Kingsmen Creatives Ltd (Kingsmen) is a leading communication design and production group specialised in creating 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 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’sfundamentals and financials to determine if its worth investing in right now.
Kingsmen’s key expertise lies incommunicating brand stories by designing and creating unique interior space forretail corporations, and curating a thematic environment for various themeparks and museums. It has been involved in many major local projects whichSingaporeans are familiar of, such as Universal Studios Singapore, Victoria’sSecret outlet at Orchard Road and General Post Office.
The group is also involved in many majorevents such as National Day Parade and Singapore Airshow, and is one of themajor players in the Meetings, Incentives, Conventions and Exhibitions (MICE)industry.
It has 21 offices worldwide and a staffstrength 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 andDesign, Alternative Marketing. It can be seen that Retail & CorporateInteriors 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.
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 gradualdown trend 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 equityholders had shrank from $19 million in FY2015 to $9.7 million in FY2017. Interms of Net Profit margin in the past three years, it decreased from 5.8% inFY2017 to 3.1% in FY2017.
The company does not seem to have a goodearnings performance in the past five years, judging from this set of figuresthat have been gradually falling.
Let’s take a look at the 9-mth FY2018results to see if there are any improvements.
Revenue and Gross Profit grew 11.6% and5.3% respectively to $238 million and $54.4 million. Profit Before Tax andProfit 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 twolargest business segment – Exhibitions and Thematics (+12.7%) and Retail andCorporate Interior (+12.8%). This is attributed to completion of several majorevents and projects in the reporting period.
Kingsmen’s Net Cash Used in Operating Activitiesis $5.59 million compared to $7.74 million outflow in 9M FY2017.
Kingsmen has entered into a licensingagreement with Hasbro International Inc, a major toy and board games makerbased in the United States, to create, build and operate the NEFR brand offamily entertainment attractions across Asia Pacific. NERF is a brand offamily-friendly recreational activity that uses a variety of foam-basedweaponry in an indoor, team-based setting.
Source: NERF Official website
Perhaps inspired by Cityneon Holdingsoutstanding growth derived from running exhibition sets featuring major moviefranchises, Kingsmen is attempting to venturing into new growth segments bytargeting the growing affluence of the middle-income population in Asia. Ifexecuted successfully, this could be a major growth avenue to watch in comingyears.
However, there is a majorweakness in Kingsmen’s business model andthat is the group as a price taker in a fragmented, competitive industry. As acompany that provides services to clients and earn its revenue fromproject-based contract, Kingsmen may lack the bargaining power to dictate theprice it charges, for fear that the client can turn to other companies. WhileKingsmen can differentiate itself from its impressive portfolio of work and deepexpertise in this industry, I highly suspect that there is really limited roomfor the company to raise its price. This is perhaps evident from the decreasingrevenue and net profit in the past four FYs.
At a price of $0.50, Kingsmen is trading ata trailing twelve months PE of 9.2. While by absolute value, this is hardly astretched valuation. However, vis-à-vis Kingsmen’s reducing net profit in thepast 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, itsdividend yield is a nice 5%.
While Kingsmen has carved out a newbusiness segment via its licensing deal with Hasbro, whether this can be thegame changer to its business fortune remains to be seen. Operating in atraditional, competitive industry against a backdrop of potential economicdownturn in the next two years, I am not sanguine about its business prospectgoing forward.
However, to some investors, every stock isa good stock provided it is at an attractive price. With the valuation figuresshared above, one would have to decide if this price level is enticing enoughfor you to invest into it.