Kingsmen Creatives

[mightyreds]

Just thinking, aren't investors of kingsmen and other stocks that are illiquid like MTQ worried about the liquidity issue?

Because the trading volumes are so low, when the market crashes they tend to fall the most too as most investors tend to throw at any price to get out.

Also, sometimes you want to liquidate your holdings to put the funds into other uses but you can't because there just aren't any buyers at the price you want.

It's frustrating isn't it?

For this reason, I'm keen on these companies but holding back because I've had my fair share of bad experiences with coys with illiquid trading volumes.

[FFNow]

Just thinking, aren't investors of kingsmen and other stocks that are illiquid like MTQ worried about the liquidity issue?

Because the trading volumes are so low, when the market crashes they tend to fall the most too as most investors tend to throw at any price to get out.

Also, sometimes you want to liquidate your holdings to put the funds into other uses but you can't because there just aren't any buyers at the price you want.

It's frustrating isn't it?

For this reason, I'm keen on these companies but holding back because I've had my fair share of bad experiences with coys with illiquid trading volumes.

When the market crashes, we can buy more at a cheaper price as the company is fundamentally strong.

Those who invest in Kingsmen should be long term investors (5 to 10 years horizon) and I'm sure the liquidity will pick up soon when more investors learn how good this company is.

I think people shouldn't invest in illiquid companies like Kingsmen if they are not comfortable and need the money in the short term.

[Musicwhiz]

Taka666 is right. When I invested in Kingsmen, my investment horizon was already at least 5 to 10 years; hence I do not bother about the issue of liquidity as I have no need to divest to raise funds. I have a steady savings plan which helps me to build up my opportunity funds, and the dividends from Kingsmen also help to add to this war chest.

As mentioned, if you do not feel comfortable owning a company for at least 5 to 10 years, then you should not even be investing in it!

[mightyreds]

Thanks for your input guys. While I see the rationale of investing in a company with a long term view of 5-10 years, and yes I do that as well, I think it's good to have a cautious approach when it comes to the more illiquid stocks.

MW, I have been reading some of your articles on your blog and you now have this 'buy and monitor' approach in addition to 'buy and hold' strategy. I agree fully with that and I monitor all my companies from quarter to quarter. What I have learnt is that companies business models can go wrong - be it a micro or macro issue involving the entire industry. So when that happens, we need to exit before the 5-10 year horizon and it becomes tricky if a stock is illiquid. Kingsmen is one of them. MTQ and Vicom are a couple of others. Great balance sheets and consistent earnings. Unless of course we're absolutely sure that a company will continually do well for the next 10 years with no hiccups whatsoever. I think that's a bit hard to achieve and predict. For that same reason, big funds avoid small caps and illiquid trading volumes.

Just wondering, what proportion of your portfolio is apportioned to illiquid stocks?

[Musicwhiz]

Thanks for your input guys. While I see the rationale of investing in a company with a long term view of 5-10 years, and yes I do that as well, I think it's good to have a cautious approach when it comes to the more illiquid stocks.

MW, I have been reading some of your articles on your blog and you now have this 'buy and monitor' approach in addition to 'buy and hold' strategy. I agree fully with that and I monitor all my companies from quarter to quarter. What I have learnt is that companies business models can go wrong - be it a micro or macro issue involving the entire industry. So when that happens, we need to exit before the 5-10 year horizon and it becomes tricky if a stock is illiquid. Kingsmen is one of them. MTQ and Vicom are a couple of others. Great balance sheets and consistent earnings. Unless of course we're absolutely sure that a company will continually do well for the next 10 years with no hiccups whatsoever. I think that's a bit hard to achieve and predict. For that same reason, big funds avoid small caps and illiquid trading volumes.

Just wondering, what proportion of your portfolio is apportioned to illiquid stocks?

Hi thanks for your comments.

I think as with any investment, it is impossible to predict, with certainty, whether a company's business model or competitive moat are going to be able to last 5 to 10 years. What we can observe and verify is Management's commitment to growing the Company and whether they have the foresight and expertise to enhance value for shareholders. I think this is probably one of the most important "intangible" aspects of investing.

For companies with a track record (Kingsmen since 1976 and MTQ since 2000), time has shown that their business models can endure through booms and busts. Of course, as you mentioned, one must still monitor the industry and the 5-Forces to see if any event may result in a permanent and adverse impairment to the Company's prospects. Barring such unforseen (and unpreventable) occurrences, I should say things will be fine and the Companies in question should grow slowly but steadily.

I have about 50% of my portfolio invested in "illiquid" counters, but then again liquidity is also a function of sentiment. During extremely bullish sentiments, even small caps see high volume which is uncharacteristic. Companies such as Tat Hong and Boustead are alternately liquid and illiquid depending on the "Flavour of the Month", so it's hard to classify sometimes.

[Musicwhiz]

A rather disappointing announcement by Kingsmen today - their subsidiary Kingsmen Exhibits Pte Ltd is involved in a dispute with a sub-contractor Hup Lian Engineering; and this will go to arbitration. It involves parcels of work at Universal Studios, namely Dreamworks Zone Packages 1 and 2.

While it was not mentioned how large the claims and counter-claims are, my hope is that it is not material. The Company should make an adequate provision in the books for 4Q 2010 as a contingent liability. Pending the outcome of the arbitration, this entry may be reversed out in subsequent months.

[mikh]

Thanks for update, Musicwhiz. They announce that "the Company believes that the Proceedings are unlikely to have a material adverse impact on the Company's operations in the current and forthcoming financial year." I suppose this is fairly reliable...?

Arbitration as the recourse rather than lawsuit seems a sensible alternative.

[dydx]

I suppose disputes of this nature is quite normal in construction contracts, especially major and complex ones like those involved in building the Universal Studios Singapore theme park, which had the added challenge of being a fast-track project.

Hup Lian Engineering is a sub-contractor to Kingsmen, so it is likely that the dispute from their perspective may involve a payment short-fall or non-payment from Kingsmen for some work done. From Kingsmen's perspective, it could be a situation that Hup Lian's work done was not conforming to standards or technical requirements, or there was a major delay. In such situations, Kingsmen should have withheld some payments and therefore may be at an upper-hand position over Hup Lian Engineering. Whatever it is, we can take comfort that Kingsmen has good project management, including keeping detailed documentation records on the contract proceedings which should come in useful in an arbitration process.

[dydx]

Kingsmen has bought an additional 11.7% equity interest (raising it to 92.2%) in its growing Greater China business operations from a j-v partner (Tan Ai Lin) and paid HKD22.254m (equivalent to approx. $3.74m) in cash for the stake.....
http://info.sgx.com/webcoranncatth.nsf/V...100085DF7/$file/KNAAcquisitonAnnouncement.pdf?openelement

The transaction values the entire Greater China operations at approx. $32.0m, which is probably more than fair to Kingsmen, bearing in mind the operations are already quite well established and obviously have a lot of growth potential going forward.

[Musicwhiz]

Considering there is quite a bit of competitive in Greater China and the fact that there are many players there, how sure can shareholders be of the growth potential of the Greater China operations for Kingsmen? I understand major competitor Pico is already well-established in China and also Hong Kong, so it may take considerable effort to secure good business deals if Kingsmen go head to head with Pico. And this is not to mention other smaller local competitors who may have the necessary "guanxi" to snare more deals, and may also have the long-term relationships forged long before Kingsmen decide to enter.

What are your thoughts on this?