Latest / Investor Exchange / Profit Turnaround Amid Revenue Decline: Unpacking Keong Hong's Strategy

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Profit Turnaround Amid Revenue Decline: Unpacking Keong Hong's Strategy · Investor Exchange

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  Music.
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  Keong Hong Holdings Limited. We're looking at their financials for the fiscal
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  year that ended September 30th, 2024.
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  Looking forward to it. We've got their press release right here and the unaudited financial statements.
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  And the thing that really jumps out, they went from a loss last year to a profit
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  this year. Yeah, that's pretty impressive.
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  So we're going to unpack how they did that, what's driving their performance
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  now, and what they're saying about what's coming up. Sounds good.
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  So to start off, what really stands out to me is this like weird thing where
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  the revenue actually went down by 11.6% down to $176.6 million Singapore dollars. Okay.
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  But they still managed to make a profit. Yeah. It's not something you see all
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  the time. It's pretty interesting how they did that. How did they pull that off?
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  Profits with lower revenue. Well, if we take a closer look, it seems like there
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  are a few things that came together to make this happen.
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  They finished up a few older projects. You might've heard of them,
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  the Antaras, Wilshire Residences, and Sky Everton.
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  Okay, yeah. And these projects, they were probably signed, you know,
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  before the pandemic. So they had those higher costs for materials and labor locked in.
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  So those were probably hurting their profitability.
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  Exactly, yeah. So finishing those up would probably boost their profits,
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  even if the revenue went down a bit.
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  Yeah, it's like they cleared out the backlog.
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  Yeah. And now they can focus on like better opportunities.
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  Right. And at the same time, they have some newer projects like HDB at Tenga
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  Plantation and Solitaire at Cecil Street. OK. Those are just getting going.
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  So we won't see their full impact on the financials yet.
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  Not for this year. So it's kind of like a transition time for them.
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  It is. Where they're wrapping up the older, less profitable projects and the
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  new ones are just getting started.
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  But that doesn't explain the whole profit swing, does it? It doesn't.
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  You're right. There must be something else going on. Yeah, their press release,
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  they highlight their cost management.
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  Okay. Seems like they've been tightening things up and finding ways to work
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  more efficiently. Oh, interesting.
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  Which, you know, that really helps those margins, even if revenue takes a little
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  dip. Yeah, that makes sense. So takeaway number one is...
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  Lower revenue doesn't always mean bad news, especially if it means focusing
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  on better margins and working more efficiently.
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  Now, let's talk about construction losses, which were a big problem last year. Okay.
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  Went from a $26.4 million Singapore dollar loss in fiscal year 2023 to just $0.4 million in 2024.
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  Wow, that's a huge improvement. It is. How did they do that?
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  Well, it probably goes back to, you know, those older, less profitable projects that we talked about.
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  Right. Remember those high pre-pandemic material and labor costs?
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  Looks like that was the main thing holding them back. Makes sense.
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  So by getting rid of those projects, they really managed to turn things around
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  in their construction segment. That's pretty impressive.
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  But their press release, they also mentioned a possible problem. Oh, yeah.
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  Another project where they might be liable for liquidated damages because it
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  delays. Oh, that's right.
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  Yeah, it was kind of hidden in there. Definitely something to keep an eye on,
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  because those damages can take a bite out of profits.
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  It just reminds us that even with good planning, construction is tricky.
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  Lots of unexpected things can happen. Yeah, definitely something to watch.
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  Now, switching gears a little bit, let's look at those resorts that Keong Hong
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  invested in in the Maldives. Sounds fun.
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  Mercure Maldives Kudu Hotel and the Pullman Maldives Mamuta Resort. Okay.
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  I mean, paradise, right? We wouldn't want a piece of that.
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  But it seems like it's not all sunshine and cocktails when you look at their
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  financials. It's not always, no.
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  So they reported good occupancy rates, 62.5 percent compared to the industry
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  average of 59.1 percent.
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  People are definitely going there. But they still reported a loss.
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  So that suggests that maybe their operating costs are a bit higher than expected. Makes sense.
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  Yeah. Running a fancy resort, you know, way out there, it's got to be expensive, right?
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  Yeah. Like staffing, getting supplies there, keeping the beaches nice, it all adds up. Yeah.
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  Yeah. It does. And we have to think about the bigger picture too,
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  like tourism trends in the Maldives. Sure. Tourism is booming,
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  so you get those high occupancy rates.
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  But that also means more competition. Yeah. And probably higher operating costs.
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  Yeah. As all the resorts are competing for resources and good staff.
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  Exactly. So even paradise has its economic reality. It does.
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  Now let's go back to the financial statements. There's one thing that really
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  pops out. a $23.3 million Singapore dollar reversal of impairment loss on an
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  investment in another company.
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  Oh, wow. Okay. So to understand this, we got to break down what impairment actually means.
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  Imagine Qian Hong invested in another company that's not doing so well.
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  They'd have to write down or impair the value of that investment to show that
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  it's worth less. Okay, yeah. So a reversal means the opposite happened.
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  So that company they invested in started doing better, and now that investment's
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  worth more than they initially wrote it down for. Yeah, exactly.
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  Like if you buy a stock and the price drops, then suddenly it shoots up,
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  even higher than what you paid for it. Right. Okay.
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  And for Qian Hong, this reversal is really good news.
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  Yeah. It means their investments are starting to pay off, which makes their
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  whole financial situation stronger.
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  That's great. OK, so let's talk about the Singapore property market,
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  which has been, you know, slowing down a bit lately.
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  How does that affect Kyung Hong since they're so focused on property development?
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  That's an important point, because if the market cools down,
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  it could definitely affect their earnings.
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  Rising interest rates, the global economy being a bit uncertain and inflation
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  are all contributing to this slowdown. Yeah.
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  But in their press release, they seem pretty optimistic about the Singapore
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  property market in the long run.
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  They are. And they believe that property in Singapore, especially in prime locations,
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  will always be valuable.
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  And many analysts agree with them. There might be ups and downs in the short
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  term, but they see the Singapore property market as fundamentally strong.
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  So it's all about perspective. Yeah. Focusing on the long term potential instead
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  of getting caught up in the day to day dips. So speaking of the future,
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  what does Keong Hong's outlook look like?
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  Well, their construction order book is strong, standing at $368 million Singapore dollars. Wow.
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  Projects in both residential, 49%, and commercial, 51% sectors, which is great.
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  Yeah. That means they've got a healthy amount of work lined up,
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  should be good for revenue in the next few years.
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  And they're not just relying on existing projects, right? The Building and Construction
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  Authority, the BCA, they predict that construction demand is going to go up
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  because of projects like the Chunji Airport Terminal 5 and the expansion at
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  Marina Bay Sands. Right, exactly.
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  These massive developments, they're expected to really boost the construction
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  industry, which could create lots of opportunities for companies like Kion Hong.
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  But it's not all going to be easy. What kind of challenges do you think they're facing?
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  Well, more demand also means more competition for resources and skilled workers. Ah, yeah.
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  This could push costs up, especially if prices for materials keep rising.
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  So lots of work out there, but they'll need to manage those costs and secure
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  those profitable contracts if they want to succeed. Now, one last thing to cover.
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  They're planning on selling off their minority stake in Katong Holdings PLTD.
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  They could get $34.5 million Singapore dollars for that.
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  So this move, what do you think it means? I think it shows they're shifting their focus.
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  They want to divest from things that aren't their main business and concentrate
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  on what they're good at, which is building construction and property development.
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  It's about streamlining and using resources where they have the most expertise,
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  you know, where they can grow the most. So they're really doubling down on what they do best. Yeah.
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  You were just talking about Kiong Hong's performance and how they decided to
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  sell off that stake in Katang Holdings. Right.
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  They're really focusing on construction and property development now.
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  But is that the right move in Singapore right now?
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  Good question. Let's think about it strategically. Kiong Hong,
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  they have a lot of experience in Singapore.
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  They've done a bunch of projects, residential, commercial, even institutional
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  stuff. This shows that they can adapt, which is super important in a market
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  that can be, you know, unpredictable.
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  So they're not just a one trick pony. No, definitely not. And their order book,
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  with all those projects worth 368 million Singapore dollars,
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  tells us they have plenty of work lined up.
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  Right. And that mix of projects, residential and commercial, it's good.
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  Yeah. It means they're not relying too much on just one type of project.
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  And finishing that Grand Hyatt Singapore renovation, that'll be a big deal for them. It will.
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  A high-profile project like that, it's great for their reputation,
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  and it can attract new clients.
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  But just having a good reputation isn't a magic solution. True.
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  We talk about how rising costs and delays can really hurt construction companies.
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  Yeah. What happens if that liquidated damages thing becomes a real problem? That's a good point.
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  The BCA's forecast for construction is positive, but that also means more competition. Right.
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  Kyunghong's going to have to be really efficient, really innovative if they
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  want to win those contracts and finish projects on time and within budget.
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  It's a lot of pressure. So it's a real balancing act for them.
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  It is. They have the experience. They have the projects lined up.
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  And the market seems to be going in the right direction. Yeah.
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  But they've also got rising costs, potential delays, and a property market that's cooling down.
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  What do you think? Are they on the right track for success or are they heading
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  for trouble? That's the big question.
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  I think it really depends on whether they can handle all of these things going
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  on at once, using their strengths to their advantage, minimizing risks,
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  and adapting to whatever the market throws at them. It's like a high-stakes game.
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  And we'll have to watch and see how they play it. Exactly.
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  So let's think about our listener for a minute. What stands out to you as the
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  most important thing we've learned about Kyung Hong's performance?
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  You know, for me, it's that they managed to increase profits even though their revenue went down.
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  That's a big lesson about making strategic decisions. They weren't just chasing
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  higher revenue. They were focused on profitability.
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  Yeah. And that meant making tough choices, like selling off those assets that
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  weren't part of their core business.
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  Sometimes less is more, right? Exactly. It's not just about doing more.
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  It's about doing the right things.
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  And that leads us to our final thought for our listeners today.
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  Given everything we've talked about, what do you think about Kyung Hong's future?
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  Are they set up for success or are there some potential problems they should watch out for?
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  You know, I'm definitely going to be watching that liquidated damages situation closely.
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  Delays in construction, they can be a big drain on resources and even one mistake
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  could set them back. That's a good point.
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  I'm curious to see how they deal with the cooling property market and the possibility
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  of higher material and labor costs. Yeah.
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  Those are big challenges that will really test how adaptable and resilient they
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  are. Definitely some key things to keep an eye on.
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  So we've spent a good amount of time digging into the numbers and strategies for Keong Hong. We have.
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  But you know what? There's this whole other side to consider,
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  too, the human element. Yeah, for sure. It's easy to get lost in all those financial
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  statements and market trends. Yeah.
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  But in the end, it's people who make businesses work.
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  Their vision, their ability to bounce back from setbacks, how they deal with
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  tough situations. Exactly.
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  And with Kyung Hong, their leaders seem to be playing a big part in their story.
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  In the press release, they mentioned how Mr. Ronald Leo, the chairman and CEO.
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  Thanked their shareholders for sticking with them during the tough times.
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  Yeah, and that little detail actually tells us a lot about their company culture.
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  They're acknowledging the hard times, they're showing appreciation for the support
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  they got, and they're optimistic about getting back on track.
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  That kind of transparency and positive outlook can be really powerful,
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  especially when things are uncertain.
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  Well, it's like they're saying, hey, we've been through a lot,
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  but we're still here and we're ready for what's next.
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  That kind of message, it resonates with everyone, not just shareholders.
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  It reaches employees, clients, even potential investors.
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  Absolutely. It builds trust and shows that they're thinking long term.
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  And that long term perspective, it's super important when you're making big
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  decisions like selling off parts of your business or dealing with a changing
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  property market. It's about having the guts to stick to your plan,
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  even when things get rough.
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  Well, that brings our deep dive into Kyung Hong holdings to an end.
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  I hope our listeners now have a better understanding of Kyung Hong's journey
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  and that they've gained some insights that they can use in their own financial lives.
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  We always encourage you to keep exploring, stay curious, and never stop learning.
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  Music.