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Keong Hong S$14 Million FY2025 Pivot · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:08
  Welcome back to the Deep Dive. It's great to have you with us.
• 0:10
  Today, we're looking at something I think every investor secretly loves, a comeback story.
• 0:16
  You know, the type of companies on the ropes looks like it's down for the count
• 0:19
  and then somehow it bounces back.
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  We're focusing on the Singapore construction sector and specifically a company
• 0:26
  called Keong Hong Holdings or KHH.
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  It is a classic narrative, isn't it? We're digging into their full year results
• 0:33
  for FY 2025, which ended back on September 30th.
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  And these documents, they just came out on January 28th, 2026.
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  So this is pretty fresh data.
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  And to your point about the comeback, I mean, if you looked at their books a
• 0:46
  year ago, it was pretty grim, just a sea of reading. Right. A total mess.
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  And now, 12 months later, they're posting a profit and a pretty healthy wanted that.
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  So the headline is simple. We're back. But our job today is to be,
• 0:58
  you know, a little bit skeptical. We need to figure out if this is a real sustainable
• 1:01
  recovery or if they just got lucky with some, I don't know, accounting magic.
• 1:05
  Precisely. We have to look at this from an investor's point of view.
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  A profit figure is nice, but it's the quality of that profit that really matters in the long run.
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  Our mission is to strip away the jargon and see if the actual business engine
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  is fixed. OK, so let's start at the very top, the income statement.
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  Revenue. How much business did they actually do.
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  For FY 2025, KHH brought in revenue of S-182.4 million dollars.
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  Now that's a 5.7 percent increase compared to the year before.
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  Okay, let's pause on that.
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  5.7 percent growth. It's positive, which is good. But it's not exactly setting
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  the world on fire, is it? It feels...
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  Steady. Steady is the perfect word. And in construction, steady is often what
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  you want. You don't want this explosive, risky growth.
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  So this S-182 million dollars, it came mostly from their ongoing construction
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  projects making progress.
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  But here's the hook. Usually for a company to swing from a huge loss to a big
• 2:00
  profit, you'd expect revenue to have jumped, you know, 20, 30 percent. Right.
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  If you make a lot more money, it's usually because you sold a lot more stuff. Simple as that.
• 2:07
  Exactly. But here, revenue just nudged up about 5 percent.
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  Yet their bottom line, the net profit swung from a loss of S3.9 million dollars
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  last year to a profit of 7.2 million dollars this year.
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  That's a S14 million dollar turnaround, all on a very modest top line increase.
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  That math only works one way.
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  If the money coming in didn't change much, then the money going out must have
• 2:31
  dropped off a cliff. You nailed it. This whole story is about margins.
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  Even though revenue went up, their cost of sales actually decreased by 5.0%.
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  They spent about $569 million to get the work done this year versus $178 million last year.
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  That seems almost impossible in today's economy.
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  I mean, all we hear about is inflation, material costs, labor shortages.
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  How on earth do you build more but spend less? It all comes down to the timing
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  of the contracts. KHH, like a lot of builders, has been sort of haunted by what
• 3:00
  they call pre-pandemic projects. Ah, the ghosts of 2020.
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  Precisely. Imagine signing a fixed-price contract in 2019.
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  You base your costs on 2019 prices for steel, for cement, then the pandemic hits.
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  Suddenly, you're locked in to build that thing, but it's costing you way,
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  way more than you're getting paid. So you're basically paying for the privilege of working. Exactly.
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  And for the last couple of years, KHH has been slogging through those money-losing
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  contracts. The big story for FY 2025 is that they have finally,
• 3:29
  for the most part, wrapped those projects up. They cut the anchor loose.
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  So the projects they're working on now are priced for today's reality.
• 3:37
  Correct. And you can see that impact immediately in their gross profit margin.
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  That's the key metric here.
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  Last year, their gross margin was negative 3.1%. Ouch.
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  That is painful. For every dollar of work, they were losing three cents before
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  they even paid for the office lights. Right. It's totally unsustainable this year.
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  That margin flipped to a positive 7.3 percent.
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  That is a massive operational turnaround. It means the core business building
• 4:03
  things is actually viable again.
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  OK, so that part of the profit is real. That's operational health.
• 4:08
  But I'm looking at the rest of the statement here, and there are some other
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  numbers doing a lot of heavy lifting, specifically this line,
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  other income. It's up by 50 percent.
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  It is. It jumped to 13.1 million dollars.
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  And this is where, you know, a skeptical investor really needs to pay attention.
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  S13 million dollars is a huge chunk of their total profit.
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  So what's in this S13 million dollar mystery box? Did they find a treasure chest
• 4:32
  on a construction site? Laughs. Close.
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  They found a favorable currency market. A big piece of that came from foreign exchange or FX gains.
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  The U.S. dollar got stronger against the Singapore dollar. And because KHH holds
• 4:45
  assets in USD, especially with their Maldives hotels, that move just looks like
• 4:50
  profit on paper. But that's a double-edged sword, right?
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  I'm guessing last year the currency markets weren't so friendly. Exactly right.
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  Last year, FX losses just hammered them. This year, the wind blew the other way.
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  But you can't build a long-term investment on hoping the U.S.
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  Dollar keeps going up. We call this low-quality earnings.
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  It's real money, but it's not from a repeatable skill.
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  What else is in that other income bucket? A mix of things. A bit of scrappiness.
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  They had higher proceeds from selling scrap steel. Literally selling the scraps
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  from the job site. Literally.
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  And they also squeezed a bit more rental income out of their warehouses and worker dormitories.
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  It shows good management, hunting for every dollar, but again,
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  selling scrap steel isn't a scalable growth plan. True. You can only sell the scrap once.
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  All right, moving down, I see another huge change. Administrative expenses.
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  They slashed them by almost half, 46.5%. Did they fire half the office?
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  It looks dramatic, doesn't it? But it's not really about that.
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  A big reason for the drop is, well, it's a bit technical.
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  Last year's administrative costs were artificially high because that's where
• 5:54
  they booked those FX losses we just talked about.
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  Ah, I see. So last year, the admin bucket was holding all that bad currency
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  news. This year, the bucket is just empty of that bad news.
• 6:03
  Exactly. So it looks like costs dropped miraculously, but a lot of it is just
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  the absence of that one-time hit from last year.
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  That said, they are running a tighter ship. But there is one more accounting
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  miracle here we absolutely have to talk about.
• 6:16
  I think I see it. Reversal of Loss Allowance on Financial Assets,
• 6:20
  It's a mouthful, but it's Sue feeling $4.9 million. What does that actually
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  mean in plain English? Let's try an analogy.
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  Imagine you lend your cousin $1,000, and you know he's terrible with money.
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  You're pretty sure you'll never see it again. So in your head,
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  you write it off. You say, that $1,000 is gone.
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  That's creating a loss allowance. Okay. I've taken the financial and emotional hit.
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  But then a year later, your cousin wins the lottery or something and actually
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  pays you back. You have to reverse that loss. You add that $1,000 back to this year's income.
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  So KHH had money they thought was gone for good, bad debts or something,
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  and it came back? Pretty much.
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  Last year, they set aside nearly S-24 million dollars for potential losses.
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  This year, they looked at the situation and decided to reverse about $4.9 million of that.
• 7:08
  Okay, so if I'm keeping a running tally, we have a profit of $10.2 million.
• 7:13
  But a big chunk of that is FX gains, selling scrap metal, and this accounting reversal.
• 7:20
  Correct. And that is why the net profit line alone can be so deceiving.
• 7:24
  The real sustainable news here is the turnaround in the construction margins.
• 7:27
  The rest of it is nice, but it's like finding 20 bucks in an old coat.
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  You're happy, but you didn't really earn it. That's a crucial distinction.
• 7:34
  OK, let's pivot to the actual business segments.
• 7:37
  Construction was the core engine rank. Construction is absolutely the hero of this story.
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  In FY 2025, that single segment generated a profit of S$17.2 million.
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  Compare that to last year. It posted a loss of $15.3 million.
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  That's a $32 million swing just from the core business.
• 7:57
  Which totally validates that story about finishing the bad projects.
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  They stopped the bleeding.
• 8:01
  It does. And looking ahead, their order book stands at about $203 million as of September 30th.
• 8:08
  $203 million. Is that a big number for them? It's a healthy number.
• 8:11
  It gives them visibility for at least the next, you know, 12 to 18 months.
• 8:15
  They have major projects like Solitaire on Cecil and the Tenga Plantation public housing project.
• 8:21
  The cranes will keep moving. So construction is the golden child.
• 8:24
  Yeah. But KHH also owns hotels, specifically in the Maldives.
• 8:28
  And I got to say, owning a resort in the Maldives sounds like a license to print
• 8:32
  money. You would think so, wouldn't you?
• 8:34
  Luxury villas, clear water. But this is surprisingly the weak spot in the entire report.
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  It's actually the most concerning part of the business. How is that possible?
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  The report said the Maldives had a record year for tourism. It did. The sources are clear.
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  Over 2.2 million visitors in 2025, up almost 10%. The airports were packed.
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  The demand was absolutely there. So.
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  If the tourists are there, why aren't they staying at KHH's hotels?
• 8:59
  That is the multi-million dollar question. They own two properties there,
• 9:04
  the Mercure and the Pullman.
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  Their combined average occupancy was only 49.6%. Less than half full. In a record year. Yes.
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  And the industry average for the Maldives was 58.3%. So they are lagging the
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  market by almost nine percentage points. That's a huge gap.
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  A rising tide is supposed to lift all boats. But their boat seems to have a
• 9:24
  leak. It really implies an execution problem. Is it their marketing?
• 9:27
  Their pricing? Are the other resorts just better?
• 9:30
  Management was candid. They admitted it was below industry average and that
• 9:34
  they are looking at ways to attract more tourists.
• 9:37
  Looking at ways sounds a bit vague for an investor.
• 9:39
  It is. It's a drag on the group when it should be a high margin cash cow.
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  OK, so construction is recovering. Hotels are sputtering.
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  What about property development? All quiet on that front. They have no immediate
• 9:49
  plans to buy land, which, given high interest rates in Singapore,
• 9:52
  is probably a smart, risk-averse move.
• 9:55
  Fair enough. Speaking of risk, let's talk about the balance sheet.
• 9:58
  They had an issue with their auditors last year, a qualified opinion,
• 10:01
  right? That sounds scary.
• 10:02
  It is. A qualified opinion is basically the auditor saying, we checked the books,
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  but there's this one thing that worries us and we can't verify it.
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  It's a huge red flag for big investors.
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  It was related to a subsidiary called Katong Holdings.
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  But here's the best news in the whole report. They fixed it.
• 10:19
  Oh. They sold the problem.
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  They disposed of Katong Holdings in June 2025 for $15 million.
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  By selling it, they cleared up the accounting mess. The audit qualification is gone.
• 10:30
  The books are clean. That's huge. It's like cleaning a stain off your credit
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  report. It makes the company investable again for a lot of funds. Exactly.
• 10:36
  And it also injected cash. Their cash position rose to S26.8 million dollars.
• 10:41
  So profit, cleaner balance sheet, more cash.
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  I have to ask the question every income investor is thinking.
• 10:49
  Did they declare a dividend? No, zero. No dividend for FY 2025.
• 10:57
  Hmm. That's a bit of a letdown. It is, but it's probably the responsible call.
• 11:01
  The board said they want to conserve cash for working capital.
• 11:04
  It fits the survival story. You know, you don't survive a heart attack and immediately run a marathon.
• 11:08
  You rest. You build up your reserves. That makes sense. OK, so looking forward, what's the outlook?
• 11:13
  The interim CEO, Owen Hsu, made a very bold statement. He said,
• 11:18
  quote, the most difficult period for Kion Hong is now behind us.
• 11:22
  He's banking on the macro environment.
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  Singapore's GDP forecast is strong and construction demand is projected to be massive.
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  S-47 to S-53 billion dollars in 2026.
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  Changey T5, MRT lines. The pie is getting bigger.
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  So they just need to grab a slice. A high value added slice in their words.
• 11:40
  They've learned their lesson. Revenue is vanity.
• 11:42
  Profit is sanity. So how do we wrap this up? How should a listener think about
• 11:46
  this stock now? I'd say KHH has successfully executed phase one of a turnaround.
• 11:50
  Phase one is triage, stop the bleeding, cut the fat, clean up the balance sheet.
• 11:54
  They've done all of that.
• 11:55
  The patient is stable. Phase one is complete. But what's phase two?
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  Phase two is growth. And that's harder. You can't sell the same asset twice
• 12:03
  for cash. You can't rely on FX gains every year.
• 12:06
  Now they have to make money the old-fashioned way. Which brings us right back
• 12:10
  to the Maldives. It does.
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  That's the swing factor. If the construction business is the steady engine,
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  the hotels are the potential turbocharger.
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  If they can fix that occupancy problem, that money flows straight to the bottom line.
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  But if they can't, they're just leaving millions on the table.
• 12:28
  It's a fascinating spot to be in. They've done the hard work of cleaning up,
• 12:31
  but the work of building real value is just getting started.
• 12:34
  And that's the gamble for investors, isn't it? Do you trust this management
• 12:38
  team to execute phase two?
• 12:40
  That is the question. And before
• 12:42
  we go, I want to leave our listeners with one last thought to chew on.
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  KHH has some cash now, about Mass's $26 million.
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  What do they do with it? Do they pour money into marketing to fix the Maldives hotels?
• 12:53
  Or do they double down on construction to bid for those massive Singapore projects?
• 12:57
  It's the classic capital allocation problem.
• 13:00
  Do you fix the weak link or do you feed the strong one? If you were in that
• 13:03
  boardroom, which way would you vote?
• 13:06
  Something to think about. Indeed. It's never as simple as just making a profit. It never is.
• 13:12
  Thank you so much for walking us through this. It's rare that a financial statement
• 13:16
  tells such a clear story. My pleasure. The story is always in the details.
• 13:20
  And for everyone listening, a quick but important reminder. This content is
• 13:23
  intended to serve strictly and only as an informational, independent,
• 13:28
  objective summary of recent events and should in no way be interpreted,
• 13:32
  construed, or relied upon by any party as inside information or financial advice.
• 13:37
  Thanks for joining us on The Deep Dive. We'll catch you on the next one. Thank you.