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Furniture maker Koda banks on in-house brands and regional expansion for growth

Candace Li
Candace Li6/25/2021 06:31 AM GMT+08  • 6 min read
Furniture maker Koda banks on in-house brands and regional expansion for growth
Koda is an original design manufacturer of furniture, including retail brand Commune.
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1. Could you elaborate on Koda’s business segments and their focus?

Koda started as a producer of wooden TV and speaker cabinets in 1972. The group has since progressed from being an OEM to an ODM. The group has two main business segments.

Under its manufacturing segment, Koda is one of the largest dining room furniture exporters in Southeast Asia and also exports furniture to about 30 countries across North America, Asia Pacific and Europe.

Under its retail segment, Koda operates Commune, an in-house retail brand. Commune has a growing presence in Singapore, Malaysia, China, the Philippines and Hong Kong, Managed by the third-generation members of the founding Koh family, it is now one of the key growth drivers of the group.

2. What notable developments can shareholders expect from Koda soon?

With a unique scalable distributor-retail business model in China, Commune has grown exponentially since it started and will continue to be the group’s key revenue driver. We intend to leverage the success of the brand’s business model and apply it to other regions of our operations. We are pleased to say that the plan to open 100 stores in China by 2022 is well on track.

On the manufacturing front, the group is expanding our production capacity in Vietnam. As announced in March, the group plans to acquire the land use right and a factory building to expand its mixed-materials furniture production capacity and its store and warehousing capacity in anticipation of higher orders.

3. Describe the group’s financial performance over the past few years.

Over the past years, Koda has experienced consistent growth of revenue with high margins. Our net profit in 1HFY2021 ended December 2020 has already exceeded that of FY2020. Management believes that the group’s strong balance sheet reflects its prudently managed financial position.

4. How has Koda evolved its business to target new customer segments/groups?

Commune was started in 2011 as a natural growth of Koda’s business. The downstream move from OEM to ODM and now to owning our own in-house retail brands set the stage for our future expansion. With new third-generation leaders helming Commune, we believe that the group is set for growth.

Today, the group operates 85 retail stores in the region, with four in Singapore. Our strategy of bringing international brands into the Chinese market has seen results in recent years. Consumers and dealers have embraced the Commune brand since we expanded into China.

Building on this success, the group also created a new brand ALT.O in 2019 to capture the more affluent segment in this region. The response to ALT.O has been encouraging and allowed us to expand the brand to about 10 retail stores in operation currently. We plan to expand regionally and internationally by leveraging these two successful brands.

5. With a global customer base, how does the group engage and distribute to customers globally?

Koda exports furniture to about 30 countries globally, including regions such as Europe, Asia Pacific and North America. The group primarily deals directly with well-established retail brands in the global market. We leverage our design capabilities and expertise to provide designs that are in fashion and at affordable prices. This is because of our manufacturing facilities in Malaysia and Vietnam.

6. How does the group manage Commune to ensure that it does not hinder the group’s operating relations with other retailers?

Commune operates at arm’s length to Koda. Though a subsidiary of Koda, Commune runs entirely on its own. Since its inception, Commune has independently sourced from third parties, has its own marketing team and is run by a different set of management.

7. What are some of the key opportunities/trends you foresee in the group’s key operating market in the coming years?

The group plans to continue strengthening our position in existing markets by offering different product lines to existing customers and new customers. With a strong trend analysis of our customers and manufacturing capabilities, the group is confident of our global expansion in the coming years.

We also intend to take the Commune brand into new markets such as Europe, India and Indonesia. In China, we plan to open more stores in first and second-tier cities while moving into maturing third-tier cities where we believe more consumers will be able to appreciate the Commune style.

8. What are some opportunities presented by the Covid-19 pandemic?

As consumers adapt to the stay-at-home and work-at-home norm, there has been an increase in demand for our furniture and led to the procurement of healthy export orders. We foresee work-from-home trends to persist post-Covid-19 and believe that this will continue to be a demand driver in the future.

9. How is the group committed to sustainability?

Koda’s sustainability approach is to mitigate and manage our most significant ESG impacts in our own operations as well as in our supply chain. Koda’s commitment to sustainability serves as an economic advantage by increasing our customer base.

We perceive sustainability as an entire ecosystem instead of in isolation. 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.

10. Why should investors take a closer look at Koda?

Our experienced and passionate management team has aligned values with over 150 years of combined experience in the furniture industry.

In 1HFY2021, we continue to see encouraging growth in export orders and expect capacity utilisation rates for our key factories to remain optimal, barring unforeseen circumstances.

Despite the rise in raw material costs for timber, fabric, metal, foam and leather, we believe that we should be able to maintain a gross profit margin of 27%–32%. This is amid strong customer demand as well as improvements in internal labour efficiency and manufacturing overheads. As of December 2020, Koda’s cash and bank balances stood at US$22.2 million ($30 million) with a low gearing ratio of 7.8%.

Commune will be the 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.

The group has been consistently paying dividends to shareholders and our dividend payout ratio ranged between 18% and 25% from FY2017 to FY2020.

Photo: Samuel Isaac Chua/The Edge Singapore

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