This article was recently published in the Let's Get Rich Together blog, and is reproduced with permission.


350bedroomreflectionsDesign Studio is Singapore's leading furniture manufacturer, interior fitting-out and product specialist. They serve the residential, commercial and retail properties


DS is slightly different from the more popular Kingsmen Creative which specialises in Corporate/Retail Interiors, Exhibitions/Events, Theme parks & Museums.

3 Business Segments

Residential - supply and install products like Kitchen cabinets, vanity cabinets, wardrobes etc.
Commercial - Interior fitting out to Hospitality and Commercial developments
Distribution - Distribute imported brands in Singapore 


Notable clients

  • Trump Tower, Las Vegas
  • Burj Khalifa, Dubai
  • Resorts World Sentosa
  • Marina Bay Sands
  • City Developments
  • Capitaland 
  • Keppel Land - Reflections at Keppel Bay
  • GoucoLand Limited
  • Far East Organisation
  • South Beach Mixed Development
  • Westin Hotel, Marina Bay


These big names bodes well for DS' reputation, helping them to gain more clients in the future.


Valuations
Design Studio
PE ratio = 6.8
PB ratio = 1.2
Dividend yield = 11.8% (more on that later)

Kingsmen Creative

PE ratio = 11.5
PB ratio = 2.0
Dividend yield = 4.0%


Past results

rev pbt margin7.15

bs.div7.15

orderbook7.15


order7.15



Business moat?

Integrated Business - Other than manufacturing and installation furniture and fittings, DS also provide interior fitting out, furnishing and design solutions. This allows the company to provide an all-in-one solution for its clients.

Singapore interior fitting-out projects
Developer Project Location
MBS Marina Bay Sands Supply & installation of joinery to Tower 1, VIP suits and basement
RWS Resorts World Sentosa Casino Supply & installation of joinery including gaming & non-gaming tables & chairs
Pontiac Land Group Capella Singapore Supply & installation of interior fit-out solutions to hotel guest rooms, suites, villas & other public areas (except F&B outlets)
OUE Meritus Mandarin Supply & installation of interior fit-out solutions to the 5th and 6th storeys incl. lobby, specialty restaurants and bars


Liquidity (or the lack of)

89.81% held by immediate holding company
10.19% held by public as at 11 March 2015

20 of the largest shareholder makes up 98.14% of the shares outstanding.

In normal circumstances, the substantial shareholders would have little to no movement in their shareholders. Effectively, only 2% of the shares are available for trading. This explains why average daily volume is only about 19,000.

Dependent on property market

Residential segment takes up about half of DS' revenue. The softening property market will have adverse impact on the Group, as evident in the change in order book composition. 

The uptick here is that the hospitality segment is poised to pick up the slack due to Singapore Tourism Board effort to spruce up Singapore and bring back the tourists here. New and existing hotels will be potentially DS' client for Alterations & Additions (A&A) services.


I was immediately interested when I found out the strong balance sheet and FCF ability they had in recent two years. I've initiated a small position with DS back then. Now that I've found out about their moat and past clients, I will probably add more to the position. I hope I'm right though.


I'm also watching out for that public float percentage.

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Comments  

#3 Dane 2015-08-09 16:36
Lotus: I think CEI Contract Mfrg deserves a higher priority. Just look at the shocking increase in interim dividend. :)
#2 lotustpsll 2015-08-01 10:40
I have included Design Studio into my high yield list following its 1H results which were released last evening. Key notes:-
- marginal Qtr profit growth against corresponding 2Q14
- order books remain solid
- interim dividend per share raised
Performance is impressive considering slower market conditions.
#1 lotustpsll 2015-07-29 14:44
Good article, well articulated.

Am vested earlier in view of its established business model, rising order books and strong FCF and financial position. A quality stock and one should hold long term as high yield play..
 

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