Kingsmen Creatives

[karlmarx]

This once beloved stock of numerous personal finance writers hit the skids as share price halved from a high of a dollar, 3 years ago. Like most under-performing small caps, KC looks to have entered the realm of market obscurity. Is KC going into terminal decline?


Retail Segment: Have Margins Bottomed Out?

Since retailers began encountering competition from their online counterparts about 3 years ago, KC's retail division has struggled with keeping its net margins positive. It must be tough to maintain prices at previous levels, if not raise them, when your customers are struggling. It does appear that the battle between physical and online retailers have found an equilibrium, as the margin erosion of KC's retail division seem to have stopped. KC also reported higher 9M18 profits. But since it shows no segment profit, the margins for the retail division will only be known when it releases FY18 results.

Retail Interior                   FY17      FY16      FY15       FY14      FY13
Revenue ($m)                  143.1     150.4     128.9      174.3      166.6
Profit ($m)                       3.4         2.0         3.8         15.2       17.1
Margins (%)                     2.37       1.32       2.94       8.72       10.27


If we assume that the growth of e-commerce will result in a proportional decline in physical retailing, then sales from KC's retail division will also decline continuously as more of its physical retailers close shop. KC will then slide into losses and decline further in market value. But this does not appear to be what is happening. Retailers -- whether online or physical -- still believe in creating value for customers through sensory and interactive experiences:

https://www.businessinsider.sg/love-boni...hard-road/

https://www.scmp.com/tech/e-commerce/art...e-shopping

https://www.scmp.com/lifestyle/fashion-b...ring-women


Exhibition Segment: Still Healthy

Unless a majority of the world's population starts adopting otaku-like social withdrawal habits, it is likely that people will still yearn for physical interaction/stimulation, creating demand for aesthetically appealing and conducive physical environment. Results from KC's exhibition division seem to support this reasoning.

Exhibition                         FY17       FY16      FY15       FY14      FY13
Revenue ($m)                   136.7     151.4      172.3     136.4     103.4
Profit ($m)                        5.9         11.2       10.2       5.7         3.0
Margins (%)                      4.31       7.39       5.91       4.17       2.90


Possibly, we will see a greater variety of tenants in each mall, and malls will differentiate themselves by having tenants which differ from their competitors. This means fewer Royal Sporting Houses, and more new (hitherto online-only) retailers like Love, Bonito. The remaining Royal Sporting Houses will refashion their spaces for product interaction, and not just a place for hanging racks of clothes. But this also means more specialised design and product requirements from KC, which mean lower efficiencies as design and production move away from being mass-produced.


Valuation: Not Expensive

With a good record of profitability, free cash flow, dividends, low leverage, and good reasons to believe that there is an enduring demand for its services, KC looks cheap with a share price of $0.52. Based on 199.5m outstanding shares, KC will have a market cap of about $103m. Here are some ways to look at its present valuations:

Price / PAT: 
103/9.7 = 10.7 
(based on FY17's PAT)

Ex-Net Cash Price / PAT: 
(103-34)/9.7 = 7.11 
(based on 3Q18's $34m of net cash, and FY17's PAT)

Price / Average of Past 3 Years' PAT: 
103/(19.0+11.8+9.7) = 7.62

Ex-Net Cash Price / Average of Past 3 Years' PAT: 
(103-34)/(19.0+11.8+9.7) =  5.11

P/B: 
103/119.4 = 0.86 
(based on latest book value) 

As always, depending on your expectation of KC's future earnings, its present valuation will either be cheap, fair, or expensive.

[RBM]

Thank you karlmarx for sharing your numerate analyses - insightful. As I signaled in my two April 2018 VB postings, my bigger concern however, is the diminished competitive presence which Kingsmen now possesses ...............

Some hard truths, albeit without karlmarx-type-numeracy: Over the last three + years Kingsmen Creatives has been out-smarted and out-grown by its competitors, while Kingsmen's Management has done little to counter the "disruptor" threats manifested by these competitors, that have delivered significant y-o-y value-adding growth for their shareholders. Kingsmen's senior leadership is still internally pre-occupied with their new office, while the leadership of Kingsmen's competitors have been externally and energetically pre-occupied with profitable & innovative business development. And Kingsmen's BoD has shown no appetite to keep management on their toes. Kingsmen's BoD has failed their shareholders - it has shown inadequate strategic leadership, while Pico FE's Board and moreover CityNeon's Board have rewarded their shareholders handsomely. Kingsmen's dividend history is a good barometer/litmus test. Mr. Market has passed his opinion and continues to express it.

My Kingsmen holding remains one of my larger holdings. I am now of the view that Kingsmen's leadership needs re-energizing at both Board and Senior Management level - they have failed to deliver a competitive performance for far too long. So in the months to come, I will be seeking support from vested VB forumers to vote against certain resolutions at Kingsmen's 2019 AGM, e.g. Director re-election, Performance Share Grants for Executive Directors and their family members. Maybe then Benedict and Simon will get the message.............and hopefully do something about it.

Am I alone in having had enough?

Apologies for the intermittent nature of my postings. I should contribute more.

Vested (in Kingsmen and Pico Far East), RBM

[ksir]

Thank you karlmarx for sharing your numerate analyses - insightful. As I signaled in my two April 2018 VB postings, my bigger concern however, is the diminished competitive presence which Kingsmen now possesses ...............

Some hard truths, albeit without karlmarx-type-numeracy: Over the last three + years Kingsmen Creatives has been out-smarted and out-grown by its competitors, while Kingsmen's Management has done little to counter the "disruptor" threats manifested by these competitors, that have delivered significant y-o-y value-adding growth for their shareholders. Kingsmen's senior leadership is still internally pre-occupied with their new office, while the leadership of Kingsmen's competitors have been externally and energetically pre-occupied with profitable & innovative business development. And Kingsmen's BoD has shown no appetite to keep management on their toes. Kingsmen's BoD has failed their shareholders - it has shown inadequate strategic leadership, while Pico FE's Board and moreover CityNeon's Board have rewarded their shareholders handsomely. Kingsmen's dividend history is a good barometer/litmus test. Mr. Market has passed his opinion and continues to express it.

My Kingsmen holding remains one of my larger holdings. I am now of the view that Kingsmen's leadership needs re-energizing at both Board and Senior Management level - they have failed to deliver a competitive performance for far too long. So in the months to come, I will be seeking support from vested VB forumers to vote against certain resolutions at Kingsmen's 2019 AGM, e.g. Director re-election, Performance Share Grants for Executive Directors and their family members. Maybe then Benedict and Simon will get the message.............and hopefully do something about it.

Am I alone in having had enough?

Apologies for the intermittent nature of my postings. I should contribute more.

Vested (in Kingsmen and Pico Far East), RBM

It seems to me that the shareholders are at best the after thought.

First priority seems to be Management pay package (which sustaining themselves pretty well) and with all the shares awards.
Second and third probably are customers and employees (which arguably rightly so).

Hence, whoever invested in Kingsmen probably has to get that in mind and live with it or if possible gather and vote with your shares or give up and vote with your feet.

I am one of the latter.



Sent from my iPhone using Tapatalk

[Musicwhiz]

Kingsmen has just announced the location of the first NERF Family Entertainment Centre - to be opened in Marina Square Mall in 2H 2019 taking up 18,000 square feet of space on the ground floor. It will be interesting indeed to see what this NERF FEC has to offer!

Press Release:-

http://infopub.sgx.com/FileOpen/SGXnetNe...eID=536252

[fallscushion]

Kingsmen has just announced the location of the first NERF Family Entertainment Centre - to be opened in Marina Square Mall in 2H 2019 taking up 18,000 square feet of space on the ground floor. It will be interesting indeed to see what this NERF FEC has to offer!

Press Release:-

http://infopub.sgx.com/FileOpen/SGXnetNe...eID=536252

It is indeed interesting and I am quite eager to give it a try.

Maybe we can arrange a valuebuddies session (with Kingsmen fellow shareholders? RBM?).
If there is no age limit.

[RBM]

I asked the Mrs. her opinion on the matter you delicately raise fallscushion. In one of her less charitable moments, she opined that if this new Kingsmen thing is suitable for an old f*rt like me, then it is probably dull and boring. Now us loyal shareholders don't want that do we? Seriously .......... I hope this works out well for them. It is the kind of pursuit that drove CityNeon's meteoric rise.

Vested, RBM

[karlmarx]

When compared to CityNeon, KC will certainly be seen to have performed poorly; in terms of both profits and share price. But such comparisons may not be entirely fair to KC, as CN now has a slightly different business model, and concomitant risk profile.

The difference is that CN has moved up the value chain by organising and producing ticketed events, while KC has remained a contractor to the organisers of such events. CN's new business is not without its risk; they can be hurt by poor sales of event tickets. KC, on the other hand, does not take such risks.

Although KC now has the Nerf FEC contract, it still appears to be a slow/measured step up the value chain, and does not appear to signal a major change in management's strategy. Investors should assume that this new foray will not enhance profit significantly.

If KC and CN were in the real estate industry, it would not be too inaccurate to suggest that CN is a developer cum contractor, while KC is just a contractor. The developer -- taking higher risks since it has to first incur development expenses without any certainty of sales -- is rewarded with higher margins.

If CN were to have failed in their endeavour, KC will then by comparison be seen to have been circumspect and conservative in their business conduct. Of course, CN did succeed. But does CN's success mean that KC managed the business poorly?

Considering the challenges that KC's customers are facing, KC -- in contrast to her customers -- didn't do too badly. To be able to remain profitable and pay dividends during difficult industry conditions tells us something about the strength of their business. Compare this to the O&G contractors and asset-owners who were jobless after the oil majors slowed exploration and production expenditure.

Certainly, KC could have done better. But if it is (far) beyond KC's ability to be a 'developer' of events, it may be better for shareholders that KC remain a key player in its niche markets, lest there be losses and distraction from venturing into waters (far) beyond her depth.

In the instance where KC maintains the status quo -- being a key player in its niche market and not moving up the value chain -- it will at best earn modest margins and returns over the long-term. Consequently, its valuation will also be restrained. Even so, can KC be a profitable investment at present prices?

[karlmarx]

There are some interesting views from today's papers discussing the present and future of retailing and consumption:


Yet more broadly, lifestyle changes are seeing us moving away from the consumer model that has dominated post-war capitalist economies. Buying more and more things as a source of identity and meaning seems to be gradually but consistently falling out of favour. People are increasingly interested in experiences instead; the priority is making and sharing memories - interacting with other people and places, attending events, undertaking adventures and so on. We could be talking about the era of the post-consumer.

https://www.businesstimes.com.sg/consume...from-shops

"Remember there was that whole thing, 'Millennials don't love luxury'? They looove luxury!" Ms Wainwright said. "They just couldn't afford it. We're a good entry point for them."

https://www.businesstimes.com.sg/consume...-pre-owned


The decline of traditional retailers in developed markets in recent years has led some to conclude a bleak future. I find it difficult to believe that humans have evolved to an extent that -- if they possess the resources to do so -- will choose to not consume. It is possible that people may choose to consume less, but eventually the wealth that is being accumulated will be exchanged for certain goods and/or services. What else are people going to do with all the money that has been earned? The present ebb in consumer spending may have more to do with anaemic economic growth on a national level, and growing income/employment insecurity -- a consequence of continued liberalisation of economic markets -- at the individual level. 

As some retailers continue to vacate its premises and retrace its earlier over-expansion -- thereby driving rents lower -- the remaining retailers will benefit from lower operating expenses. When retailers can offer consumers a more palatable price-value proposition, and economic growth creates higher levels of economic prosperity/security at the individual level, sales will return. 

It could be some time before Kingsmen's customers are willing to spend (more).

[karlmarx]

The Shoppes at Marina Bay Sands (MBS) has announced a record-breaking revenue of US$179 million (S$242 million) for the year 2018.


According to MBS, this is a 7 per cent rise against the same period in 2017, and its best performance since opening in 2010.

Retail tenant sales at The Shoppes also jumped 19 per cent to US$1,898 per square foot last year, while tourist spending remained high – capturing an estimated 25 per cent of the tax-free tourist market in Singapore.

https://www.businessinsider.sg/the-shopp...e-in-2018/

---

Is retailing alive and well? Or are MBS's retailers doing well only because it is a tourist destination?

[gzbkel]

The Shoppes at Marina Bay Sands (MBS) has announced a record-breaking revenue of US$179 million (S$242 million) for the year 2018.


According to MBS, this is a 7 per cent rise against the same period in 2017, and its best performance since opening in 2010.

Retail tenant sales at The Shoppes also jumped 19 per cent to US$1,898 per square foot last year, while tourist spending remained high – capturing an estimated 25 per cent of the tax-free tourist market in Singapore.

https://www.businessinsider.sg/the-shopp...e-in-2018/

---

Is retailing alive and well? Or are MBS's retailers doing well only because it is a tourist destination?

Perhaps you can look at the quarterly reports of some of the established retail REITs, such as Capitamall trust with malls all across the island. I think figures for tenant sales or footfall varies around +/- 1% yoy usually