ImageMohannad: Depa will share its financing and other capabilities with DDS.
Picture by Goh Chee Kiong.

THERE CAN be any number of companies tendering for a plum project to fit out a new hospitality project such as a hotel, or condominium or office block.

But when the shortlist is drawn up, there may be two or three names only on it. Design Studio Furniture Manufacturer and its joint-venture partner reckon they will be on that shortlist frequently, if not every time.

There are many reasons for their confidence but, first, the news is that Design Studio and Dubai-based Depa United Group
have formed a joint venture to target projects worth more than S$50 million in Singapore and the region.

Depa is the world’s fifth largest interior fit-out contractor, and holds
a 16.5% stake in Design Studio.

Design Studio's order book stood at a record S$152 million as at end FY2007, including work for the Burj Dubai, Ritz Carlton Hotel and Apartments at the Dubai International Financial Centre, Scotts Square and Goodwood Residences.

In their joint venture, named DDS Asia Holdings, Depa will hold a 55% stake while Design Studio, the rest.

ImageBernard Lim is CEO of the new joint venture. Picture by Goh Chee Kiong.

Why the JV

At a media briefing on Tuesday (Apr 1) at Fullerton Hotel, Mr Mohannad Sweid, CEO of Depa, said the interior contracting industry is fragmented as the players are too niche-oriented.

A marble company, for example, may be able to deliver quality marble products such as the flooring but would not be able to manage the entire fitting-out of the interior as skillfully or provide a comprehensive solution.

Big developers are looking for companies that can provide a complete solution.

Mr Sweid highlighted another key industry trend: instead of discrete hotel, condominiums or mall projects, increasingly developers integrate all such projects. Even theme parks can be found in a development featuring a hotel, a condominium and a mall.

ImageDesign Studio has a prestigious contract at Crowne Plaza Hotel at Changi Airport Terminal 3.

Instead of giving out fitting-out contracts to numerous sub-contractors, developers of such projects seek well-managed and well-financed contractors which can offer a big, solid and structured solution, said Mr Sweid.

That’s how Depa landed a major job for the world’s tallest tower Burj Dubai.

When handed bare concrete floors, Depa will oversee the
manufacture, supply, installation, construction and completion of interior fit-outs for the Burj Dubai’s 899 serviced and residential apartments including corridors, lift lobbies and the amenities levels. 

ImageBurj Dubai: Design Studio and Depa are working together on that project.

Depa hires more than 8,000 employees. In the world, it is among the top players in terms of revenue and profitability.

In the past  three years, it completed fit-out work on one hotel every five weeks; o
ne store every four days; 100 apartments every month; and one yacht every month.

Having established its strength in the Middle East and North Africa, Depa is targeting Southeast Asia.

It values Design Studio as a partner because the latter has knowledge of the Singapore and regional market.

Design Studio is, in addition, an established player with the necessary core competencies – as Depa has discovered in the past two years of working with Design Studio on several projects, said Mr Sweid.

Design Studio has three manufacturing plants in Singapore and Malaysia which will be available to supply furniture and fittings to the JV, which has a paid-up capital of S$10 million.
Analysts are bullish on the construction sector in Singapore, which is at the implementation stage of multi-year projects announced in 2006. An estimated S$54.4 billion of committed projects is to be built till 2010 in this construction boom.

The hotel sector, for example, requires over 5000 rooms to be built or renovated in the next few years
. This is to cater to strong tourist inflows for mega events such as Singapore’s inaugural Formula-1 Race in 2008, the launch of 2 Integrated Resorts in 2009 and 2010, and other attractions.

Bernard Lim, chairman and CEO of Design Studio, will be the CEO of DDS. Mr Christopher Holmes of Depa will be the Chief Operating Officer.

From the media briefing, the following is an edited version of the Q&A pertaining to the financial strength of the JV:

ImageFront row (L to R): Bernard, Mohannad, Christopher. Back row: Design Studio director Jeremy Koh, executive director Elin Wong, CFO Kelly Ng. Picture by Goh Chee Kiong.

Q: Can you elaborate on the financial strength that Depa will bring to the JV?

Christopher: A big problem that people face on the job is providing the necessary bonds: performance bond, advance payment bonds, and the like. We are able to provide that facility.

Mohannad: Take the Burj Dubai project, for example, which has a value of US$170 million. The advance payment is US$2-3 million. Before you start billing your client, you would have spent US$20-30 million. Unless you have the financial strength, the relationship with bankers, you cannot get large projects. This ability of Depa will be shared with DDS.

Q: In your assessment, how many other companies in Singapore are of a similar size as DDS?

Bernard: There’s no listed big company like DDS. There are some private players.
Mohannad: Let me put it this way: Depa is the fifth largest in the world. None of the bigger four companies is in Southeast Asia or Asia.

Q: If DDS were to tender for a mega project in Singapore, how many other players would be able to compete with you?

Mohannad: There will be many who will compete but how many are qualified or are comparable? Not many, and the list will shrink. Halfway, they will withdraw because they realize they can’t fulfill the requirements of the contract. Later on, there maybe only two or three left around the table.

Q Let’s say you have a $300-million project. How much do you have to come up with before the first payment rolls in?

Bernard: It depends on the schedule and the scope of the work. I would say, 5-10%.
Mohannad: We have experience in many other countries where we have relationships with banks to immediately facilitate all the requirements of Depa’s joint ventures and subsidiaries. We have 22 subsidiaries and operate in 15 countries. DDS is our fourth joint venture.

ImageDesign Studio stock's 1-year trading range: 26.5-65 cents.
Chart: Bloomberg

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