Published July 17, 2007

Hor Kew to strike while property market sizzles

Construction firm to expand further into development with strong demand, writes CHARMIAN KOK

PROPERTIES and construction are some of Singapore's hottest buzzwords right now, which is just fine for Hor Kew Corporation.

The construction company which has also been involved in property development expects to expand further into development while demand - and prices - remain strong.

Hor Kew was founded in 1979, and prior to the surge in growth which has brought prosperity to construction sector the company survived many recessions and a dip in the industry that lasted almost a decade.

The company has had to battle with falling revenue, narrowing profit margins and rising costs, but its managers see this year as marking a turnaround for Hor Kew, with the property markets and other companies in the construction industry seeing a strong upswing.

Hor Kew, which is involved in construction, prefabrication and property development, reported a decrease in revenue of 52 per cent from $75.8 million in 2005 to $36.3 million. This was caused mainly by a substantial revenue decrease in its construction business. Despite this, Hor Kew recorded a decrease in net loss of 76 per cent over the year, from $10.6 million to $2.5 million in 2006.

Hor Kew's careful cashflow management and cost mitigation efforts have helped it minimise losses. 'Over the past few years, there were too many contractors in the market, therefore the industry faced very cut-throat prices. Furthermore, there was only a small demand for contractors due to the country's economy,' said deputy managing director Dennis Aw. 'Since 1996, the market for construction sector never fully recovered until last year.'

Prudent cost-saving measures

In order to better manage their costs, Hor Kew introduced cost-saving measures such as consolidating more bulk purchases. It ventured into manufacturing its own building materials and pre-cast to lower costs and save time.

At the same time, this allowed Hor Kew to improve quality control. 'Even during those years which were very bad for most contractors, we managed to be very prudent, and our cash flow position is still very strong,' Mr Aw said.

As a result of these cost control measures, the company reported a net profit of $1 million after tax in 2006 for its general construction division, a turnaround from a net loss of $9.4 million the year before. Hor Kew's cautious approach to management policies during difficult years have helped it tide over the difficult periods. Even in today's bullish property sector, the company still views the market with caution.

The fact that Hor Kew does not rely solely on one area is also a strength and competitive advantage for the company.

'Last year, most pure contractors were hit badly by the supply of concrete. As we are not pure contractors, we can depend on other sectors to generate profits,' Mr Aw said. While revenues from its general construction unit dropped 66 per cent to $20.3 million over 2005 and 2006, turnover from prefabrication remained consistent at $16 million, helping Hor Kew to sustain its earnings.

Being quick to adapt to changes has also helped the company survive decades of fierce competition in the industry. 'The products that we manufacture are a result of the company adapting to changes. Our integration business in pre-cast and metal works are good examples,' Mr Aw said.

When HDB opted to change most of their building projects to use pre-cast, Hor Kew was one of the first few contractors that took on pre-casting to suit the growing changes in the construction industry.

The company, which is familiar with building Singapore's public housing projects, won the CIDB Best Building design Award in 1994 for a housing project in Pasir Ris. In 2002, Hor Kew received the highest A1 rating in the construction industry. Besides handling projects in public housing, the company has also done a diverse range of residential, commercial/industrial, institutional and upgrading works.

Mr Aw is optimistic about the outlook for the construction and property industries for the coming years, especially with the current trend in en bloc sales and the upcoming integrated resorts.

Move to venture overseas

To tap the boom in the property market, Hor Kew expects to launch more property developments. It counts One Oxley Rise among its developments, and recently announced the developments for two new projects Kallang Pudding Road and East Coast Road.

'We plan to expand into properties because of the boom. Our company will find benefits to be contractors-cum-developers instead of being just either one,' said Mr Aw. 'Market price for construction is better now. When the market goes up, both the developer and contractor makes money. That's two ways of cushioning the project as the contractor and developer gains.'

Other than moving into the surging property market, Hor Kew, which as yet has no operations overseas, will also explore opportunities to expand overseas into regional markets. 'We're always on the look out for opportunities. Now that we've gathered track record in our field, we will venture out either on our own or with partnerships,' Mr Aw said.

He sees the company's strength in design and building for public housing as a further reason for Hor Kew to bring its expertise to other markets overseas.

The expansion into properties is not intended to be at the expense of Hor Kew's core business. 'We will continue to concentrate on being main contractors, while looking more into property development. At the same time, Hor Kew will also look into new products and technologies,' Mr Aw said.