Kingsmen Creatives

Kim Eng on 2 Mar 2012

Slightly above expectations. Kingsmen Creatives achieved an 11.7% YoY rise in sales to $260.9m, while net profit of $16.3m was up 8.4% YoY, attributed to double-digit revenue growth coming from three segments. A final and special dividend of 2.5 cents per share was declared, bringing full-year DPS to 4 cents and payout ratio to 46.8%, implying an attractive yield of 6.5%. We continue to like the group’s consistent earnings performance and the prospect of higher project volumes going forward.

Retail furbishing to shine. The interior division surpassed expectations, with sales coming up to $144.1m (+23.6% YoY), thanks to a surge in demand for furbishing from international retailers. Research and IMC both saw a jump in sales of 33.3% and 27.5% YoY respectively, accredited to the expansion of design capabilities to take on more projects. Of the latter, exhibition & museum fell 5.2% YoY to $99.4m, continuing a slowdown seen since the one-off Shanghai Expo in 2010. Higher working capital spend was needed to accommodate more projects. Net cash balance increased by 7.3% to $26.4m.

Margins waning, earnings boosted by volume. As the group took on lower-margin projects, gross margins saw a 1.8ppt drop YoY and net margins fell by 0.5ppt. While we are mindful of that, we are confident of management’s ability to procure higher project volumes given its experience and long-standing relationships with customers. The group’s current orderbook stands at $106m, 26.1% higher than last year’s, to be booked in over FY12.

Exciting projects ahead. Kingsmen has already secured a selection of exhibition projects taking place in 1H12, such as Tax Free Asia Pacific and Asia Pacific Maritime. A contract for the construction of pavilions at Yeosu Expo 2012 has been secured. Major theme park projects such as Shanghai Disneyland and Monkey Kingdom are also in the process of negotiation.

Maintain Buy. We have raised our earnings forecasts by 14% to account for higher project volumes from the exhibition & museum and IMC divisions. Our SOTP-based target price is raised to $0.85, implying 9.4x FY12F PER. Maintain Buy.