Kingsmen Creatives

[dydx]

There is no doubt that PRC market and its future growth potential are huge! And it is and will remain competitive, and competition will come from both local and foreign owned players, big and small, and it will increase with time.

Kingsmen has a strategy to embrace the Greater China market - i.e. including Hong Kong and Taiwan. And the company has already established local operations in mainland China, Hong Kong and Taiwan, competing with the local players like a local player.

What I am quite sure is that Kingsmen is very good in their trade, and the management is serious and driven to grow the business, especially in key overseas markets like PRC. And in this business, the longer they stay in a market and work hard to build a customer base, the more valuable the business will become over time.

[FFNow]

Another thing to take note about the Chinese market is that if the Chinese learn how to do it and learn to do it well, they kick out the middle-man and do it themselves. That's what I'm afraid of with companies expanding into PRC. But with a good management, I'm sure Kingsmen will do well in PRC.

[mightyreds]

What MW brought up is truly a valid point. It's certainly not easy to establish a foothold in PRC as doing business there is not as straight forward as in Singapore. 'Guan Xi' and connections with the authorities play a major role especially in trades with relatively lower level of barriers to entry. What Kingsmen can do in Singapore, the local players can learn to do it more quickly and much cheaper as well.

It can be done, but it will take lots of hard work and probably some trial and error losses along the way.

[FFNow]

I found an article discussing about Pico. Very helpful to understand about Kingsmen, the industry and their competitors. http://www.nextinsight.net/index.php?opt...3&Itemid=1

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What MW brought up is truly a valid point. It's certainly not easy to establish a foothold in PRC as doing business there is not as straight forward as in Singapore. 'Guan Xi' and connections with the authorities play a major role especially in trades with relatively lower level of barriers to entry. What Kingsmen can do in Singapore, the local players can learn to do it more quickly and much cheaper as well.

It can be done, but it will take lots of hard work and probably some trial and error losses along the way.

Yes I agree with your point. Doing business in China is a whole new ball game.

[mikh]

For fun, I did some simple comparison of Pico with Kingsmen.

FY2009 PICO's main business is in Exhibitions & Events 80%, $308mil turnover while Interiors & Musuems is < 24mil. Kingsmen's Exhibition & Musuems is 57%, 139mil with a larger portion in Interiors 40%, 97mil. Kingsmen's Interior has better margins than its E&M, and overall margin apparently slightly better than Pico.

(Sources: Respective FY2009 Annual Reports. All currencies converted to SGD at today's rates.)

Crunching more numbers, comparing profitability etc could be interesting if reporting standards and classifications are sufficiently similar. The point I draw here is that Kingsmen has a good segment in Interiors where it is significantly larger than Pico (although Pico is the larger player overall) when we compare the two.

Kingsmen has continued to buy up greater shares of its North Asian partners. ie. it did not start fresh there. It had been using local talent to compete. With a major portion of its business in Interiors, most of these being from Western brands it would have the possibility of entering the China market via its clients when they open shop there or for repeat biz. Hence, I would not draw conclusions that they cannot compete with the guanxi up north or are starting from zero base.

That said, I suspect the E&E&M&I industry is fragmented and there is no major player. Recently we've had some other Sg companies getting into the Interiors business as well (Lorenzo, I think). Question just as one of our fellow forummers would ask is "where's the deep moat?" Is the moat deeper in the Interior than the Exhibition business?

Vested

[Musicwhiz]

Kingsmen has continued to buy up greater shares of its North Asian partners. ie. it did not start fresh there. It had been using local talent to compete. With a major portion of its business in Interiors, most of these being from Western brands it would have the possibility of entering the China market via its clients when they open shop there or for repeat biz. Hence, I would not draw conclusions that they cannot compete with the guanxi up north or are starting from zero base.

That said, I suspect the E&E&M&I industry is fragmented and there is no major player. Recently we've had some other Sg companies getting into the Interiors business as well (Lorenzo, I think). Question just as one of our fellow forummers would ask is "where's the deep moat?" Is the moat deeper in the Interior than the Exhibition business?

Vested

Interesting that you did this analysis and brought this up. Thanks for that!

Regarding China, from the comments I've read so far, yes they are not starting afresh and already have a local presence there; but the question is how large can these segments grow? Kingsmen also have a presence in Japan (Kingsmen Nikko) and Korea (Kingsmen Busan) but I believe these are not contributing much to the bottom line. It remains to be seen if China really does have more potential for Kingsmen, even though it would appear obvious to the casual observer that China's market (which includes Taiwan and Hong Kong) is indeed much larger. Execution risk is present but then again, it is mitigated by reputation and Management experience.

As for Interiors having a moat, I think of it as Kingsmen having an international clientele, and also the ability to cater to the scope and scale required by their clients for major roll-outs (e.g. opening 8 shops in a certain city or country at the same time). For Kingsmen, they compete based on quality, reputation....and scale. Even though players like Lorenzo may wish to venture into Interiors, I doubt they can make much of an impact as Kingsmen has been around for the last 34 years. So in this sense there is a "moat" and some competitive edge.

Just my 2-cents.

[mightyreds]

Kingsmen seems to be under some selling pressure. Wonder who is unloading.

I'm just wondering - Kingsmen has a good reputation in Singapore, but that doesn't mean that this reputation will be valued equally overseas. For them to expand successfully overseas, they must have very strong local partners with their own local reputations to have an immediate edge in the market. Don't expect kingsmen's management to do miracles and change the entire set-up within months of acquisition. Some things don't change and more so for a business that doesn't have high barriers to entry.

[mikh]

Per MSW, and as company alludes to in its Annual Report, working with one brand name, opens you doors in multiple countries/cities. Greater China turnover was already 18% (based on partial ownership), so again, its not starting from zero.

But yes, it would be really good to hear from anyone in the industry if the moat is really deep.
I reckon Interiors have a deeper moat due to the level of detail, client intimacy, client loyalty, craft ability based on workmen experience and availability of downstream support - ala the Jap kereitsu of days past. And where clients are luxury brands, they would prefer results to price.
Exhibitions could be more open to competition due to higher propensity for techno innovation on grand scale and having different ownership/landlords each wanting to out-do the other, different levels of players and sub-contracting; complicating the business giving incumbency and size differrent advantages. Is that positive or negative? Admitted I don't have expertise.
Musuems? hmm? Maybe depends on whether they are commissioned by bureaucrats, personal or corporate profit based varying with country?
That's from me, an outsider looking in.

[Nick]

Unless I am mistaken, this business strength lies in its human talent (designers etc). If you lose them, you lose your competitive edge. There is no expensive assets or IPs to protect them. Locally, they may be giants with talented people aspiring to work for them. But in overseas country, will the local talent seek to work for a new foreign company ? Kingsmen has to entice them with larger pay but that will hit their margins. This is why I wouldn't say Kingsmen has a high moat in the overseas market. I think this is the point which mightreds is alluding too.

My 2 cents haha

(Not Vested)

[mikh]

Ah designers! Wouldn't that be design once, implement many times? Even if that would be a new design, i believe the designer does not have to be physically there. I recall that years ago, my company used PICO for overseas booths. Unless i was mistaken everything was agreed and settled in Sg, even shipped there, except for the actual installations.