Design Studio

Design Studio (D11)

http://www.designstudio.com.sg/html/index.php

This is my first time to write this kind of review.. It might be abit long but I hope you guys can enjoy it. The purpose of writing this review is to share my opinion with potential investors of this company. I hope it can attracts some discussion (: I will write some introduction of the company which can be found in annual reports for those potential investors to have a brief idea of the company, I will write my opinion after these information.

Background:

A company specialised in the design of living space. It was incorporated in 1992 as a pure manufacturer of joinery products, and until today they developed three business segments: residential property project, hospitality and commercial project, and distribution / others. It was listed on main board of SGX in 2003 at 0.23 per share. I have attached a chart from yahoo finance below. I couldn't find the annual report before 2012, but according to the chart design studio started to issue its dividend since 2007.

Depa limited increased its stake from 24.7% to 90.5% in 2010. I have attached the link of relevant news below: 

http://www.constructionweekonline.com/article-9329-depa-ups-stake-in-singapore-design-firm/

Lets take a look at the top 20 shareholders which can be found in 2016 annual report:

As we can see above, Depa limited is still Design Studio's largest shareholder, and market float is only around 3%. Which indicated that we do not expect much trading activity during normal days. Currently the average volume (14) is around 0.12M and is still on downtrend. 

Design Studio recently appointed Mr Edgar Ramani as CEO on 22 February 2017, and two of the board members are from Depa Limited - Mr Hamish Gordon Tyrwhitt was appointed as Non-executive director on 4 August 2016 (he is the CEO and executive director of Depa), and Mr Roderick David Maciver was appointed as Non-executive director on 9 November 2015 (he is Depa limited vice chairman). Ms Tan Siok Chin is the independent director of the company since 2006 and Mr Ong Tiew Siam is the independent director since 2007. 

Financial Review:

We can find five years financial result summary in 2016 annual report. I also found their earlier results in ipo prospectus:

I will quote a paragraph from Depa Limited annual report 2016 below to summarise Design Studio's performance and activity in FY2016:

The Group’s Asian business, Design Studio had an outstanding year generating revenue of AED 482.3mn and profit of AED 57.3mn, representing a revenue increase of AED 47.2mn or 11% on 2015 (AED 435.1mn) and increase in profit by AED 12.8mn or 29% on 2015 (AED 44.5mn). The strong result was primarily due to an increased contribution from the Hospitality and Commercial sector, which offset a decline in the Residential sector. These strong results ensured Design Studio maintained its gross margin at 23%, slightly up on 2015 (21%). In Singapore, Design Studio secured the landmark JW Marriott Singapore South Beach, the Yotel Hotel at Changi International Airport, and the Botanique at Bartley and Visionaire residential project. In Malaysia, key project wins included a luxury resort in Langkawi, the Ritz Carlton Residences in Kuala Lumpur, and an integrated commercial centre in Nusajaya. Design Studio also secured projects in China, (including Shanghai Bao Shan and Hanking Peak Boulevard residential projects), the United Arab Emirates, and Thailand during the year, as it continues to seek opportunities outside its key markets of Singapore and Malaysia. Following the year end, Design Studio announced the appointment of a new Chief Executive Officer, Edgar Ramani. Edgar has a wealth of experience and will be focused on growing the business across Asia. (1AED = 0.378SGD on 23/5/17)

Opinion:

I only know about this company few months ago, when I was reading the posts on investingnote (it is a very great social media where you can find many interesting and useful information). The stable dividend payout attracted my attention so I tried to study more about the company. The company has a dividend policy to recommend and distribute not less than 25% of net profits to shareholders, but usually it will pay alot more than 25%. I have attached a list of dividend payment record of the company below (and I found that yahoo finance dividend record for this counter which shows on the chart didn't give accurate information, not sure is due to technique issue or other problems). I got the record from https://www.dividends.sg/view/D11. 

Year	Yield	Amount	Ex Date	Pay Date	Particulars
2017	9.05%	SGD 0.04	2017-04-27	2017-05-17	SGD 0.04 ONE-TIER TAX
		SGD 0.0125	2017-04-27	2017-05-17	SGD 0.0125 ONE-TIER TAX
2016	11.21%	SGD 0.0125	2016-08-18	2016-09-08	SGD 0.0125 ONE-TIER TAX
		SGD 0.04	2016-05-05	2016-05-25	SGD 0.04 ONE-TIER TAX
		SGD 0.0125	2016-05-05	2016-05-25	SGD 0.0125 ONE-TIER TAX
2015	12.50%	SGD 0.0125	2015-08-18	2015-09-08	SGD 0.0125 ONE-TIER TAX
		SGD 0.04	2015-04-27	2015-05-22	SGD 0.04 ONE-TIER TAX
		SGD 0.02	2015-04-27	2015-05-22	SGD 0.02 ONE-TIER TAX
2014	11.21%	SGD 0.005	2014-08-20	2014-09-08	SGD 0.005 ONE-TIER TAX
		SGD 0.05	2014-04-25	2014-05-22	SGD 0.05 ONE-TIER TAX
		SGD 0.01	2014-04-25	2014-05-22	SGD 0.01 ONE-TIER TAX
2013	6.47%	SGD 0.005	2013-08-20	2013-09-06	SGD 0.005 ONE-TIER TAX
		SGD 0.025	2013-04-25	2013-05-22	SGD 0.025 ONE-TIER TAX
		SGD 0.0075	2013-04-25	2013-05-22	SGD 0.0075 ONE-TIER TAX
2012	3.45%	SGD 0.0075	2012-09-04	2012-09-21	SGD 0.0075 ONE-TIER TAX
		SGD 0.0125	2012-04-26	2012-05-18	SGD 0.0125 ONE-TIER TAX
2011	4.31%	SGD 0.0125	2011-08-26	2011-09-09	SGD 0.0125 ONE-TIER TAX
		SGD 0.0125	2011-04-27	2011-05-20	SGD 0.0125 ONE-TIER TAX
2010	4.31%	SGD 0.0125	2010-08-26	2010-09-09	SGD 0.0125 ONE-TIER TAX
		SGD 0.0125	2010-04-26	2010-05-10	SGD 0.0125 ONE-TIER TAX
2009	3.88%	SGD 0.0125	2009-08-26	2009-09-08	SGD 0.0125 ONE-TIER TAX
		SGD 0.01	2009-04-24	2009-05-08	SGD 0.01 ONE-TIER TAX
2008	1.72%	SGD 0.01	2008-04-24	2008-05-09	SGD 0.01 ONE-TIER TAX
2007	0.86%	SGD 0.005	2007-08-24	2007-09-06	SGD 0.005 LESS TAX
2004	0.00%	-	2004-01-06	-	STOCK SPLIT OFFER OF 3 FOR 1

As we can see the company is distributing its net profit since 2007, which is a good sign to me. I like to allocate my capital to those companies that are willing to share their profit with their supporters. Personally I don't really believed in so called 'growth stock'. If a company keeps its earning for few years to increase its investment at the beginning or during hard time I understand, but if a company with healthy balance sheet and good record of income statement didn't recommend any payout for very long time is unacceptable for me.. Well who knows that when will the company face difficulties in the future and burned the previous earnings? So I preferred that the company distribute part of the earnings to the supporters. The company's dividend yield is more than 10% since 2013! (I used the XD-date to calculate and if we took 2013 Jan low price we got a >10% dividend yield too). The company is paying out stable dividend might because of Depa Limited - their parent company. As the largest shareholder of the company, Depa Limited got some joint ventures with design studio, and I believed that Depa limited should have a similar interest with other minority shareholders too. As a listed company stable dividend income from their investments will make Depa Limited annual report looks better, especially the cash flow part. As we have 2 directors are from Depa Limited sitting on board, I believed the dividend payout is sustainable.

The company's revenue increased 460% and profit increased 450% over 16 years (net profit in was 4,510,000 however it was 1,617,000 in 1999 and 1,617,000 in 2001). However, I found that the financial ratio has improved alot if we compare 2016 annual report to ipo prospectus. Back in 2000, the company has a CA/CL ratio of 1.15, cash with fixed deposit only accounts 6.92% of current assets, debt/equity ratio is 1.04 (I sum up all the payable to bank, shareholders and directors and divided it with equity). In 2016, the company has a CA/CL ratio of 2.048, cash accounts 36.48% of the current assets, and the company has no debts! Total liability in 2016 is only 51% of current assets and 140% of cash! The company 5 year average ROE is 15.244 and 5 year average gross profit margin is 20.43%! 

Conclusion:

Steady dividend, experienced management team (2 directors are from their parent company), healthy balance sheet, good profit margin with high ROE. But have to take note of high PB at current price (1.5). 

My Plan:

I bought 12,000 shares of Design Studio in February 2017 at 0.575, which accounts around 7% of my total portfolio. My plan with Design Studio is hold it for very long term and do FA check-up every quarter. The dividend yield is around 11.30% for my position and I planned to increase my holding up to 15% of my portfolio if the price drops more than 30%. If previous dividend payment is sustainable (and I think it is sustainable), I just have to read their reports 4 times a year and earn 11.30% which I considered it as very good return. DYODD!