Design Studio

Design Studio: Design Studio has clinched a $75.0m contract from OUE to retrofit the low and mid zones of the existing office tower, OUE Downtown 1 into serviced apartments. The contract marks one of the group’s largest contract wins to date, where it highlights that underpinned by a strong reputation and an unparalleled track record with global real estate developers, Design Studio was able to eclipse regional players to clinch the major contract. The contract is slated to be completed by 4Q15, with the majority of work to be carried out in FY15. The OUE Downtown 1 contract is expected to contribute positively to the group’s financial performance in FY15. We highlight that in its recent 1Q14 results, Design Studio posted net profit of $2.0m (+191%) on revenue of $25.0m (-12%). The drop in revenue was a result of decrease in contribution from all segments, particularly the Hospitality and commercial segment. Bottom-line was however buoyed by a rise in gross margins from 16.8% to 23.8%, due to higher margin recorded in projects completed during the quarter and improved cost efficiency achieved by the group’s China production facility. The latest project takes Design Studio’s order book to ~$280m, stretching revenue visibility over the next two to three years. The group has a net cash position of $44.5m, representing 17¢ per share. At the current price, Design Studios trades at 7.0x ex-cash annualized 1QFY14 P/E.