Kingsmen Creatives

[RBM]

Thanks for your message Pianist.
Answer: Pico Far East is listed on the HK Stock Exchange - code 752. I bought Pico through my broker in HK.

how did u buy pico?

[Musicwhiz]

- Pico's growth rates put Kingsmen into the shade (look at the numbers, e.g. 122% in Museums & Theme Parks!!).
- Pico's gross margin is higher than Kingsmen's (the benefits of scale?).
- Pico now has a ~ 29% higher dividend yield than Kingsmen, based on Friday's closing prices.

To me it looks like the sector which Kingsmen and Pico operate in is a good one to be in right now. But I sense that Pico are carving out a much greater proportion of new Asia Pacific Business than Kingsmen?? And who would be best placed, should a major downturn arrive??

A wise man once told me that the time to consider selling is when the hubris gets universal. I'm not going to sell my Kingsmen shares. But I do wonder if we are (recently) viewing Kingsmen through overly-rose-tinted spectactles? I stress that I am not trying to be difficult or awkward here - I just feel that this highest quality, mature and high objectivity forum may want a discussion around this.

Vested .............in both Pico and Kingsmen.

Hello RBM,

Hope you and family are having an enjoyable holiday too. It is posts such as these which make investing really interesting, as it really delves into the inner workings of the companies mentioned and attempts to place them side by side as comparison.

However, I must state at this point that I had done my research on Kingsmen and Pico and noted quite a few differences in both companies which I feel is worth highlighting. It's not really a case of comparing apples to apples, more like comparing a red apple to a green apple! Haha. Perhaps I can take your points one by one and provide my own explanations at the same time. (I would also assume you are referring to Pico FE's latest results ended April 30, 2012 - 1H FY 2012).

1) Museums and themed environment did increase by 122% for Pico, and this division would also include Interior Fit outs as well. However, do note that for 1H FY 2012, this division only took up 9% of Pico's total revenues; and for 1H FY 2011 it took up 5.2%. My previous research has told me that Pico's main strength is in Exhibitions and Events, and it can be seen that this division takes up 76.2% of revenues for 1H FY 2012. Contrast this to Kingsmen, where their M&E Division's revenues only made up 44.5% of total revenues. Note that a direct comparison between the growth potential of the theme parks division cannot be done as Pico has grown from a low base effect for their division, whereas Kingsmen has already a larger base (as a % of revenues).

2) A related point which I wish to highlight is that Pico FE has traditionally been very strong in the China and Hong Kong markets, while Kingsmen is more of an rounder in that it covers southeast asia including Japan and Korea as well, but is not particularly strong in China. This would mean that Pico's growth would hinge a lot on the growth of events, theme parks and exhibitions in China and Hong Kong; and they are therefore more vulnerable if a slowdown should occur in these two countries. This makes Kingsmen's business more resilient as they rely on a number of countries (including Singapore) for their revenues, and there is no emphasis on any one division for revenues (Interiors and M&E contribute more or less equally) unlike for Pico FE.

3) Regarding margins, I would also like to do a quick comparison as follows:-

Pico FE
1H FY 2012 Gross Margin = 26.2%
1H FY 2011 Gross Margin = 32.2%

Kingsmen
1H FY 2012 Gross Margin = 27.4%
1H FY 2011 Gross Margin = 29.1%

So as can be seen, the gross margin drop for Pico FE is about 600 basis points (6%), while the gross margin drop for Kingsmen is just about 170 basis points (1.7%). I believe this could be due to the revenue mix for Pico FE shifting to lower margin thematic works as compared to higher margin brand signage and exhibition works, but please correct me if I am wrong as I did not read too much into Pico's financials.

4) I would also like to draw attention to the net margins of the two companies, as follows (using profit attributable to S/H):-

Pico FE
1H FY 2012 Net Margin = 5.1%
1H FY 2011 Net Margin = 5.9%

Kingsmen
1H FY 2012 Net Margin = 6.1%
1H FY 2011 Net Margin = 6.3%

Again, the above shows that not only does Kingsmen have a higher net margin than Pico FE (by 100 basis points), but their year-on-year net margi drop as also smaller (20 basis points) as compared to Pico FE (80 basis points).

5) It's not exactly accurate to compare dividend yields across the two companies. Why do I say this? If you notice, Pico has a payout ratio of 53% for their 1H FY 2012, based on an EPS of about HK$0.0766 and a DPS of HK$0.04. Kingsmen, however, has a payout ratio of just 40% (39.6% to be very exact), based on a DPS of 1.5 SGD cents and an EPS of 3.79 SGD cents. Therefore, Kingsmen can be seen to be paying out less of their earnings compared to Pico FE, which would explain the lower dividend yield. If you normalize the payout ratios for both companies, meaning if you assume Kingsmen had paid out 53% of their EPS as DPS, this would mean an interim dividend of 2 SGD cents/share. If we use last year's final dividend of 2.5 SGD cents/share as a benchmark, and taking into account LTM historical dividend yield based on a total dividend payout of 4.5 SGD cents/share, Kingsmen's adjusted dividend yield would be 6%.

While this is arguably not as high as Pico FE's 7% yield, I am more concerned over the following points with regards to the sustainability of the yield, rather than the quantum of it:-

a) Slowdown in China (and Hong Kong?) occurring
b) Erosion of gross and net margins for Pico FE
c) Concentration risk with most of the revenues clustered in one division - Exhibition and Events

If I may, at this point, offer an alternative viewpoint - perhaps it's not that the hubris has infected market players, perhaps this is just a case of value being recognized, albeit two years too late!

Regards, and have a great weekend!

[valuestalker]

Thanks for your message Pianist.
nswer: Pico Far East is listed on the HK Stock Exchange - code 752. I bought Pico through my broker in HK.

how did u buy pico?

I have just passed the SIP exam and am able to buy HK listed co now.
If I buy through local broker (eg: OCBC security), how is the mechanism?
Do I own direct? Will it be listed in my CDP?

Thanks if anyone can enlighten me.

[Some-one]

Thanks for your message Pianist.
nswer: Pico Far East is listed on the HK Stock Exchange - code 752. I bought Pico through my broker in HK.

how did u buy pico?

I have just passed the SIP exam and am able to buy HK listed co now.
If I buy through local broker (eg: OCBC security), how is the mechanism?
Do I own direct? Will it be listed in my CDP?

Thanks if anyone can enlighten me.

You would not own it directly, the custodian is the bank and foreign stocks would not be reflected in your cdp account.

[dydx]

Revenue wise, based on the latest HY numbers, Pico Far East is now about 2.5x of Kingsmen.....
http://www.pico.com/wp-content/uploads/2...Report.pdf [Pico Far East's 1H ended 30Apr12]
http://info.sgx.com/webcoranncatth.nsf/V...6002F21C6/$file/KingsmenSGXAnnouncementQ212FINAL.pdf?openelement [Kingsmen's 1H ended 30Jun12]
Profit wise, based on PBT and the lastest HY numbers, Pico Far East is now about 3.0x of Kingsmen, but we must bear in mind that Pico Far East ends its FY on 31Oct, and Kingsmen ends its on 31Dec; and because Kingsmen does a lot more business in Retail Interiors, its 2H's revenue and PBT tend to be substantially higher - usually by at least 50% - than its 1H's.

ROE wise, Kingsmen achieved a high 26.3% in FY11 (ended 31Dec11), vs. Pico Far East's lower of 20.38% in FY11 (ended 31Oct11).

When I looked into the latest B/S's of the 2 groups, mainly based on Pico Far East's proportionately higher Creditors & Accrued Charges (or Trade & Other Payables in Kinsgmen's case) balance vs. Debtors, Deposits, & Prepayment (or Trade & Other Receivables in Kingsmen's case) balance, I believe Pico Far East could well be paying its suppliers and sub-contractors slower than Kingsmen.

When comparing the 2 groups, we should also bear in mind that while Pico Far East seems to have a stronger presence in Exhibitions & Events, Kingsmen clearly has carved out a strong and growing niche in the high-end Retail Interiors segment, including regional roll-out programme and supplying/exporting retail fixtures capabilities. We can easily appreciate this aspect of Kingsmen's businesses by reviewing the lastet issue of their "Interiors Newsletter 2012".....
http://www.kingsmen-int.com/wp-content/p....php?id=33

My personal view is that Kingsmen will also grow stronger in the Exhibtions & Events segment over time, as there is ample evidence in the latest issue of their "Exhibitions Newsletter 2012" that the company has been gaining new customers and doing bigger projects.....
http://www.kingsmen-int.com/wp-content/p....php?id=34

[pianist]

I have just passed the SIP exam and am able to buy HK listed co now.
If I buy through local broker (eg: OCBC security), how is the mechanism?
Do I own direct? Will it be listed in my CDP?
Thanks if anyone can enlighten me.

why do u need to pass sip in order to buy hk listed stocks?

[shanrui_91]

I have just passed the SIP exam and am able to buy HK listed co now.
If I buy through local broker (eg: OCBC security), how is the mechanism?
Do I own direct? Will it be listed in my CDP?
Thanks if anyone can enlighten me.

why do u need to pass sip in order to buy hk listed stocks?

by mas definition, stock listed in foreign exchange is counted as SIP.

I think RBM mentions that he bought it through hong kong broker. If you buy foreign stock through local brokerage, you will be charged a monthly custodian fee of around $2. They will also charge you for corporate action fee and e.t.c. If you buy US stock, i think there is also withdrawal tax of 30% for dividend

Only stan chart don't charge you extra fee for buying foreign stock. In any case, it is still best to stick to SGX. Hopefully, when the asean link-up is completed, there will be no more custodian fee and other nonsenses

[valuestalker]

I have just passed the SIP exam and am able to buy HK listed co now.
If I buy through local broker (eg: OCBC security), how is the mechanism?
Do I own direct? Will it be listed in my CDP?
Thanks if anyone can enlighten me.

why do u need to pass sip in order to buy hk listed stocks?

Hi Some-One,
Thanks. I reckon it is similar to buying SGX stock using Standard Chartered?

Hi Shanrui,
Thanks for the additional and very useful info.
So in your opinion, SC will be the best option thus far? Will contact them to find more info.

Hi Pianist,
Apparently it is a requirement which IMO is irrelevant.
To say the least, in SIP course & exam, it is all about derivatives.
Not even mention about foreign stock in a tiny bit.

Not to hijack this post further.
I have been looking at PICO for a while now.
IMHO, Pico has the advantage of SCALE, hence their strength in Exhibitions (especially big events).
On the other hand, Kingsmen, I believe is stronger in Interiors, due to their EXCELLENT service.

Vested in Kingsmen.
Keen to invest a small interest in Pico to analyse the company further.

Cheers.

[Some-one]

Hi Some-One,
Thanks. I reckon it is similar to buying SGX stock using Standard Chartered?

Yes but as what shanrui says, local brokerage would charge a monthly custodian fee. Besides, there is also a forex risk.

[RBM]

The responses of Musicwhiz and dydx to my consciously provocative e-mail of yesterday on this Kingsmen VB thread are sincerely appreciated - there is no other investment forum in this part of the world where such a thoughtful, mature and respectful exchange of views would be seen, IMHO. Thank you.

I would like to i) address a few of the points raised and ii) also answer the specific question on investing in Pico, following some enquiry postings and messages by several forummers. As regards the first point, in doing so, I realise that we are not comparing two beasts of a totally similar nature when we look at Pico and Kingsmen and there are, for example, slight differences in their respective reporting cycles. I also sense/suspect that the application of the definitions of various accounting terms are not exactly the same (e.g. administration costs?), possibly due to the different jurisdictions of the two companies.

I believe there are three different buckets to consider : business growth, margin, dividends and dividend cover. Taking each of these in turn........

1. Business Growth: Over the two years to the end of the FY 2011 reporting cycles, Kingsmen's revenues and NIAT increased by 8.3 % and 9.6 % respectively - Pico's revenues and NIAT increased by 58 % and 100 % (that is one hundred percent....... not ten percent). I suggest interested forummers review Page 17 of Pico's 2011 Annual Report (http://www.pico.com/wp-content/uploads/2...11_Eng.pdf). On this page 17, various key metrics over each of the last five years are graphically presented........... and if you have Kingsmen's 2011 Annual Report handy, have this side-by-side with the "Financial Highlights" displayed on Page 8. I'll rest my case on Pico's recent bottom line growth vs. Kingsmen's! I could choose other comparison periods which would yield a picture consistent with this, perhaps though not quite as marked. I agree with Musicwhiz that much of Pico's recent growth emanates from the PRC - Pico state that ~ 60% of their business now comes from China but they are also clear on their determination to geographically diversify on a global scale, i.e. not only in Asia Pacific.

2. Margins: My statement regarding the margin comparison was made based on "back of the envelope" analyses not dis-similar to dydx's but based on FY 2011 results - I accept MW's point regarding a drop in Pico's gross margin in 1H 2012 but as DBS-Vickers point out QUOTE Gross margin dropped 6.1 ppt (in 1H2012) to 26.2%, amid early booking of expenses for selective museum & theme park projects that will be launched in 2H FY12 UNQUOTE. I could not replicate dydx's arithmetic of Pico squeezing out 3x more PBT than Kingsmen in 1H 2012 (my accounting ineptitude no doubt) but dydx does make an excellent point regarding the different phasing of reporting periods (see the pertinent excerpt from dydx's posting below). In addition to the points made by dydx, I also believe that Pico's administrative overhead level seems to be more "efficient", i.e. ~ 11.3% of revenues vs. ~ 16% for Kingsmen (do Pico outsource more?). I do feel that Kingsmen's staff costs are rising at a rate that needs more-than-watching, particularly if a cold wind starts to blow.

Revenue wise, based on the latest HY numbers, Pico Far East is now about 2.5x of Kingsmen.....
http://www.pico.com/wp-content/uploads/2...Report.pdf [Pico Far East's 1H ended 30Apr12]
http://info.sgx.com/webcoranncatth.nsf/V...6002F21C6/$file/KingsmenSGXAnnouncementQ212FINAL.pdf?openelement [Kingsmen's 1H ended 30Jun12]
Profit wise, based on PBT and the lastest HY numbers, Pico Far East is now about 3.0x of Kingsmen, but we must bear in mind that Pico Far East ends its FY on 31Oct, and Kingsmen ends its on 31Dec; and because Kingsmen does a lot more business in Retail Interiors, its 2H's revenue and PBT tend to be substantially higher - usually by at least 50% - than its 1H's.

3. Dividends & Dividend Cover: I believe we are all aligned that the businesses of Pico and Kingsmen are relatively low in terms of capital intensity. So while I note MW's point regarding Pico's higher pay-out ratio (see below) .............. it does beg the question ............. why doesn't or why can't Kingsmen raise its current ~ 40% pay-out ratio to say ~ 55%? For such a business, I'm of the view that a 40% ratio is probably overly conservative - particularly if MW's view of Kingsmen's relative robustness (vis-a-vis its geographical diversity) is correct. In their postings on this thread, forummers regularly cite Kingsmen's highly appealing dividend. But forummers ...........the reality is that Pico's dividend yield is ~ 32% higher (at today's HKEX closing price of HK$ 1.69) at ~ 7.1% vs. Kingsmen's 5.4%............ and I do not believe it is greedy to start probing Kingsmen's leadership on the subject of raising their dividend........... in the near future, i.e. well before the final 2012 dividend is declared.

5) It's not exactly accurate to compare dividend yields across the two companies. Why do I say this? If you notice, Pico has a payout ratio of 53% for their 1H FY 2012, based on an EPS of about HK$0.0766 and a DPS of HK$0.04. Kingsmen, however, has a payout ratio of just 40% (39.6% to be very exact), based on a DPS of 1.5 SGD cents and an EPS of 3.79 SGD cents. Therefore, Kingsmen can be seen to be paying out less of their earnings compared to Pico FE, which would explain the lower dividend yield. If you normalize the payout ratios for both companies, meaning if you assume Kingsmen had paid out 53% of their EPS as DPS, this would mean an interim dividend of 2 SGD cents/share. If we use last year's final dividend of 2.5 SGD cents/share as a benchmark, and taking into account LTM historical dividend yield based on a total dividend payout of 4.5 SGD cents/share, Kingsmen's adjusted dividend yield would be 6%.

While this is arguably not as high as Pico FE's 7% yield, I am more concerned over the following points with regards to the sustainability of the yield, rather than the quantum of it:-

a) Slowdown in China (and Hong Kong?) occurring
b) Erosion of gross and net margins for Pico FE
c) Concentration risk with most of the revenues clustered in one division - Exhibition and Events

As regards buying Pico shares, I have used the same (excellent) lady broker with Sun Hung Kai & Co. (SHK) for more than 25 years - she gets younger and sharper...... I get older. SHK charges me brokerage charges which are better-than-competitive with Singapore brokerage fees. But indeed SHK is custodian and I pay a HK$ 30 collection fee (i.e. ~ S$ 5-) every time Pico pays a dividend (twice a year) into my SHK account, and there are minor fees for any corporate action events. I am not charged a monthly or quarterly or annual fee. Hope this helps.

Finally, I intend initiating a Pico VB thread. Given the continued interest with which this Kingsmen thread is reviewed and contributed to by VB forummers - we are upto 57 pages of postings now! - I suggest that it is merited to have a dedicated VB thread on Kingsmen's most relevant regional competitor, i.e. Pico. If only as a useful benchmark for Kingsmen's followers, this new VB thread will have served its purpose. I'll place it under "Hong Kong Listed Companies". I hope that this is OK with the administrators and moderators.

Vested .......... in both Pico and Kingsmen ........... and I nibbled further at Pico this morning at the HK$ 1.70 level (I should have been more patient ....... deals were done this afternoon at a cent less!).

Again, my appreciation to dydx, Musicwhiz and other VB forummers for the constructive and thoughtful manner in which my Kingsmen posting of yesterday was received.