Under the terms of this deal, GKE Retails operates the outlets and helps Singtel sell mobile phones, other services such as broadband and TV, and accessories such as earpieces and phone covers. GKE Retails buys the stock from Singtel and enjoys a cut when customers sign up or renew their subscription plans at the retail shops.
GKE and its joint venture partner have taken over five outlets previously under an existing retailer who is downsizing his business. With four outlets already under the joint venture partner, that gives GKE Retails a total of nine outlets.
In addition, GKE Retails “oversees” another seven franchise outlets also operating under the Singtel brand. With this total of 16 outlets, GKE is the largest Singtel retailer. “We find this business viable and can help GKE build a more diversified earnings stream,” says Neo in an interview with The Edge Singapore.
Neo stresses that this is not an opportunistic new venture but something he has pondered carefully. According to him, negotiations to start this new business took more than a year and involved not only the seller but also Singtel.
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According to Neo, the absolute profit from this business of selling mobile phones may not be too significant if calculated according to profit over revenue. However, the return on capital is attractive, as this business is one where the committed capital can be “turned” multiple times within a year.
Furthermore, Neo can rely on Singtel’s support in this venture. He says that GKE Retails has been granted a credit line 1.5 times larger than its current order value, meaning that if GKE Retails orders $3 million worth of inventory, Singtel will provide $4.5 million worth of mobile phones for him to distribute. The primary operating costs for GKE Retails, aside from capital for additional inventory, are rent and staffing, he notes. Singtel will also assist in liaising with mall landlords and sourcing new retail outlets. Neo hopes that GKE Retails will perform well and secure new outlets to manage.
Even with higher rentals and other costs, the distributors are assured of a certain margin. He adds: “This business is very secure. As long as you work and the market functions properly, you will definitely make money.”
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Neo plans to build a phone repair business as well. Once an ecosystem of related companies reaches a certain scale in a year or two, he does not rule out a spin-off for its separate listing, although such a move is not on the cards for now. “Once the numbers are proven and show the potential, this is a possibility. Everybody wants to have a listed status,” adds Neo, referring to his joint venture partner.
To be sure, the physical retailers are but one channel used by the telcos. Subscribers can sign up or renew their subscription plans online, and the handsets that come bundled with these plans can then be picked up or delivered separately.
Neo points out that online selling is popular, especially during the pandemic years, but telcos are now maintaining or even expanding their physical presence. Customers want to “touch and feel” these increasingly expensive devices before committing to them.
Of course, having sales staff on hand to properly explain the features of the devices and the terms and conditions of the subscription plans helps as well. “If you ask me to read two more lines, I will be blur,” quips Neo.
Now, he agrees that the mobile market is saturated, as practically every adult has a device and, for many, two. However, Neo points out that the market has also reached a certain size where there is a steady stream of business. He estimates that if 70% of Singapore’s total population of six million change their phones every three years, that is an annual demand of around 1.4 million new phones, and if tourists are included, that means 1.5 million. “The market is not going to have exponential growth, but demand is consistent, and the market is stable,” says Neo.
Another adjacent business GKE can pursue is offering Singtel logistics services. It is already delivering to end customers for its fledgling indoor farming business, and the same delivery network can be used to provide handsets. “So, the synergy is there,” adds Neo.
Logistics, chemicals blending
Even as GKE ventures into this new business, it is by no means neglecting its core in logistics. In recent months, GKE has set up an office in Dubai. It has rented a warehouse with a capacity of 50,000 sq ft, and when ready in May, it will be another node for the company to provide logistical services for customers with a need to reach the rest of the Middle East, Africa and southern Europe. Neo is confident that the space can be filled very quickly, and he has ambitions to build his own warehouse for additional space down the road.
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He is aiming for more than just basic cargo storage. GKE, based in Singapore, owns a subsidiary acquired several years ago that provides chemical blending and storage. Neo plans to expand further by establishing a chemical-blending facility in Dubai, which will also offer warehousing services for “dangerous goods” that require additional safety measures.
GKE already provides such services in Singapore. He explains that the expansion to Dubai is to support customers with markets in that region better and transfer some of their current volumes to Dubai.
Neo sees this focus on so-called dangerous goods as a competitive advantage. He recently spent some $3 million to expand the storage space at 39 Benoi Road in Singapore to meet requirements. He laments that he should have done so earlier, as construction costs have doubled. “I actually hesitated for a while,” Neo recalls.
Nevertheless, he is confident that this added capability will allow the capital expenditure to be recouped swiftly. He explains that customers typically require storage space for hazardous goods, which command higher rates, as well as space for general cargo. By offering storage for both types of goods, GKE’s facility will provide greater convenience and efficiency in logistics, making it a more attractive option for customers.
Bad debt collection
Neo has some positive news for GKE’s other business segment — the production of ready-mixed concrete in China. The multi-year slump in property and infrastructure has forced the company to make provisions for $6.5 million in unpaid debt. In addition to developers, local public sector organisations are also in arrears with some of their payments.
However, with the recent moves by the Chinese central government to stabilise the property market, Neo is already seeing signs of improvement in his bad debt collection. At the same time, customers, including local authorities, have been given the go-ahead and the support of the central government to continue with the development of infrastructure. This means GKE can look forward to an improvement in its production volumes and, therefore, turnover as well. “Hopefully, we will see a better picture and profit growth restarting in the new financial year.”
Overall, GKE, which reported a record profit of $4.4 million for its 1HFY2025 ended Nov 30, up 132.5% y-o-y, can probably end this year better than last, based on organic growth. In the previous years, some financial periods were distorted by one-offs, such as government wage subsidies and, most recently, the sale of mining rights.
Neo believes that when the various new developments kick in — retail, warehousing and chemicals-blending in the Middle East and ready-mixed concrete in China — the company is set for a new leg up.
