Kingsmen Creatives Ltd (Kingsmen) is a leading communication design and production group specialised in creating a unique interior, exhibitions, events and thematic space for retail brands and corporate clients. Since peaking around $1.05 in mid-2015, its share price has suffered a bruising drop of 50% to trade at $0.50 at the time of writing. This has piqued my interest in the company stock as I used to hold this share in the past.

Let’s take a closer look at Kingsmen’s fundamentals and financials to determine if it’s worth investing in right now.

Business Overview

Kingsmen’s key expertise lies in communicating brand stories by designing and creating unique interior space for retail corporations and curating a thematic environment for various theme parks and museums. It has been involved in many major local projects which Singaporeans are familiar with, such as Universal Studios Singapore, Victoria’s Secret outlet at Orchard Road and General Post Office.

The group is also involved in many major events such as National Day Parade and Singapore Airshow, and is one of the major players in the Meetings, Incentives, Conventions and Exhibitions (MICE) industry.

It has 21 offices worldwide and a staff strength of about 1,800 creative professionals and project managers.

Source: Kingsmen FY 2017 Annual Report

Kingsmen has four main business segments, namely Exhibitions and Thematic, Retail and Corporate Interiors, Research and Design, Alternative Marketing. It can be seen that Retail & Corporate Interiors and Exhibitions and Thematic are the mainstay business of Kingsmen, as they generated 46.6% and 44.5% of total revenue in Financial Year (FY) 2017.

Five-Year Financial Highlights

Source: Kingsmen FY 2017 Annual Report

Looking at Kingsmen’s past five years’ financial highlights, it seems that the company’s Revenue has shown a gradual downtrend since FY2014. Correspondingly, its Gross Profit, having peaked at $84.8 million in FY2014, has decreased to $77.1 million last year.

Its Net Profit attributable to equity holders had shrunk from $19 million in FY2015 to $9.7 million in FY2017. In terms of Net Profit margin in the past three years, it decreased from 5.8% in FY2017 to 3.1% in FY2017.

The company does not seem to have a good earnings performance in the past five years, judging from this set of figures that have been gradually falling.

9M FY2018 Results

Let’s take a look at the 9-mth FY2018 results to see if there are any improvements.

Revenue and Gross Profit grew 11.6% and 5.3% respectively to $238 million and $54.4 million. Profit Before Tax and Profit Net of Tax attributable to equity holders increased 41.5% and 28.6% to $5.85 million and $4.58 million.

Kingsmen recorded revenue growth in its two largest business segment – Exhibitions and Thematics (+12.7%) and Retail and Corporate Interior (+12.8%). This is attributed to the completion of several major events and projects in the reporting period.

Kingsmen’s Net Cash Used in Operating Activities is $5.59 million compared to $7.74 million outflows in 9M FY2017.

Opportunity and Weakness

Kingsmen has entered into a licensing agreement with Hasbro International Inc, a major toy and board games maker based in the United States, to create, build and operate the NEFR brand of family entertainment attractions across Asia Pacific. NERF is a brand of family-friendly recreational activity that uses a variety of foam-based weaponry in an indoor, team-based setting.

Source: NERF Official website

Perhaps inspired by Cityneon Holdings outstanding growth derived from running exhibition sets featuring major movie franchises, Kingsmen is attempting to venturing into new growth segments by targeting the growing affluence of the middle-income population in Asia. If executed successfully, this could be a major growth avenue to watch in coming years.

However, there is a major weakness in Kingsmen’s business model and that is the group as a price taker in a fragmented, competitive industry. As a company that provides services to clients and earn its revenue from the project-based contract, Kingsmen may lack the bargaining power to dictate the price it charges, for fear that the client can turn to other companies. While Kingsmen can differentiate itself from its impressive portfolio of work and deep expertise in this industry, I highly suspect that there is really limited room for the company to raise its price. This is perhaps evident from the decreasing revenue and net profit in the past four FYs.

Valuation

At a price of $0.50, Kingsmen is trading at a trailing twelve months PE of 9.2. While by absolute value, this is hardly a stretched valuation. However, vis-à-vis Kingsmen’s reducing net profit in the past few years, we may want to be more conservative in our valuation estimate.

Kingsmen Net Asset Value per share is $0.598 and this gives the company a PB of 0.83.

With a dividend of 2.5 cents in FY17, its dividend yield is a nice 5%.

Conclusion

While Kingsmen has carved out a new business segment via its licensing deal with Hasbro, whether this can be the game changer to its business fortune remains to be seen. Operating in a traditional, competitive industry against a backdrop of the potential economic downturn in the next two years, I am not sanguine about its business prospect going forward.

However, to some investors, every stock is a good stock provided it is at an attractive price. With the valuation figures shared above, one would have to decide if this price level is enticing enough for you to invest in it.

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