SINGAPORE (July 30): Veteran entrepreneur Wong Ming Kwong, CEO of newly listed engineering firm DLF Holdings, is a picture of calm. But investors who subscribed to the company’s recently launched placement shares are unlikely to be feeling the same way at the moment. From an offer price of 23 cents, which values them at 8.3 times FY2017 earnings, shares in DLF fell nearly a third in its market debut on the Catalist, trading as low as 15.6 cents on July 25. It ended the day at 16.9 cents. On July 26, the second trading day, DLF shares ended at 18.3 cents, up 8.28%.
DLF, touted as a mechanical and electrical (M&E) engineering play with businesses in Singapore and the Maldives, had issued 18.5 million shares in a placement to 274 placees. There was no public tranche. The exercise raised gross proceeds of $4.26 million, or net proceeds of $2.85 million. This listing is managed by PrimePartners Corporate Finance.
Wong sees the listing as more of an exercise to raise the company’s profile than a fundraiser, at least for a start. “We take this as a branding and positioning platform to develop the business further,” he tells The Edge Singapore in a recent interview. “Up to a certain point in time, I think our business model is going to be different. We just can’t continue using our internal funds to run if we want to do more projects.”
Even by Catalist standards, however, DLF’s issue seems small. Of the funds raised, $1 million will be set aside to fund possible joint ventures or acquisitions. The rest, or $1.85 million, will be used to hire more professional and technical personnel, as well as to purchase more supplies, materials and equipment for future projects.
The company, under Wong and executive chairman Manfred Fan, has seen steady growth over the last three financial years. DLF provides M&E engineering services, mainly for clients in the commercial sector, ranging from developers to hotels to government bodies. The company has done work for properties such as Esplanade — Theatres on the Bay and Sengkang General and Community Hospital.
Wong is particularly proud, however, of its client portfolio in the hospitality sector. He notes that DLF has had a hand in M&E engineering works for “more than 50% of the five-star hotels in Singapore”.
Besides the engineering works, DLF sometimes takes on the bigger role of being the main contractor for projects ranging from the construction of new buildings to the refurbishment and upgrading of existing properties.
The group is currently working on a project in the Maldives, which involves building works for lagoon villas, a lagoon club, spa and restaurant. It is also engaged in other M&E and piping works at Nee Soon Camp, Sheraton Towers Singapore Hotel, The Tanglin Club, The Pan Pacific Hotel and The Plaza.
So far, the company has enjoyed steady growth in its revenue and earnings. In FY2017 ended December, DLF’s revenue rose 15% to $21.5 million, from $18.7 million in FY2016. Revenue for FY2015 was $14.1 million. Meanwhile, earnings more than trebled from $0.6 million in FY2015 to $2 million in FY2016, before jumping another 72% to $3.4 million in FY2017.
Wong hints that the company could have grown faster but has chosen to be prudent instead. “We went into the market very selectively initially. We don’t tender for a lot of government projects… [because] we do not want ourselves to be overexposed to these kinds of long-gestation contracting work,” he explains.
He prefers, instead, to bid for hotel contracts, which tend to have quicker turnaround times, as any downtime or disruption is operating revenue lost for hoteliers. “That’s where we can add value to our services.”
Wong acknowledges that there are plenty of engineering firms around, but he believes he has a simple, yet effective, competitive strategy. “We are not different from other M&E service providers, except that we have to do it more effectively, more efficiently, with faster turnaround,” he says.
Even with additional financial resources from the IPO, DLF will still aim for only medium-sized jobs and avoid bigger contracts with long gestation periods, which will bog down both people and capital.
To grow, DLF will be looking overseas for more projects. Wong is especially interested in the Maldives, which, like Singapore, is part of the bigger Asian tourism growth story. According to him, DLF is one of the prominent players among the three or four Singapore developers there. “I am confident that we will be doing more and more projects in the Maldives because it is a hotspot now for resorts,” he says.
At the same time, the company is also set on expanding its team, particularly in engineering talent that will allow it take on more projects. “Is there something that we are able to acquire to complement, or even to enhance, to increase our capabilities and engineering services? This is what I wish to happen, and I will move along this direction. I think acquisitions will be one of our engines to grow,” he says.
DLF’s recent listing will be just the start of the journey. Post-IPO, Wong and Fan still control 79.3% of the company. They can easily explore future fundraising by placing out shares. And with close to no debt, DLF can also borrow to fund growth.
The way Wong sees it, DLF is a simple, stable and progressively growing company. “We are not a scientific company or a rocket science company. We are just a good service provider, a very basic [brick-and-mortar company] with engineering capability. But on the flipside: we have very little downside,” he says. “Good times or bad times, within the commercial space, we are still thriving.”
This story first appeared in Issue 841 of The Edge Singapore (week of July 30, 2018).
