Kingsmen Creatives

The Straits Times
Sep 9, 2011
China's 'scheme' parks
Local goverments love them for making officials look good, while developers us them as cover for lucrative projects, but 70% of the over 3,000 parks are losing money

By Peh Shing Huei

BEIJING: In a few years, mainland China will not only have its first Disneyland, but also a Hello Kitty theme park and maybe even the world's first Transformers carnival featuring signature robots Optimus Prime and Bumblebee.

But the entry of such global marquee names does not mean all is cheery in China's amusement parks. In fact, it is quite the opposite.

Some 3,000 theme parks have mushroomed in the country in the past few years - compared to just about 40 in both the United States and Japan - racking up debts for the local government and becoming glaring exhibits of corruption and unauthorised property development.

It is easier in China to get approval for building a theme park - in the name of boosting tourism - than it is to build homes. In central Anhui province, for example, only 50 per cent of the land earmarked for a proposed Chinese zodiac sign theme park is going to the rides and carnival. The rest is stashed away for apartments, according to local media.

Theme parks used as an excuse to secure land

'There are so many theme parks in China because developers use it as an excuse to secure land to build properties,' said analyst Bian Hongdeng.

'Local governments encourage it too because theme parks involve large sums of money and are prominent, making officials look good, and that leads to faster promotions,' said Mr Bian.

With 70 per cent of theme parks currently losing money, the government has admitted it has a problem.

Last month, China's top economic planning agency announced a suspension of new theme parks larger than 20ha or that have a total investment of more than 500 million yuan (S$95 million).

Even when theme parks are truly built with the intent of entertaining people, they have floundered because they rely too much on ticket sales and, most importantly, lack originality.

Most of China's theme parks fall predictably into a few genres: ethnic, safari, aqua, famous world architecture replicas, and Chinese history and culture.

Amusement parks based on Chinese classics like Romance Of The Three Kingdoms and Journey To The West can be found across the country, with at least 50 parks boasting the latter theme.

But none has become a global name, or even a famous China-wide brand.

'Compared to the Disneyland, which has moved into just five countries since 1955, China's theme parks development seems to be in such a rush. The themes of the parks are repetitive,' said the newspaper of the state-run Chinese Academy of Social Sciences.

To make matters worse, the theme parks face strong competition from other tourist attractions.

'In a city like Hangzhou, for example, there are already so many attractions by the West Lake. Given the limited time that most tourists have, they are not going to visit the theme parks,' said Mr Zhang Guoyi, who runs the World Park in Beijing, which features miniatures of globally famous architecture.

And unlike major theme parks like Universal Studios, which milk lucrative tourist dollars from souvenirs, China's remain heavily reliant on just ticket sales.

That forces the parks to charge higher ticket prices, which turns off cost-conscious Chinese consumers.

'Theme parks have been too reliant on ticket sales, which make up nearly 90 per cent of the revenue. The ideal should be at about 50 per cent,' said Shanghai-based tourism observer Zhao Huanyan.

Yet despite the downside, theme parks have proliferated across China, with an extra boost in the last three years.

In the wake of the 2008 financial crisis, Beijing offered fast-track approvals for these entertainment projects to encourage use of the government's four trillion yuan in stimulus money and to boost domestic consumption.

That allowed developers to use amusement parks as covers for more lucrative real estate developments, prompting experts to wonder how effective the new theme park ban would be.

As it is, just weeks after the suspension was announced, state-run Xinhua news agency reported a new multi-billion yuan military theme park to be built on the outskirts of Beijing over the next five years.

The park would comprise a 'fantasyland', where visitors would have an interactive experience with classical military stories and famous battles. There would also be an outdoor square to showcase the development of Chinese warfare.

Analyst Chen Nanjiang wrote on his blog: 'Just like the ban on golf courses, such one size fits all policies which do not take into consideration market demand usually do not get implemented and end up hurting one's authority.

'If foreign brand names like the United States' Six Flags and Korea's Lotte World want to come to China and local authorities are very welcoming, will this one document (from the planning agency) be effective?'

shpeh@sph.com.sg

how does this news relate to kingsmen?
With 70 per cent of theme parks currently losing money in china, it seems a no wonder that Haw Par's aquarium park in chengdu is struggling to break even.

SGX-listed Straco is generating plenty of cash from its aquarium parks in PRC. I guess it depends on the quality of the attraction and how close it is to tourist hot-spots.

(Not Vested in Straco)

(09-09-2011, 10:50 PM)pianist Wrote: how does this news relate to kingsmen?
With 70 per cent of theme parks currently losing money in china, it seems a no wonder that Haw Par's aquarium park in chengdu is struggling to break even.

Kingsmen is bidding for many theme park projects in China. If it is true that these parks are losing money, they may have a problem with payments and Kingsmen would need to provide for doubtful debts. So even if we assume they clinch a deal, revenue would be recognized but cash collections might be an issue.

I know it's thinking a little far, but no harm keeping abreast of the news. All part and parcel of being an investor.

Comparatively huge volume - 1,888,000 shares - traded in Kingsmen's shares today, with a big buyer or buyers executing some multi-hundred-lot transactions in the afternoon. Positive. Any one aware of any drivers behind this? An institutional buyer?

Vested.

(12-09-2011, 06:14 PM)RBM Wrote: Comparatively huge volume - 1,888,000 shares - traded in Kingsmen's shares today, with a big buyer or buyers executing some multi-hundred-lot transactions in the afternoon. Positive. Any one aware of any drivers behind this? An institutional buyer?

Vested.

Hi RBM,

No idea, but if I won't read too much into it. I agree it's unusual but then again these are unusual times!

this is indeed highly unusual for a highly illiquid counter. the seller, presumably only one party, must have taken quite some time to accumulate that many shares. i take this as a sign that it's a beginning of a heightened level of fear in the market -- when illiquid stocks go highly liquid.

for the vested/interested, be ready to catch this when it falls!

(12-09-2011, 07:13 PM)karlmarx Wrote: this is indeed highly unusual for a highly illiquid counter. the seller, presumably only one party, must have taken quite some time to accumulate that many shares. i take this as a sign that it's a beginning of a heightened level of fear in the market -- when illiquid stocks go highly liquid.

for the vested/interested, be ready to catch this when it falls!

you seem to suggest that the price will fall...

(12-09-2011, 08:26 PM)bb88 Wrote: you seem to suggest that the price will fall...

i apologise if i had been overly suggestive. it wasn't my intention to.

i don't know how prices will move and i generally tend not to make 'the price will rise/fall' statements. and not just in the forum, but when making mental notes to myself as well. in addition, i don't practice TA, and i also don't trade. i take my inability to predict price movements, very seriously. i think when you start believing you know how the market behaves, is when you'll be at your most vulnerable.

i do however, like to note whether a particular business, or the market index in general, is over/fair/under valued. even then, counters which are over/fair valued may continue to be over/fair valued over a long period of time; if i opine that a business is fairly valued, i don't mean the price thereafter is likely to decline, i'm just saying that it's not cheap enough for me. i'm not a good valuer, but i compensate by driving a harder bargain!

as for kingsmen, my opinion (as also shared by some) is that their value lies mostly in their human resource; in particular, their two key shareholder/director. most people won't pay 55cts/share for kingsmen if the two present bosses were no longer around, despite it being an established/renowned business. kingsmen's business doesn't have an extraordinary moat. there are plenty of smaller players competing with it. in an industry where the product offered has few differentiation between numerous competitors, it is the management's ability to operate more efficiently and innovatively than their competitors, that matters. leading players in such an industry are in a tight race and often trail each other marginally.

lastly, i think investors in general, like the people browsing this forum, should never rely on someone else's opinion to make their personal decisions. people are almost always biased, based on their own positions in the market. even a value investing forum like such can be wrong on their 'darlings'. i enjoying sharing my own, as well as reading others', opinions and analyses, but independent thought (conducting your own research and forming your own opinions) is key to continued success in your own investing journey.

nevertheless, the numerous factual information unearthed by the forumers here is very useful.

(12-09-2011, 10:01 PM)karlmarx Wrote: as for kingsmen, my opinion (as also shared by some) is that their value lies mostly in their human resource; in particular, their two key shareholder/director. most people won't pay 55cts/share for kingsmen if the two present bosses were no longer around, despite it being an established/renowned business. kingsmen's business doesn't have an extraordinary moat. there are plenty of smaller players competing with it. in an industry where the product offered has few differentiation between numerous competitors, it is the management's ability to operate more efficiently and innovatively than their competitors, that matters. leading players in such an industry are in a tight race and often trail each other marginally.

lastly, i think investors in general, like the people browsing this forum, should never rely on someone else's opinion to make their personal decisions. people are almost always biased, based on their own positions in the market. even a value investing forum like such can be wrong on their 'darlings'. i enjoying sharing my own, as well as reading others', opinions and analyses, but independent thought (conducting your own research and forming your own opinions) is key to continued success in your own investing journey.

nevertheless, the numerous factual information unearthed by the forumers here is very useful.

Perhaps I should put in a word or two as well - but note that I am vested and hence my views may be (obviously) coloured and biased, so please do your own research and analysis independent of my comments.

Kingsmen would have, by now, implemented systems, processes and controls in place with which to ensure they maintain their standards and quality of work, with or without the presence of the two founding members Mr. Ben Soh and Mr. Simon Ong. After all, we are talking about a 35-year old Company which has managed to weather through several crises and recessions.

I would have to add that even though Kingsmen is in a competitive industry, most of the players are smaller in scale and breadth of services (I had checked this before by asking around) and therefore cannot compete on the same level as Kingsmen. Even Pico FE which is supposedly the market leader does not have a strong Interior Fit-Out Division and are more into large exhibitions and shows, thus there is no way to compare apples to apples, like for like. I believe (and continue to believe) that what makes Kingsmen stand out is not their net margins (which are just 6-7%), but it is their Roll-Out Management program, export fixtures, quality of work for events/exhibitions, scale and reputation for timely and good work. If not, they would not have been selected by leading brands such as the recently completed H&M store, and soon to be opened Ambercrombie and Fitch. They also have the knowledge and expertise now to pitch for theme park projects in the region, which should (I believe) come to fruition in the next few years.

A competitive advantage may not simply reside in staff and human resource - it should technically embody the entire organization, which is why it is tough or impossible to replicate/copy.

And yes, I agree with your statement - no one should blindly follow anyone else in the forum. We are just posting views and news/comments on the companies within our portfolio. Each investor has to independently verify the facts and to analyze them in a rational + objective manner.

Thanks!