interest, which have provided Singaporeans with another new area for recreation and leisure. It was built by our home-grown construction firm Koh Brothers Group, whom has walked hand-in-hand and grew with our nation over the past four decades.

Boasting 47 years of history, having survived crisis after crisis and emerging stronger from each economic downturn, the group has grown much in strength and stature. Today, it is among the leading names in the local construction, property development and specialist engineering solutions provider sector, known for its role in shaping Singapore’s landscape.

Incorporated back in 1966, merely a year after our nation’s independence, it is nothing short of saying that Koh Brothers had been an integral part of nation-building, having been a part of the transformation of Singapore’s infrastructure backdrop into a modern first world country. This is perfectly emblazoned by the firm’s corporate logo – “Building Cities Building Dreams”.

It is this resilience and strong reputation that had won the firm many key projects and accolades. Counting the iconic and award-winning infrastructures, Marina Barrage (a 350-metre wide dam built to keep out seawater to create a freshwater reservoir at the Marina Bay area) and Punggol Waterway (a transformation of a swampy northern area in Singapore into a waterfront promenade) among its many accomplishments.

Fresh from adding the prestigious Singapore Prestige Brand Award (SPBA) under the “SPBA – Heritage Brands” category to its wall of fame, Shares Investment was privileged to have an exclusive interview with Koh Brothers’ managing director and group chief executive officer, Francis Koh Keng Siang, to share with us his take on the outlook of the property market, strategy for the firm going forward, as well as success of the firm’s past developments.

Property Outlook

Recall early in the year, the Singapore government implemented the most comprehensive round of property cooling measures, its seventh round but not the last, as soon two more successive rounds followed in June and August 2013, demonstrating the authorities’ determination to keep the lid on the prices in the property market.

Quizzed on the repeated cooling actions taken to stem the heat in the property market and the effects, Koh believes that the property market is resilient and the cooling measures rolled out thus far are positive as it will weed out speculations and allow genuine buyers to enter the market to get their desired property for occupation or long-term investment purposes.

Koh quipped, “As long as our local economy is doing well and our economic fundamentals are right, people still see property as a sound investment in Singapore due to the scarcity of land.” But, he warned that in the short-term property prices will likely moderate. As for the longer term, he remains optimistic that when some of the temporary cooling measures are lifted, property prices will steady in tandem with economic growth.

Unique Launches

Over the years, the group has developed a name for itself as a niche real estate developer with an established reputation for quality and innovation, and its property development sells at a premium. It was the first to launch state-of-the-art automation features in The Montana, a 108-units luxury freehold apartment, and a star-gazing observatory, complete with an astronomy theme with the Starville.

Carrying on its tradition of innovative adaptations, the firm launched Parc Olympia in July 2012. A sports-theme property development complete with unique sporting facilities such as a rock-climbing wall, synthetic jogging track, putting green, among many others. The response received was overwhelming and the property development has since been sold-out within a year of its launch date.

When asked about the defining factors contributing to the success of Parc Olympia, Koh affably replied, “This is a value-added project with unique features that is priced correctly to sell to heartlanders. When deciding the theme, we revolved it around modern day’s pursuit for healthy lifestyle based on the adage that health is wealth.”

Parc Olympia: A sports-themed, 486-unit condominium @ Flora Drive
Looking ahead and aware of the challenging economic climate, Koh said, “We are tendering cautiously for more lands to continue our real estate business development. However, as lands are getting more expensive and demands are stabilising, we have to position ourselves strategically to create shareholders’ value.”

To mitigate the cyclical risk in the short-term, the group has diversified into the leisure and hospitality business with its Oxford Hotel brand and Alocassia apartments to provide it with some recurring income. With a booming tourism sector and Singapore strengthening its foothold as a MICE hub, the firm believes that its leisure and hospitality division is well-positioned for growth.

But construction remains the group’s backbone and lifeline, with construction and building materials contributing 67.4 percent of total revenue for FY12. Moving forward, the group will tender actively for local construction projects, though selectively by focusing on stringent and judicious cost management.

Mega Iconic Infrastructures

The international accolade won for the $226 million Marina Barrage project has showcased to the world the firm’s capabilities in building mega iconic infrastructures, one of its kind in South-east Asia, by a local contractor which was previously deemed impossible by foreign counterparts.

But all was not always smooth sailing as would be expected of such a large-scale project and Koh shared with us the challenges the firm faced in constructing it. “The greatest challenges were firstly the installation of bored piling and sheet piling on the two layers of marine clay underlying beneath the barrage and secondly, the precision engineering competence of installing the nine metal crest gates, each measuring more than 15 metres long in between the concrete piers”, he said.

Nonetheless, the firm stood up to the challenges and completed the landmark project, which has added to the transformation of the Bay area, and has now become a popular family and tourist destination.

A 350-metres wide dam @ Marina Bay area
Another of its iconic project was the recently completed Punggol Waterway. The first of its kind waterway connects two of Singapore’s newest reservoirs, while treating visitors to a glimpse of Punggol’s old charm and heritage. It is part of the Housing Development Board’s transformation plans for Punggol into the all new Punggol Waterfront Town.

Clearly proud of his firm’s accomplishments, Koh said, “The completion of the iconic project gave us the confidence and helped to build up our reputation, better positioning ourselves to take on more of such mega infrastructure projects in the future.”

The firm is optimistic for the rest of the year as the Building Construction Authority at the start of the year projected construction demand for 2013 to range between $26 billion to $32 billion, anchored by public sector projects. Koh added that profit margins for construction projects this year have improved as price levels are healthier, in spite of higher foreign labour costs.

Financial Performance

For 1H13, earnings spiked 39.5 percent, backed by a 74 percent jump in revenue from a year ago to $190.6 million. The higher revenue was mainly due to higher contribution from its real estate division. Year-to-date, the firm’s order book stands at $288 million. Based on its closing share price of $0.310 as at 24 September 2013, the company is trading at an undemanding historical price-to-earnings and price-to-book value ratios of 7.3 times and 0.7 times respectively.

Publish date: 27/09/13

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