Kingsmen Creatives Ltd - CIMB Research 2018-03-14: Blast From The Past

Kingsmen Creatives Ltd - CIMB Research 2018-03-14: Blast From The Past KINGSMEN CREATIVES LTD 5MZ.SI

Kingsmen Creatives Ltd - Blast From The Past

  • Kingsmen Creatives (KMEN) is a leading global designer and producer of exhibits and interiors for exhibitions, museums, retail stores and corporate offices.
  • Management believes its recently-announced collaboration with Hasbro on NERF family entertainment centre (FEC)s is a potential game changer for KMEN, with other IP rights in the pipeline.
  • Order book (S$84m at end-Jan 2018) could increase with more infrastructure spending, theme park projects and events, according to management.
  • Currently trades at 10.5x FY17 P/E (vs. 19.7x global peers’ average) with 2.5% FY17 dividend yield. 

At the forefront of creative design 

  • Established in 1976, Kingsmen Creatives (KMEN) is a well-known global designer and producer of:
    1. exhibits for exhibitions & museums,
    2. interiors for retail stores & corporate offices, and
    3. promotional functions and other events. 
  • Through its 19 offices worldwide, it serves clients across diverse industries, such as Singapore GP, Hong Kong & Shanghai Disneyland and Chanel. Its notable works are Universal Studios Singapore, Gardens by the Bay and ArtScience Museum.

Growing order book with S$84m contracts secured at end-Jan 2018 

  • Almost 90% of Kingsmen Creatives (KMEN)’s FY17 topline was derived from exhibitions, museums and interiors. Such projects tend to be lumpy in nature, with an average 15-25% gross margin (FY17: 25.1%). While there is heightened competition for retail interiors (hence, lower pricing power), the mid-tier and local segments have been fairly resilient in recent years.
  • With higher infrastructure spending, upcoming regional theme parks and increasing number of events in even-numbered years, Kingsmen Creatives is optimistic on its project pipeline.

Could the new NERF income stream be a game-changer? 

  • In Feb 2018, the group established a majority-owned, US-based subsidiary (Kingsmen Xperience) and signed a licensing agreement with Hasbro Inc (HAS US, Not Rated) to create, build and operate multiple NERF family entertainment centre (FEC) attractions across Asia, with the first location expected to be opened in Singapore by 2019. This marks Kingsmen Creatives’ foray into media/entertainment licences, as it plans to secure more intellectual property (IP) rights from movie studios and TV production companies.

NERF – 2017 best-selling global toy brand after Pokémon 

  • According to research firm NPD Group, NERF was the second-best selling toy brand in 2017, and also one of Hasbro’s biggest brands, known for its toy guns and blasters. Management believes this concept would appeal to children and families, and expects to earn fees from content development, set construction and attraction management. 
  • Apart from FECs, Kingsmen Creatives intends to pursue more opportunities related to location-based entertainment, including travelling exhibits and larger theme park projects.

Currently trades at 10.5x FY17 P/E, cheaper than peers 

  • While Kingsmen Creatives’ net profit has declined in tandem with sales since FY15, the group has consistently generated positive operating cash flow (FY17: S$13.8m) backed by a strong balance sheet and minimal capex needs. 
  • Kingsmen Creatives currently trades at 10.5x historical FY17 P/E (5.2x ex-cash basis), at a 38% discount to global industry average of 19.7x, with FY17 dividend yield of 2.5% (historical payout of 30-50%).

Target Price: N/A

NGOH Yi Sin CIMB Research | 2018-03-14
CIMB Research SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998 Same 99998

* This Eyes On the Ground report represents a preliminary assessment of the subject company, and does not represent initiation into CIMB's coverage universe. It does not carry investment ratings and CIMB does not commit to regular updates on an ongoing basis.