As we spend more time at home, working or studying from home, some of us may feel the desire to spruce up our home environment. Getting the right home furnishing can make a big difference in how your home looks and feels. While most of us immediately think of overseas manufacturers for our home furniture, there is already an Original Design Manufacturer in Singapore listed on the Singapore Exchange (SGX): Koda (SGX: BJZ).
Koda started in 1972 in a small workshop in Geylang and has expanded to exporting furniture to about 30 countries globally, across Europe, Asia Pacific and North America. The Company has been recognised by Forbes Asia under the category of ‘Best Under A Billion Company’ in 2006 and profiled by CSIL Milano in its Top World Furniture Manufacturers Report 2006 as one of the top 200 major furniture manufacturers worldwide.
The founder, Koh Teng Kwee, will be retiring from his position as Non-Executive Chairman in 2021. The second-generation, Jame Koh continues to helm the leadership of Koda as Managing Director while the third-generation, Joshua Koh and Julian Koh spearhead their flagship retail business and creative force as Chief Executive Officer of Commune Lifestyle and Head of Design, respectively. Yet, Koda is not just a family business with a diverse board and an emphasis on sustainability.
According to Koda’s 2020 sustainability report, the company purchases wood from sustainable sources to offer furniture that has the least negative impact on the environment. Most of the wood is sourced from sustainable sources, of which FSC or PEFC certifications being the most prominent. Suppliers must also meet their set criteria for social and environmental standards to qualify as a vendor of Koda.
For furniture lovers and interested investors, here are 5 things to know about Koda’s business.
Could you elaborate on Koda’s business segments and its focus?
Koda started its humble beginning by producing wooden TV and speaker cabinets in 1972. The group has since progressed from being an Original Equipment Manufacturer (OEM) to an Original Design Manufacturer (ODM). The Group has two main business segments – manufacturing and retail.
Manufacturing – Recognised for home furniture, Koda is well-known for its strength in design. Apart from being one of the largest dining room furniture exporters in Southeast Asia, Koda also exports furniture to about 30 countries across North America, Asia Pacific and Europe.
Retail – Koda established Commune in 2011, the in-house retail brand which is managed by the third generation of the founding Koh family. Commune has a growing presence in Singapore, Malaysia, China, Philippines and Hong Kong, enabling it to serve as one of the key growth drivers of the Koda Group
Describe the Group’s financial performance over the past few years.
Koda experienced consistent growth of revenue with high margins over the past years. Our net profit for half year 2021 has already exceeded the full year of 2020.
Management believes that the Group’s strong balance sheet – low gearing ratio and high bank balances – reflects prudently managed financial position.
What is one lesser-known business area of Koda that you wish more people/investors know about?
Our Commune business is quite unknown to the market. We are more of “lifestyle concept”, instead of a regular furniture store. We curate a selection of products such as electronic products from well-known brands such as Samsung, Sonos and Smeg, and other home lifestyle products such as cutlery and other accessories to suit our customers’ lifestyle needs.
Understanding your customers is one of the best ways to retain and build business. What are some things Koda has learned about its customers changing needs in a post-pandemic world?
Homes of today have become increasingly important. It is an office, school, gym or other functions. This is going to remain a norm even in post-pandemic world. The demand for furniture is expected to remain strong. Due to restricted movements, buyers have also placed more emphasis on e-commerce. The Group is looking into enhancing its e-commerce capabilities and offering more innovative products for customers.
Sustainability has increasingly become a key focus globally, how is the Group committed to sustainability?
Koda’s sustainability approach is to mitigate and manage our most significant economic, social and environmental impacts in our own operations as well as in our supply chain.
Perceiving sustainability as an entire ecosystem instead of in isolation, allows for a more dynamic effort. Koda’s commitment to sustainability also serves as an economic advantage by increasing our customer base amidst the growing emphasis on sustainability.
We closely watch evolving consumer preferences as an increasing number of customers look for sustainable furniture and we remain committed to working closely with our trade partners to offer sustainable choices to end customers.
Why should investors take a closer look at Koda?
Experienced and passionate management – Our management team has aligned values with over 150 years of combined experience in the furniture industry.
The outlook remains bright – Based on 1HFY21 financial results for the six months ended 31 December 2020, we continue to see encouraging growth in export orders and expect capacity utilisation rates for our key factories to remain optimal, barring unforeseen circumstances.
High gross profit margins and strong balance sheet position – Notwithstanding the rise in raw material costs for timber, fabric, metal frame, foam and leather etc., we believe that we should be able to maintain gross profit margin of around 27% – 32%. This is amid strong customer demand as well as improvements in internal labour efficiency and manufacturing overheads. Based on 1HFY21 results, Koda’s cash and bank balances stood at US$22.2m (as at 31 December 2020) with low gearing ratio of 7.8%.
Revenue drivers – Commune will be Group’s next revenue driver for our retail business. For our manufacturing segment, the expansion of production capacity is expected to improve the Group’s revenue.
Consistent dividends – The Group has been consistently paying dividends to shareholders and our dividend payout ratio ranged between 18% and 25% in the period of FY2017 to FY2020.
Editor’s Note: Some answers for this article were extracted from the SGX 10 in 10 series published on 22 June 2021 and have been republished with permission. You can read more on Koda on the SGX website.
Don’t Take A 50-50 Chance With A So-So Trading Experience
As a Gold/Diamond client with FSMOne.com, you can let your investments soar higher with flat HK$50 processing fees* for HKEX trades.
This means that whether you make a HK$10,000 or HK$100,000trade, you will only be paying HK$50 in processing fees*. So, the higher your investment amount, the higher your cost savings!
Click here to find out more.
*Excludes exchange-related fees.