Kingsmen Creatives

[AAA]

Seems to be a good company. Growths in top line and bottom lines have been strong since listing. Valuation is low possibly because market does not believe that it will continue to grow. If KC can prove that it can still grow the top and bottom line over the next few quarters, I think there will be re-rating; if not, share price will stay put or drop slightly. Dowside seems to be quite limited.

[Blackjack]

May I invite all those who do not believe there is some kind of "moat" within Kingsmen's business, to spend some time looking into the history/business of Nebraska Furniture Mart (a Berkshire Hathaway company), and its famous founder Mrs B and her management style/practices.....
http://www.nfm.com/ourstory_history.aspx?ID=1a
and then try to guess/understand how kind of "moats" WB saw in this business before he bought it in 1983.

As I have said in my earlier post, there must be some kind of "moat" within Kingsmen's business. Otherwise, how could the company (established in 1976) have lasted the last 35 years, built and kept such a high-quality customers base, and recorded the business growth and good financial numbers since its listing on SGX in 2003.

Admittedly, I cannot claim to be familiar with the moat that Warren Buffet may have seen in Nebraska. A quick google search reveals the following however -

"... stellar performances of its managers, who, like the Heldmans at Fechheimer and the Blumkins at Nebraska Furniture Mart (NFM), are able to deliver high returns on invested capital, despite being in industries without attractive economics. And in early 1989, Berkshire took this lesson back to the field and acquired Borsheim’s, a family-owned and operated jewelry store in Omaha. Like NFM, Borsheim’s offers “(1) single store operations featuring huge inventories that provide customers with an enormous selection across all price ranges, (2) daily attention to detail by top management, (3) rapid turnover, (4) shrewd buying, and (5) incredibly low expenses. The combination of the last three factors lets both stores offer everyday prices that no one in the country comes close to matching.”

It seems that this resembles closely the type 3 moat that I mentioned in my earlier post. I have also highlighted that the moat that Kingsmen seems to be enjoying could be of the same nature as well.

Again, I wish to emphasize that I would hesitate to consider any company having a moat simply because of its long running operations. This does not worth much once one starts considering the changing competitive landscape. Having said that, it does not mean that any company without a moat is not worth investing in. As mentioned by MW the justifications for an attractive investment proposition may come from other areas of considerations, such as the business contacts it has painstakingly built up over the years. I'm sure Kingsmen has its own unique value proposition and competitive advantage, but I'm not sure if it is prudent to call it a "moat" just because it has existed for 35 years.

can someone with more money assemble a team of top designers to replace Kingsmen in the market place?
if can't, is this considered some kind of "moat"? there is not high barrier to entry, but there is high barrier to achive the scale of Kingsmen.
30+ years of industy experiance, good customer relationship and good reputation can't be replicated overnight.

That is a very valid concern that one must answer objectively. Certainly, no one is saying that it is easy to set up a company overnight that can replace Kingsmen’s expertise, relationship and market share. Again, we do not expect anyone to easily set themselves up as a property developer and bid for projects overnight with the aim of executing them, to set up a chain of grocery chains and compete directly with Sheng Siong, or buy a fleet of taxis and immediately expect to compete as a systematic taxi operator. All businesses take time to grow and develop. But it does not necessarily mean the incumbents naturally have a “moat”. What remains then is how convinced one is that the holding business is one of great insurmountable competitive advantage.

[freedom]

I don't think there is absolute competitive advantage. it is more like relative to a specific time frame only.

[mikh]

Ok, googled the word "economic moat" to better understand its definition for the sake of discussion.
According to morningstar: "...Quite simply, an economic moat is a long-term competitive advantage that allows a company to earn oversized profits over time. The term was coined by one of our favorite investors of all time, Warren Buffet, who realized that companies that reward investors over the long term have a durable competitive advantage... ". Others say similarly.

Much of the contention is whether Kingsmen's value chain is a form of competitive advantage. In his book "Competitive Advantage", M Porter postulates that "..the value chain is a tool for competitive advantage..". It was a good learning lesson to me when I first heard that expounded, but it made sense. Not everyone may agree with Porter, and indeed he used an entire book to put it across, but it is one fairly authoritative POV that the Value-Chain IS a kind of moat and can be made to be lasting. How long and sustainable is not unique to this business. Almost all moats face challenges over time.

[Musicwhiz]

This discussion is starting to sound like my corporate strategy class which I used to take back in NUS! Hahaha....

I do agree there is no competitive advantage or economic moat which can stand the test of time without constant assault. The Company has to constantly work to maintain its edge or it will eventually lose out to other competitors. Likewise, I think Kingsmen is honing its edge constantly by seeking out bigger and more reputable clients to bolster its reputation and standing, and by taking on projects like USS which it had never undertaken before. Can we look at the flip side and say that Kingsmen is invading someone else's (e.g. Pico FE?) turf and competitive moat?

[Jacmar]

In his book "Competitive Advantage", M Porter postulates that "..the value chain is a tool for competitive advantage..". It was a good learning lesson to me when I first heard that expounded, but it made sense. Not everyone may agree with Porter, and indeed he used an entire book to put it across, but it is one fairly authoritative POV that the Value-Chain IS a kind of moat and can be made to be lasting. How long and sustainable is not unique to this business. Almost all moats face challenges over time.

Value chain is only a tool for competitive advantage if it cannot be easily duplicated. take Dell for example. when they 1st started out their value chain was unique and it gave them an advantage. however over time their value chain has been eroded and others have a better mouse trap. hence it is now no more edge. to me a moat should be enduring like coca cola.

another point about KC kind of business model is that tendering of business levels the supplier differences and hence discounts any premium.

[FFNow]

My only take why Kingsmen's stock price is at depressed levels for a LOOOONG time is because Kingsmen doesn't possess tangible assets. It only has its factories and offices as assets. The other assets it possesses are intangibles like quality of designers, branding, reputation and working relationship with clients. We just have to wait for a potential major catalyst for valuations to be re-rated much higher. I can wait as the dividend yield is very good given the excellent FCF generation. Well, that's why Warren Buffett says that patience a virtue when doing value investing.

(Vested)

[mikh]

In his book "Competitive Advantage", M Porter postulates that "..the value chain is a tool for competitive advantage..". It was a good learning lesson to me when I first heard that expounded, but it made sense. Not everyone may agree with Porter, and indeed he used an entire book to put it across, but it is one fairly authoritative POV that the Value-Chain IS a kind of moat and can be made to be lasting. How long and sustainable is not unique to this business. Almost all moats face challenges over time.

Value chain is only a tool for competitive advantage if it cannot be easily duplicated. take Dell for example. when they 1st started out their value chain was unique and it gave them an advantage. however over time their value chain has been eroded and others have a better mouse trap. hence it is now no more edge. to me a moat should be enduring like coca cola.

another point about KC kind of business model is that tendering of business levels the supplier differences and hence discounts any premium.

True. A really good moat should be enduring. There are few around. Coca cola is not as good as before and they were continually spending advertising dollars building up their moat of gassy sugar water. Wonder if Buffet would have have been happy with that moat in the early days of the business.

KC needs to continually strengthen. It's key differences are being in B2B and substantially being a service business. This also makes its business hard for investors to understand.

Service businesses, relationships are notoriously hard to clone and compare for pricing differences. Probably why its ID biz could be more interesting than its ME.

[dydx]

Kingsmen will be releasing its FY10 (ended 31Dec10) full-year results on 22Feb11 (Tuesday), after trading hours.....
http://info.sgx.com/webcoranncatth.nsf/V...100344139/$file/KingsmenAnnouncementofFinancialResults2010.pdf?openelement

So very soon Kingsmen's shareholders will know how well the business performed in H2-FY10 and the quantum of the Final dividend (last FY09: $0.02/share).

[freedom]

wanna know their margin.

revenue wise, should be okay.