Pico Far East Holdings (0752)

[RBM]

As mentioned in my posting on the Kingsmen VB thread (Posting # 570) of 20th August 2012, I would like to open this Pico thread. I believe it is fair to say that Pico is Kingsmen Creatives No. 1 competitor in Asia Pacific. And given the obvious interest by forummers in Kingsmen, I think it is worthwhile to have a thread on Pico.

I append below two recent postings on the Kingsmen thread, where some discussion on Pico also featured.

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RE: Kingsmen Creatives Limited - Posting 559 by RBM, 19th August 2012

All,

I hope all VB'ers are having a restful Sunday and Hari Raya.

I have tried to stand back from the recent VB postings on this Kingsmen thread, i.e. postings made since the announcement of Kingsmen's rather pleasing 1H 2012 results. I believe it is fair to charachterise the contributors postings as all being either positive or very positive; I include my VB posting of 10th August within such a charachterisation. Although I am vested in Kingsmen and I believe it is a seriously well managed company that "delivers", I wonder if we should ask ourselves if and where there are "gaps in the armour". Please kindly bear with me................

I believe those VB'ers who are vested in Kingsmen (including myself) were pleased with the following features of Kingsmen's 1H 2012 results (amongst other things).............
a) Superior top-line performance across all of Kingsmen's operating divisions.
b) The performance of Kingsmen's Exhibitions and Museums division, which was particularly good - this division generated a ~ 43.5% higher revenue vs. 2Q 2011 (1H 2012 revenue from this division was ~ 55% higher than in 1H 2011).
c) The Interiors division ~ 10% higher revenues quarter-on-quarter and continued business from blue-chip brand names such as Abercrombie and Fitch, Aldo, Burberry, Coach, Fendi, H&M, Hollister, LVMH, Marks and Spencer, Polo Ralph Lauren, Swarovski and Uniqlo.
d) The order book for the remainder of FY 2012.

All sounds very good............ But then I also took a closer look at Pico Far East's 1H 2012 results. I would submit that Pico Far East is probably the best competitor benchmark by which to gauge Kingsmen's relative competitive performance. I believe Pico's 1H 2012 results are best summarised in a crisply written DBS Analyst Report of early July 2012, which I append below.

My take on these Pico results ........... and I deliberately state these provocatively and in a comparative sense........

- Pico's growth rates put Kingsmen into the shade (look at the numbers, e.g. 122% in Museums & Theme Parks!!).
- Pico's gross margin is higher than Kingsmen's (the benefits of scale?).
- Pico now has a ~ 29% higher dividend yield than Kingsmen, based on Friday's closing prices.

To me it looks like the sector which Kingsmen and Pico operate in is a good one to be in right now. But I sense that Pico are carving out a much greater proportion of new Asia Pacific Business than Kingsmen?? And who would be best placed, should a major downturn arrive??

A wise man once told me that the time to consider selling is when the hubris gets universal. I'm not going to sell my Kingsmen shares. But I do wonder if we are (recently) viewing Kingsmen through overly-rose-tinted spectactles? I stress that I am not trying to be difficult or awkward here - I just feel that this highest quality, mature and high objectivity forum may want a discussion around this.

Vested .............in both Pico and Kingsmen.

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DBS Vickers Analyst Report - Pico Far East

>7% dividend yield
• Pico achieved 13% net profit growth to HK$93m in 1H FY12, in line.
• Interim DPS stayed flat at HK$0.04, equivalent to a 52% payout.
• c.HK$1bn of confirmed contract value for 2H FY12 should support its future performance.
• At 23% discount to our TP of HK$2.46 with an attractive yield of >7%, we maintain BUY.

Highlights

Pico registered 30% y-o-y revenue growth to HK$1.8bn in 1H FY12, driven by sound growth across all divisions including museum & theme park (up 122%), conference & show management (up 91%), brand signage (up 35%), and exhibition (up 22%). The company’s exposure into Greater China, which should stand as the growth centre over the medium-term, also continued to gain weight and contributed 60% of group revenue (FY11: 50%).

Gross margin dropped 6.1ppt to 26.2%, amid early booking of expenses for selective museum & theme park projects that will be launched in 2H FY12. 1H FY12 net profit climbed 13% to HK$93m, in line.

Our View

Pico has already confirmed c.HK$1bn contract value for 2H FY12. Specifically, key events like Yeosu World Expo 2012 in Korea and the London Olympics are expected to bring in >HK$160m revenue. We believe Pico’s new factories in Beijing and Shanghai should also commence operations by 1Q13 and 3Q13, respectively, to beef up its project handling capacity & efficiency ahead.

Recommendation

Pico continues to stay appealing judging from its 7.7x 12-month rolling PE (versus its c.10x 5-year average PE) and a decent yield of >7%. The company’s strengthening presence in China should also help to further tap the region’s booming demand for event marketing & brand building. Our new TP of HK$2.46 benchmarks 10x 12-mth rolling PE (previously based on 10x FY12 PE). BUY +++++++++++++++++++++++++++++++++++++++++++
RE: Kingsmen Creatives Limited - Posting 570 by RBM of 20th August 2012

The responses of Musicwhiz and dydx to my consciously provocative e-mail of yesterday on this Kingsmen VB thread are sincerely appreciated - there is no other investment forum in this part of the world where such a thoughtful, mature and respectful exchange of views would be seen, IMHO. Thank you.

I would like to i) address a few of the points raised and ii) also answer the specific question on investing in Pico, following some enquiry postings and messages by several forummers. As regards the first point, in doing so, I realise that we are not comparing two beasts of a totally similar nature when we look at Pico and Kingsmen and there are, for example, slight differences in their respective reporting cycles. I also sense/suspect that the application of the definitions of various accounting terms are not exactly the same (e.g. administration costs?), possibly due to the different jurisdictions of the two companies.

I believe there are three different buckets to consider : business growth, margin, dividends and dividend cover. Taking each of these in turn........

1. Business Growth: Over the two years to the end of the FY 2011 reporting cycles, Kingsmen's revenues and NIAT increased by 8.3 % and 9.6 % respectively - Pico's revenues and NIAT increased by 58 % and 100 % (that is one hundred percent....... not ten percent). I suggest interested forummers review Page 17 of Pico's 2011 Annual Report (http://www.pico.com/wp-content/uploads/2..._Eng.pdf). On this page 17, various key metrics over each of the last five years are graphically presented........... and if you have Kingsmen's 2011 Annual Report handy, have this side-by-side with the "Financial Highlights" displayed on Page 8. I'll rest my case on Pico's recent bottom line growth vs. Kingsmen's! I could choose other comparison periods which would yield a picture consistent with this, perhaps though not quite as marked. I agree with Musicwhiz that much of Pico's recent growth emanates from the PRC - Pico state that ~ 60% of their business now comes from China but they are also clear on their determination to geographically diversify on a global scale, i.e. not only in Asia Pacific.

2. Margins: My statement regarding the margin comparison was made based on "back of the envelope" analyses not dis-similar to dydx's but based on FY 2011 results - I accept MW's point regarding a drop in Pico's gross margin in 1H 2012 but as DBS-Vickers point out QUOTE Gross margin dropped 6.1 ppt (in 1H2012) to 26.2%, amid early booking of expenses for selective museum & theme park projects that will be launched in 2H FY12 UNQUOTE. I could not replicate dydx's arithmetic of Pico squeezing out 3x more PBT than Kingsmen in 1H 2012 (my accounting ineptitude no doubt) but dydx does make an excellent point regarding the different phasing of reporting periods (see the pertinent excerpt from dydx's posting below). In addition to the points made by dydx, I also believe that Pico's administrative overhead level seems to be more "efficient", i.e. ~ 11.3% of revenues vs. ~ 16% for Kingsmen (do Pico outsource more?). I do feel that Kingsmen's staff costs are rising at a rate that needs more-than-watching, particularly if a cold wind starts to blow.

Revenue wise, based on the latest HY numbers, Pico Far East is now about 2.5x of Kingsmen.....
http://www.pico.com/wp-content/uploads/2...Report.pdf [Pico Far East's 1H ended 30Apr12]
http://info.sgx.com/webcoranncatth.nsf/V...6002F21C6/$file/KingsmenSGXAnnouncementQ212FINAL.pdf?openelement [Kingsmen's 1H ended 30Jun12]
Profit wise, based on PBT and the lastest HY numbers, Pico Far East is now about 3.0x of Kingsmen, but we must bear in mind that Pico Far East ends its FY on 31Oct, and Kingsmen ends its on 31Dec; and because Kingsmen does a lot more business in Retail Interiors, its 2H's revenue and PBT tend to be substantially higher - usually by at least 50% - than its 1H's.

3. Dividends & Dividend Cover: I believe we are all aligned that the businesses of Pico and Kingsmen are relatively low in terms of capital intensity. So while I note MW's point regarding Pico's higher pay-out ratio (see below) .............. it does beg the question ............. why doesn't or why can't Kingsmen raise its current ~ 40% pay-out ratio to say ~ 55%? For such a business, I'm of the view that a 40% ratio is probably overly conservative - particularly if MW's view of Kingsmen's relative robustness (vis-a-vis its geographical diversity) is correct. In their postings on this thread, forummers regularly cite Kingsmen's highly appealing dividend. But forummers ...........the reality is that Pico's dividend yield is ~ 32% higher (at today's HKEX closing price of HK$ 1.69) at ~ 7.1% vs. Kingsmen's 5.4%............ and I do not believe it is greedy to start probing Kingsmen's leadership on the subject of raising their dividend........... in the near future, i.e. well before the final 2012 dividend is declared.

5) It's not exactly accurate to compare dividend yields across the two companies. Why do I say this? If you notice, Pico has a payout ratio of 53% for their 1H FY 2012, based on an EPS of about HK$0.0766 and a DPS of HK$0.04. Kingsmen, however, has a payout ratio of just 40% (39.6% to be very exact), based on a DPS of 1.5 SGD cents and an EPS of 3.79 SGD cents. Therefore, Kingsmen can be seen to be paying out less of their earnings compared to Pico FE, which would explain the lower dividend yield. If you normalize the payout ratios for both companies, meaning if you assume Kingsmen had paid out 53% of their EPS as DPS, this would mean an interim dividend of 2 SGD cents/share. If we use last year's final dividend of 2.5 SGD cents/share as a benchmark, and taking into account LTM historical dividend yield based on a total dividend payout of 4.5 SGD cents/share, Kingsmen's adjusted dividend yield would be 6%.

While this is arguably not as high as Pico FE's 7% yield, I am more concerned over the following points with regards to the sustainability of the yield, rather than the quantum of it:-

a) Slowdown in China (and Hong Kong?) occurring
b) Erosion of gross and net margins for Pico FE
c) Concentration risk with most of the revenues clustered in one division - Exhibition and Events

As regards buying Pico shares, I have used the same (excellent) lady broker with Sun Hung Kai & Co. (SHK) for more than 25 years - she gets younger and sharper...... I get older. SHK charges me brokerage charges which are better-than-competitive with Singapore brokerage fees. But indeed SHK is custodian and I pay a HK$ 30 collection fee (i.e. ~ S$ 5-) every time Pico pays a dividend (twice a year) into my SHK account, and there are minor fees for any corporate action events. I am not charged a monthly or quarterly or annual fee. Hope this helps.

Finally, I intend initiating a Pico VB thread. Given the continued interest with which this Kingsmen thread is reviewed and contributed to by VB forummers - we are upto 57 pages of postings now! - I suggest that it is merited to have a dedicated VB thread on Kingsmen's most relevant regional competitor, i.e. Pico. If only as a useful benchmark for Kingsmen's followers, this new VB thread will have served its purpose. I'll place it under "Hong Kong Listed Companies". I hope that this is OK with the administrators and moderators.

Vested .......... in both Pico and Kingsmen ........... and I nibbled further at Pico this morning at the HK$ 1.70 level (I should have been more patient ....... deals were done this afternoon at a cent less!).

Again, my appreciation to dydx, Musicwhiz and other VB forummers for the constructive and thoughtful manner in which my Kingsmen posting of yesterday was received.
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Vested - in Pico Far East and Kingsmen

[Musicwhiz]

Thanks for creating this thread, RBM.

I am also mindful that this is a Compny worth looking at, and I am also closely monitoring its results and commentary.

It's interesting how investing is, eh? Not only does it challenge the mind and keeps it sharp and active, but done well, it also reaps rich rewards and allows for peace of mind (and some enjoyment of life, no doubt!).

[RBM]

Thank you Musicwhiz - I do wish more of my investments would give me peace of mind!,

Any way .......... for forummers interested in Pico Far East, I would also draw your attention to the following postings on the VB Kingsmen thread ...........
a) # 562 of 19 August 2012 by Musicwhiz
b) # 565 and # 572 of 20 August 2012 (to be read in conjunction), both by dydx

The authors of the above VB postings bring more quantitative and more numerate insight to this subject than I could ever hope to do.

Additionally, there is a worthwhile comparison of the companies operating in this business sphere (presented in a clear chart format) on page 2 of the AmFraser research report appended to Musicwhiz's Kingsmen posting # 477 of 2 May 2012. While it is dated by a few months, this chart comparison merits a quick look, in my view.

Vested - in both Pico & Kingsmen

Thanks for creating this thread, RBM.

I am also mindful that this is a Compny worth looking at, and I am also closely monitoring its results and commentary.

It's interesting how investing is, eh? Not only does it challenge the mind and keeps it sharp and active, but done well, it also reaps rich rewards and allows for peace of mind (and some enjoyment of life, no doubt!).

[soros]

This company (00752.HK) will be reporting final results in about 5-6 weeks time. The share price has crept up to $2.18 today ( 19 Dec 2012).

Can the share price reach the TP of $2.46 before CNY ?

[RBM]

I extend to all VB forummers “Kung Hei Fat Choy”,

Pico reported out their audited FY 2012 results, i.e. for the 12 months ending 31st October 2012, on 25th January 2012. Having now digested on them, my take on Pico’s results, in the form of three +ve’s and three -ve’s is as follows…………….

+ve: Sales were up by ~ +10 % year-on-year – by division these were: 33% in “Signage”, 28% in Museum & Theme Parks and 13% in Pico’s key Exhibition & Event Marketing unit.

+ve: Pico’s revenue growth in China continued – China revenues now constitute > 55% of Pico’s total revenues.

+ve: Pico has secured several major projects going forward, e.g. Shanghai Disneyland, the 2014 World Cup in Brazil and the Russian Sochi 2014 Winter Olympics – these can be expected to boost revenues in the coming years. To further propel growth in the PRC, Pico will open two new huge factories, in Beijing and Shanghai, later this year; these will double existing output capacity. The ~ 41,000 m2 Shanghai factory will be the largest Pico has.

-ve: NPAT declined by ~ 4% as compared to FY 2011 – mainly because a) Pico took on a few lower margin projects (in China if I read it correctly) during the course of 2012 and b) re-structuring charges arising from closure of their Chicago office and consolidation of their India operations. As regards point b), DBS Vickers, in their analyst report of 28th January, seemed at pains to stress that if such one-offs were excluded, then QUOTE FY12 core profit actually increased 11% UNQUOTE. I still believe Pico’s FY 2012 bottom line is “so-so”.

-ve: Personally speaking, I am also a tad disappointed with Pico’s final dividend declaration. If the HK$c 5.5 final dividend is included, the full year total is HK$c 9.5, i.e. down > 20% on the FY 2011 dividend, although I recognise the HK$c 12 FY 2011 dividend included a HK$c 4 “special”. The FY 2012 dividend corresponds to a pay-out ratio of 48%, which should be compared to the 59% ratio, i.e. including special dividend, in FY 2011. Based on Pico’s last done of HK$ 2.25 of yesterday, their dividend yield currently now stands at 4.2 %.

-ve: I had expected more revenues arising for Pico from their Yeosu (South Korea) Expo contract. Although I was aware Yeosu was a smaller-scale affair than the Shanghai World Expo, I was surprised to read in Pico’s results announcement that QUOTE the total contribution to revenue was only about 20 % of that from the Shanghai World Expo 2010 UNQUOTE. May be I was being unrealistic regarding revenue expectations from this smaller Expo?……….. but Pico earlier did beat their chest about their involvement.

Since the Pico VB thread was kicked-off on 1st September last year, Pico’s share price has increased by 32 % (thirty-two percent). Over the last 12 months, Pico’s share price is up 40% (forty percent). This positive share price performance lessens to some extent my disappointment regarding their final FY 2012 dividend declaration – but while I had not anticipated anything like a 32% increase in FY dividend, I was not anticipating a dividend reduction.

I will shortly be making a posting on the Kingsmen Creatives thread – since I believe there are some potential parallels and implications in Pico’s results that VB forummers who are vested in Kingsmen may want to consider. Pico is undoubtedly Kingsmen’s key competitor – and, dare I say, company with whom it should benchmark - in Asia Pacific.

Vested in Pico (& Kingsmen)

[RBM]

For convenience of VB forummers I duplicate below a posting I have just made on the Kingsmen VB thread. Much more importantly, I would encourage those who follow Pico to carefully read Posting # 856 on the Kingsmen VB thread - this is a thoughtfull piece that was posted by Musicwhiz earlier today, 10th February 2013.

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Posting # 857 on Kingsmen VB Thread

Thank you for your response Musicwhiz – much appreciate the thought you have put into it. And a happy CNY to you as well.

A couple of points in response to the points you make MW:...............

1. Competitive Threat of Pico. In their financial results announcement, I note that Pico state that they managed to pick-up contracts for QUOTE a number of recurring shows, as well as several new projects UNQUOTE, which included some that I would have thought were very much bread-and-butter for Kingsmen and very much in Kingsmen’s backyard, e.g. :
- 50Plus Expo in Singapore
- APEC 2012 Second Meeting of the Committee on Trade and Investment (CTI2) in Singapore
- Singapore Garden Festival
- NEWater Visitor Centre in Singapore
- Singapore Air Show (I believe Kingsmen also got some business from this as well?)
- Port of Lost Wonder at Sentosa in Singapore
- HTC, Mercedes-Benz and Panasonic stores in Vietnam
- Bangkok International Motor Show and Motor Expo

Additionally Pico’s Exhibitions division successfully brought-in new clients such as Bloomberg, Chow Tai Fook, Goldman Sachs, SAP, SEAT and Volkswagen and they designed/built Exhibition Stands for the likes of Audi, BMW, Boss, Chevron, H&M, Huawei, Man Diesel, Maersk, P&G, Peugeot, SAP and Tudor. I would have thought these were key targets for Kingsmen as well.

South Asia, which Pico define as Singapore, Malaysia, Vietnam (Kingsmen’s backyard?) and India accounted for 27.5% of Pico’s revenues – certainly not a minor piece of business for them.......and as you correctly point out MW – Pico is about three (3) times the size of Kingsmen, at least in market cap terms.

My sense is that Pico is a formidable competitor for Kingsmen ...... and possibly becoming more so. When the pie is growing for all the companies in the space that Kingsmen and Pico operate in, and there is enough profitable work to share around, that is all fine and good ……………….. but when a cold wind blows who will be better positioned? Kingsmen or Pico?

2. Pico’s Dividend Reduction. I have reviewed Pico’s FY 2012 Financial Results Statement again and I cannot find a detailed explanation of why their full year dividend has been reduced. Of course, Pico’s FY 2011 dividend was made up of HK$c 8 plus a HK$c 4 special and they would likely argue that, excluding the special dividend, their FY 2012 dividend of HK$c 9.5 is an increase on FY 2011. I’m still disappointed with Pico's FY dividend proposal. A ~ 4% reduction in NPAT to my mind should not be associated with a ~ 21% reduction in dividend.

Pico has a robustly strong cash positive position, having a net cash balance of HK$ 939 Mln (or ~ S$ 150 Mln). And most of the CAPEX required for Pico’s new mega factories in Beijing and Shanghai has already been sunk (these factories come on stream during the coming two quarters). So I do not believe the ~ HK$ 100 Mln or so that Pico will devote to CAPEX this year will have a bearing on their BoD’s full year dividend proposal to Pico's shareholders.

As you say, as regards Kingsmen’s Final Dividend for FY 2012 ……………. lets wait and see.

One final thought for now, relating to the relative dimensions of Pico and Kingsmen.......... Pico's net cash balance of ~ S$ 150 Mln happens to be exactly the same sum as Kingsmen's market capitalisation, based on last Friday's closing share price on the SGX. Maybe, when Pico's BOD were formulating their FY dividend proposal, it was not so much preserving cash for capital that was driving their thinking ........... but rather preserving cash for a certain acquisition. Now there is a mischievous thought on my part!! May we live in interesting times.

Vested (in Kingsmen & Pico)

[RBM]

DBS Vickers Analyst Report on Pico dated 28th January is attached below. Frankly stated, IMHO it does not add very much. Note that DBSV maintain a target price in the HK$ 2.45 region and anticipate Pico taking on more lower margin stuff going forward.

http://www.pico.com/wp-content/uploads/2...result.pdf

Since the analyst report was issued, Pico's share price has risen by ~ 9% to HK$ 2.30 - the counter has had a good February (so far).

Vested

[Boon]

A secret mile-high stake in Pico
28th February 2013

http://webb-site.com/articles/denverpico.asp

[wsreader]

The party in charge of share registry should share responsibility for reporting substantial share ownership too, otherwise such non-reporting incident will happen again, whether with intent or not.

I am making a general comment, not specific to this counter.

[yeokiwi]

The party in charge of share registry should share responsibility for reporting substantial share ownership too, otherwise such non-reporting incident will happen again, whether with intent or not.

I am making a general comment, not specific to this counter.

The shares are likely to be bought using a nominee account.