Kingsmen Creatives

[dydx]

To help answer your tough questions in a simple way, when you are so damn good in what you are doing - for that, we have to refer to Kingsmen's website to understand/scrutinize the wide range of services the company provides.....
http://www.kingsmen-int.com/services/
you have also built over time and sustain a certain growth and innovation capacity within the organisation, which drives it forward to compete well in the marketplace and secure more good customers, business volume, and from which Kingsmen brings in more profits and enlarges its recurrent cash flow generation capacity over time as well. All these have benefited its stakeholders and, in particular, it has also delivered solid cash dividends and increasing wealth - including a higher market cap and share price over time - to Kingsmen's shareholders.

A formulae for success can be quite simple, if you hit on the right strategy, and the people involved are good and driven.

[shanrui_91]

Good result coupled with good management brings good dividends, but I have 3 questions to ask:

1) Why is there such a significant jump in profit from 2008 onwards? is it due to the USS? though the effect should not have prolonged over the years

2)while revenue from interior rises by 20+%, segmental profit remain the same though this is supposed to be a more profitable division. It seemed like the main reason is due to COGS and not staff or other expenses. What is the cause behind this rising COGS that is resulting in erosion of profit margin for interior segment? Is it because more of the works are done by subcontractor?

3)It's research and design that save the day for kingsmen, with a pretty nice margin. Are they actively growing this segment at the moment?

Hi, good questions, thanks.

1) The jump in profit was in part due to USS, and Kingsmen also started pitching for more jobs relating to scenic/thematic works from that year onwards. The learning curve was steep for USS and though the contract was large they had to take a haircut in margins; but now that they have the knowledge they can work better on other theme park projects. The reason the effect is prolonged is due to the presence of theme parks in countries like Hong Kong and China which Kingsmen are actively bidding for. In the meantime, the MICE sector has grown noticeably larger and more vibrant since the completion of the IRs (MBS and RWS).

2) I see it more as the Export Fixtures which are eroding margins for Interiors. Normal fitouts in Singapore and the region would have better margins than fixtures export to USA, Europe and Japan. Note that Kingsmen grew exports by more than double to $22m in FY 2011, so there should also be some noticeable margin dip.

3) Research and Design is more of specialized services which occupies a niche segment. I've spoken to Kingsmen and though this division will grow, it will not be the main revenue generator and neither can it scale up so easily. Thus, I would expect revenue contribution to remain small.

ok, now i understand more about the company, it has segment within segment.

as for research and design, there is no need for it to be the main revenue generator, profit is still more important than revenue. It has a 31% profit margin, thus if revenue for this segment increases by 3.3 million, total profit for kingsmen will have increased by 5%. As such, while it only accounts for 3.4% of total revenue, it accounts for 14% of total profit.

Just 1 more question, are the staff involved mostly from other division or the creative directors , or are there significant new hire to support this segment

[Musicwhiz]

Actually for Research and Design I don't think the margins can remain so high at 32.5% (Note 32, Page 106). For FY 2010 it was just 21.5% and sometimes segmental results can be distorted due to the allocation (or non-allocation) of expenses. Revenue did grow 33% year on year but as this is a rather specialized division, growing it and doubling it would not be so easy as the jobs would be highly customized and I would also say "ad-hoc" to a certain extent. Thus, my view is that growing the other two main divisions would still be the way to go for Kingsmen, but of course R&D and IMC can contribute to the bottom line and also remain cash-flow positive which provides a bonus of sorts to the Group.

Another aspect which shareholders should focus on is the total packaged solution which Kingsmen is offering to clients, from roll-out Management to fit-outs to holistic design, fabrication and implementation; Kingsmen tries to work towards a solution WITH the client, and not just FOR the client.

I did not ask about staffing for R&D, so I cannot directly reply you on this. What I can say is that most of the senior staff are staying on - it's the executives which have higher turnover and Kingsmen is working to solve this problem by hiring across borders.

[shanrui_91]

indeed, you are right. I am thinking as a short-term manager and not a long-term owner once again. Still need to constantly remind myself to stop focusing as much on accounting profit

[Musicwhiz]

Uniqlo continues their expansion - they are one of Kingsmen's clients.

The Business Times
April 16, 2012
Largest Uniqlo store here to open at Bugis in June
By Timothy Loh

Illuminating: Uniqlo Iluma, occupying two floors, is the chain's first street-level shop in Singapore. The building, with a distinct crystal mesh frontage, is located opposite Bugis Junction and connected via a link-bridge

COME June 8 this year and Uniqlo will be opening its largest local store at Iluma@Bugis, in the Central Business District.

Uniqlo Iluma will be different in that it is the chain's first street-level shop in Singapore.

The double-storey outlet will span 20,000 square feet and will contain an in-store escalator connecting the two floors.

Iluma is currently undergoing renovation and tenants on levels 1 and 2, including Uniqlo, are slated to re-open sometime in the middle of this year.

The building, characterised by a distinct crystal mesh frontage, is located opposite Bugis Junction and the two shopping malls are connected via a link-bridge.

The Japan-based casual wear brand opened its first store here in 2009 at Tampines 1. The other stores are located in ION Orchard, 313@Somerset, Vivocity, Causeway Point and Parkway Parade.

Said Mr Satoshi Onoguchi, managing director of Uniqlo (Singapore) Pte Ltd and Uniqlo Malaysia Sdn Bhd: "Uniqlo's presence (in Bugis) will make the brand even more accessible to people especially the younger set.

"We see a lot of the mix-and-match fashion among the teens who hang around the Bugis area, hence Uniqlo opening in the area complements our philosophy since the crowd has a very street style and mix-and-match vibe which is what Uniqlo is about."

"We are excited to be able to open a Uniqlo store in Iluma and one that is the largest store in Singapore to date.

"Being located at the Bugis area makes the place very ideal as the district is a key shopping destination.

"This is in line with Uniqlo's continuation of its global expansion plans by opening more stores in strategic locations."

Aside from Japan, where the brand was started, Uniqlo also has outlets in China, France, Korea, Malaysia, Russia, Thailand, the United Kingdom and the United States.

[valuestalker]

In Puteri Harbour Johor, TAR (Khazanah) will launch two indoor attractions in Hello Kitty Town and Little Big Club.
"(But) it is not enough just to have Hello Kitty Town and Little Big Club to promote Malaysia. So, we decided to incorporate Lat, our famous cartoonist," Mr Ahmad said. "Lat", which is still a working name, will be based on the kampung scene found in the Last comics. It will consist of an indoor area measuring 6,000 sq ft and offer theatres and restaurants, among others.
TAR is also working on two other theme parks - Ocean Quest and Ocean Splash - in Desaru, Johor.
Apart from TAR, other developers that will be opening theme parks in the state include the Genting Group and Radiant Starfish, the developer of Mersing Laguna. Sunway executive director of group strategy and corporate development Sarena Cheah, meanwhile, said the company might incorporate a theme park into its Sunway Iskandar project.

Johor turning into Theme park

IMO, this piece of news is quite significant to Kingsmen.

IMHO, it could mean that Demand is growing while supply might not grow as fast, due to:
1. Low margin - reluctant to go into this cut throat industry, due to low margin. Although it is unfortunate to say, but this is one of the barrier of entry. Then again, not very sure about the margin, since it was not disclosed by Kingsmen. By margin, i was referring to Kingsmen's exhibition division margin.
2. Track records - Safety and WOW factors are very important in this industry, hence track records will be invaluable.
Learning curve obtained with RWS project is a good intangible asset, imo.

How will it turn out?
Margin has to go UP?
which unfortunately would attract more players to come in, but early birds with track records will be in advantage?

What do you think?

[dydx]

Following the recent example of Adampak, I am just wondering since Kingsmen's 2 founders and controlling shareholders - Mr Benedict Soh (age: 63) and Mr Simon Ong (age: 59) - are also ripe to be considering taking it easy in their coming / evenual retirement from active business duties, what are the chances like that the 2 gentlemen would sell their combined 47.88% stake in Kingsmen which will invariably lead to a GO for and to privatize the whole company?

If an offer for the entire company/group happens in the next 12 months, what is the likelihood that a potential acquirer would be prepared to pay at least $180.0m - i.e. approx. $0.94/share, based on the latest 190.98m outstanding issued shares as at 31Dec11?

[FFNow]

Private equity firms have approached them before but the founders are not selling.

Even for Adampak, the last I asked the IR about any privatization (around Jan 2012), the person said many private equity firms have approached Adampak but the price wasn't right. The price is now right for Adampak's management to agree for the offer.

[Musicwhiz]

Following the recent example of Adampak, I am just wondering since Kingsmen's 2 founders and controlling shareholders - Mr Benedict Soh (age: 63) and Mr Simon Ong (age: 59) - are also ripe to be considering taking it easy in their coming / evenual retirement from active business duties, what are the chances like that the 2 gentlemen would sell their combined 47.88% stake in Kingsmen which will invariably lead to a GO for and to privatize the whole company?

If an offer for the entire company/group happens in the next 12 months, what is the likelihood that a potential acquirer would be prepared to pay at least $180.0m - i.e. approx. $0.94/share, based on the latest 190.98m outstanding issued shares as at 31Dec11?

From what I recall from Kingsmen back in 2010, their aim was to double revenue in 5 years time (i.e. by 2015), and so far it seems that the Company is on track to achieve this, as 2012 promises to be a good year as well with many opportunities for Kingsmen to snare projects in thematic/scenic work as well as extend their reach in terms of Interior Fit-Outs for international clients in Singapore, Malaysia and even China.

I would rather let Ben Soh and Simon Ong make this a reality so that the Company would be worth much more by 2015, rather than wishing for it to be taken private within a year. At the current closing price of 67.5 cents, the Company is trading around 8x PER, and with a 4 cents/share full-year dividend, is trading at a historical dividend yield is 5.92%.

When a Company is privatized too "soon", shareholders can lose out on two counts (I use Adampak also as an example):-

1) Loss of dividend income from owning an excellent company which is generating good FCF and is seeing its business prospects improve;

2) Potential future capital gains arising from a significant increase in the revenues and profits of the business, making the business much more valuable than it is currently.

Could I ask how you derived your enterprise value of $180m for Kingsmen? Using your assumption of say $0.94 per share for Kingsmen, this may under-estimate the future potential of the Company if it actually managed to double revenues by 2015.

An illustration:-

FY 2010 Revenues = $235.2m
FY 2010 PAT = $15.1m
FY 2010 NP margin = 6.4%

Assuming doubling of revenues with the same NP margin, FY 2015 revenues would be $470.4m and PAT would be $30.1m.

No. of Shares = 190.7m, so EPS would be 15.8 cents/share. Applying a PER of about 8x would yield a share price of $1.26. This means that the market cap of Kingsmen would be $240.2m.

Of course, assuming a privatization PER of about 10x (Cityneon's was about 12x back in 2008), then the potential offeror may have to offer something much higher than what I computed, in 2015. If this were to happen say in 2013, I think Kingsmen potential would be under-stated as 2012-2015 is the period when many theme parks are coming up in Korea, China and even Malaysia.

Just my 2-cents.

[Musicwhiz]

The Straits Times
Apr 21, 2012
S'pore is 10th top city for global retailers
It is seen by European retailers as springboard to rest of region: Survey

By Gan Yu Jia

BIG-NAME retailers from around the world continue to see Singapore an important place to set up shop, according to a survey from property firm CBRE.

It ranked the city as the 10th top destination for retail giants this year, down from eighth last year.

The survey also found that Singapore was a key destination for European brands needing a springboard to the rest of the region.

CBRE looked at what sort of presence 326 international retailers had established in more than 200 cities.

London retained the top spot from last year as the most targeted market, with 55.5 per cent of those retailers present.

It is said to have benefited from a 'mini-boom' last year driven by more contributions from its tourism sector while remaining a key hub for retailers looking to expand into Europe.

Dubai, which tied with London last year, came a close second, with 53.8 per cent of retailers present.

Singapore was ranked 10th, with 38.9 per cent of retailers having set up shop here.

While this was a drop from the eighth placing last year, the proportion of top retailers here has inched up from 38.5 per cent in 2011.

The survey also found that Singapore is the most targeted market in Asia for European retailers, with 39.9 per cent of European brands present here.

This was followed by Beijing, Shanghai and Hong Kong, which had 38.8 per cent, 38.3 per cent and 37.7 per cent of European brands respectively.

Ms Letty Lee, CBRE's director of retail services, said in a statement: 'Singapore remains an accessible potential test bed for new brands and retailers seeking a South-east Asian, Asian exposure. An example would be how Bugis has attracted new-to-market brands.'

Mr Sebastian Skiff, CBRE Retail executive director for Asia, added: 'The results show very healthy levels of activity in the key Asian markets as brands continue to look for new growth opportunities.

'We are seeing a continued flow of new brands approaching us for help in targeting the Asia markets and we see strong demand from (American), European and Australian brands.'

Some of the international brands which entered Singapore last year include Japanese home furnishing brand Francfranc, French bakery Paul, Italian luxury brand Panerai, and Swedish clothing chain H&M.

Hong Kong, Shanghai, Beijing and Tokyo are also among the top 20 cities.

A key survey finding was that the overall global footprint of retailers had grown by 2.1 per cent, similar to the previous year.

This shows that retailers continue to grow their cross-border businesses 'despite a challenging consumer environment'.

The survey referred to Vietnam as a new market that has been consistently growing over the past two years, with a large, young and increasingly affluent population that is becoming 'ever more fashion conscious'.

The survey noted also that although Japanese retailers have historically been the most aggressive in cross-border expansion among the Asian brands, a new wave of Chinese and Korean retail groups are expected to move into new markets and regions.

yjgan@sph.com.sg