SINGAPORE'S leading kitchen cabinet, wardrobe and door maker, Design Studio, has established itself in the high-end segment of business-to-business interior renovation.
Its formula: build up a good reputation, link up with architects and developers early and offer comprehensive solutions.
”Unlike other interior contractors who are doled projects by a main contractor, we may be directly appointed by the architect or property developer,” said CEO Bernard Lim when he met up with NextInsight, and an analyst and a dealer at his office in Sungei Kadut recently.
He suggested that the firm sometimes is able to bypass sub-contract tender processes.
Having built up its reputation as a specialist kitchen and wardrobe systems maker, Design Studio differentiates itself in an area that is very important to architects and property developers: It customises products and budgets for clients.
In comparison, European competitors sell standard specifications.
Market leader in kitchen cabinets, wardrobe and doors
Design Studio's work also boasts of functional design and aesthetic appeal, which is why it won Japan’s Good Design Award in 2003.
High-end property developers seek its services, which is why more than half of the condominium jobs it supplies and provides installation services to this year are located on prime real estate.
As early as 3 years ago, 60%-70% of condominium projects in Singapore were contracting Design Studio, says Mr Lim.
Icons of high-rise luxury residences are using Design Studio’s proprietary furniture: PANELZ, fashioned from wood panels and i.FORMZ, which uses Dupont’s economical solution to natural stone surfaces (Corian).
These real estate icons include the world’s tallest building, the Burj Dubai (899 luxury apartments) as well as Singapore’s tallest condominium, The Sail @ Marina Bay (1,111 luxury apartments and penthouses).
Deals worth S$18.8 million were clinched last year to supply and install kitchen cabinets, main entrance doors and corridor wall panels in Burj Dubai alone. Design Studio's total order book as at end 2007 was S$152 million, a record.
Design Studio’s businesses are divided into 3 revenue streams:
(1) Residential projects: supply and installation of manufactured wood-panel furniture and fixtures (a.k.a. joinery) and bathroom fixtures for condominiums. This contributed 52.1% or S$39.8 million to 2007’s top line and segment margins of 24.5%.
(2) Interior fit-out: renovation contractor projects for hotels and serviced apartments. This contributed 43.5% or S$33.2 million to 2007’s top line and segment margins of 9.8%
(3) Distributorship: Distributorship of top-tier “SieMatic” kitchens from Germany and “Map” wardrobes from Italy. This contributed 4.4% or S$3.4 million to 2007’s top line and segment margins of 10.8%.
Instead of solid filling material, PANELZ uses Honeycomb technology, a hexagonal infilling inspired by the honeycomb’s geometry, whose structure is found in plant, animal and human cells.
As a result, Design Studio’s doors are not only environmentally friendly, but also come with higher load-bearing capacity and rigidity relative to structures of the same weight.
i.FORMZ fashions bathroom furniture and basins integrated with countertops using Dupont’s trademarked Corian material. Design Studio is the first industrialised fabricator and distributor for the B2B market in Singapore selling Corian surfaces.
Using Honeycomb technology and Corian material, Design Studio is able to customize kitchen cabinets, wardrobes, vanity cabinets, doors and wall panels, providing value-added engineering ideas for architects and interior designers.
Market likes Design Studio’s niche in high-end segment
What the market likes about Design Studio is its dominance of the high-end segment of its industry supply chain, says a Kim Eng trader.
Other merits of the business include: Orders locked in for the next 2 years, the ability to expand margins in a challenging industry and a healthy cash reserve.
Gross margins jumped a hefty 7 percentage points from 18.5% in FY06 to 25.5% in FY07 due to lucrative overseas projects and stringent cost control measures.
About half of its revenues came from outside Singapore.
The company sits on some S$21.5 million of cash as at end 2007.
One nagging objection market observers has about Design Studio, however, is its deal with Value Capital Asset Management to raise S$30 million by issuing convertible notes.
S$12 million have been issued to date. Design Studio has the option to raise more funds by issuing more convertible notes of up to S$18 million in value.
Compared to the 47.5 cents paid for 10.5 million shares issued in conjunction with the convertible notes, shareholders have much to grouse about if the company raises funds at current depressed price levels.
The stock recently closed at 37.5 cents. Mr Lim, who holds 9.7% in Design Studio, says the company has no intention of issuing any more convertible notes for now.
Renovation contracting is a cash intensive business. Is Design Studio readying a war chest in expectation of a rush of joinery contracts from its recent 45% joint venture with Dubai’s Depa United Group?
Depa is one of the world’s largest interior renovation firms and will lend financial muscle to the JV (DDS Asia), set up to bid for main renovation contractor jobs of S$50 million and above.
Furniture Manufacturers and Interior Renovation Stocks on SGX | Stock Price S$ | Mkt Cap S$mln | Sales S$mln | Historic PE | Operating Margin % | Dividend Yield % | Cash (S$m) | Account Receivable Days |
COURTS SINGAPORE | $0.480 | 77.2 | 333.4 | n.a. | -2.8 | N.A. | 59.6 | 98.2 |
DESIGN STUDIO | $0.395 | 100.8 | 76.4 | 9.8 | 15.2 | 2.6 | 21.5 | 74.0 |
HTL INTERNATIONAL | $0.380 | 158.3 | 695.0 | 15.5 | 2.6 | N.A. | 36.8 | 41.8 |
KINGSMEN CREATIVES | $0.680 | 86.2 | 146.1 | 8.6 | 8.7 | 4.2 | 21.5 | 98.9 |
KODA | $0.495 | 66.2 | 81.5 | 6.7 | 13.7 | 0.9 | 5.9 | 30.8 |
MAN WAH HOLDINGS | $0.240 | 159.9 | 148.5 | 10.1 | 10.2 | 3.0 | 52.0 | 26.3 |
NOBEL DESIGN | $0.095 | 15.7 | 45.5 | 1.2 | 2.0 | 5.7 | 17.9 | 44.2 |
Source: Bloomberg, 10 April 2008
Versatility in producing a relatively wider range of furniture set the path for Design Studio to evolve from a furniture manufacturer into an integrated interior renovation contractor.
Most furniture makers who do well are single-product companies.
For instance, other furniture makers are leather sofa makers like SGX-listed HTL and Man Wah, or specialize in wood-based furniture like Koda.
Other companies in the interior renovation space are Kingsmen Creatives and Nobel Design.
Kingsmen specializes in interior renovation for retail stores and making exhibits for the MICE (meetings, incentive travel, conventions and exhibitions) industry.
In addition to renovating hotels and restaurants, Nobel Design also offers B2C renovation contracting for homes ranging from HDB flats to good class bungalows. It also retails third party furniture.
Integrating furniture manufacturing with B2B renovation contracting is paying off for Design Studio.
At operating margins of 15.2%, Design Studio’s business focus appears to be the most attractive when compared to its listed peers.
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DESIGN STUDIO: Designs for the big time
KINGSMEN CREATIVES: China, India and Mid-east business to boost growth
