Sunday, March 20, 2011

Kingsmen Creatives – FY 2010 Comprehensive Analysis Part 3

Part 3 of this comprehensive analysis will focus on the industry outlook for Kingsmen, in terms of its M&E division and Interiors division, and to review if recent trends in South East Asia and China in particular are helping Kingsmen to grow and expand the business. There have been many news reports in Singapore of increase MICE activities being planned since the opening of the two IRs, and the exhibitions and events scene is also becoming more vibrant as a result. Due to the planned revamp of the Orchard belt, there are also opportunities existing for Kingsmen to overhaul and refurbish malls in that stretch. Beyond our shores, news reports have also mentioned theme parks and amusement parks being opened in many parts of South-East Asia to capture the tourist dollar, as more and more people flock to Asia as a result of the economic fallout in America and Europe.

Tourism and MICE Outlook

For Singapore, our Singapore Tourism Board (STB) has a very ambitious plan – it wants to increase tourist arrivals to the 17 million mark by the year 2015. This was unveiled by Minister for Trade and Industry Mr. Lim Hng Kiang on January 11, 2005 in this speech, in which the aim was to increase tourism receipts to S$30 billion as well. Of course, at the time, the hot debate which was going on was whether or not to construct the Integrated Resorts, along with the associated casinos and MICE facilities. We all know what happened and now Singapore has some of the most advanced facilities for MICE as well as a booming IR to cater to tourists for all purposes (gambling, shopping, events and exhibitions). The STB 2009 Tourism Report found here mentioned that visitor arrivals stood at 9.7 million for 2009, a dip of 4.3% over 2008. 2010’s full year figures are not out yet on the site, but the reason for the dip in 2009 over 2008 was due to the global economic recession. In fact, 2010 numbers should show a sharp increase as the economy has rebounded after nearly falling off a steep cliff. Page 7 of the same report shows that roughly 27% came for MICE events, down from 30% in 2008. This still represents more than a quarter of all visitors or about 2.5 million visitors, not a small number indeed! With the full suite of MICE facilities up and running at MBS, Kingsmen would have more opportunities to tender for exhibitions and conventions for 2011.

An October 15, 2010 article in the Straits Times stated that MICE events have increased by as much as 20% over the past year as compared to 2009, as the economic recovery took hold and also due to the opening of RWS and MBS, says industry observers. The pie has enlarged for all players in the MICE industry and will give a boost to business in years to come, as the addition of the IRs has increased the exhibition space to 180,000 square metres from the previous 135,000 square metres. Industry players also agree that “the outlook looks bright” for MICE, with new shows debuting here including the inaugural Art Stage Singapore, a high-end art fair at MBS and the World Chinese Entrepreneurs Convention at Suntec Singapore. All this increased activity can only mean better business for all MICE players, of which Kingsmen is one.

Theme Park “Boom”

Theme parks is another buzz phrase which is going around in Kingsmen’s industry. With Asia’s middle class booming and China and India churning out more (and faster) billionaires than anywhere else in the world, South East Asia is set to be the next big boom in terms of tourism and is seen as the place where a lot of monies will flow, whether it be for infrastructure projects, investments or tourism projects. With rising wealth and consumption patterns also comes the need to build more places for the money to flow to, hence there has been a flurry to build more theme parks in Asia, beginning with Disneyland in Hong Kong and Universal Studios in Singapore.

I refer to an article in Channel News Asia dated September 19, 2010 which mentioned that Asia’s growing middle class is fuelling a “boom” in theme parks. To summarize the article, it mentioned that Asia is fast becoming the new destination for tourists due to cheaper air travel (i.e. budget airlines) and growing affluence in countries like Indonesia, China and India. The theme park phenomenon is shifting to Asia, says Christian Aaen, Asian regional director of research firm AECOM Economics, which specialises in entertainment and leisure industry analysis. Universal Studios has signed a deal to build its largest theme park (larger than all four of its current theme parks combined) in South Korea (ready by 2014) at a cost of 2.67 billion dollars. Disneyland is also setting up in Hong Kong (as mentioned) while Legoland is building a theme park in Malaysia to replicate famous landmarks using their trademarks bricks. Kingsmen’s press release has also mentioned a slew of other projects coming up over the next few years in Asia, namely Kidzania in Malaysia, Samsung Everland in Korea and Fushun Dreamworld in China. All these upcoming theme parks give the impression that there is a lot of activity in the near term which will benefit all players and there is optimism that Kingsmen, with their recent experience garnered from working on USS, will be able to capture significant parcels of work to add to their order book.

Interiors – Singapore, China and Malaysia

As mentioned in Part 2, the Interiors Division is the division with the higher margin compared to M&E, but this Division also has the lowest barriers to entry. However, with Kingsmen focusing on international brand names and their roll-out programmes, this means that they can target the mid to high-end premium segment of the market and thus build some form of competitive moat with their expertise and delivery timeliness.

A news article in November 2010 announced that luxury brand H&M was opening a store in Singapore at Orchard Road in late 2011, and it has been the case that many international brands are setting up shop in Asia as Asia’s wealth has increased over the years and the people’s spending power has also grown in tandem. Orchard road malls are getting facelifts more often now as more and more malls are being sold to REITs, which are managed by REIT managers. These managers will want to engage in asset enhancement works to increase rental yields for their unit-holders, and so will do more frequent and extensive refurbishment as compared to previously (before the mall was sold to a REIT). New malls are also coming up in the heartlands such as the recent Nex mall in Serangoon and Bedok Point in Bedok (Bedok’s first mall), and all these provide opportunities for Kingsmen to capture business. Though one may argue that the bulk of FY 2010’s revenues for Interiors came from the fitting out of about 30+ stores at Marina Bay Sands Shoppes, there remains ample opportunities for Kingsmen to fit out retail interiors within Singapore.

In China, Kingsmen is planning to increase the capacity of an automated facility (i.e. factory) there to cater for growing demand for retail fixtures fabrication. More on this in the next section.

Interview with Kingsmen on Industry Prospects

To add on to the news reports and industry updates which I had managed to collect over the last couple of months, I also gave a call to Kingsmen and spoke to its General Manager Mr. Andrew Cheng about Kingsmen’s prospects, and I shall briefly mention those which relate to the industry and their business divisions:-

1) Roll-Out Management services are increasing for Kingsmen’s international clientele, as more and more companies expand and set up shop in Asia. This is Kingsmen’s competitive edge as many small players and even local outfits (for example in China) cannot co-ordinate a simultaneous roll-out for retail outlets located in different regions and/or countries.

2) Retail fixtures export business is growing and makes up about 10% of Interiors’ revenue. Most of the fixtures are exported to the USA.

3) The new Beijing facility as mentioned in the press release actually relates to the expansion in capacity of an existing facility and it will enable Kingsmen to grow their revenues with regards to their China operations. The estimated capex is small (about S$100,000) and the facility will perform fabrication for fixtures used in fitting out. The rate of expansion has accelerated in recent years due to the Beijing Olympics in China as well as the recent Shanghai Expo, which increased demand for such services.

4) Kingsmen envisions a lot more growth traction in India and North Asia, which is why they had increased their stakes in the companies located in these two regions. The theme park industry is booming and many more international clients are seeking a “one-stop shop” for their fitting out solutions. Kingsmen is active not just in getting repeat clients but is also increasing their client base at the same time through winning new customers.

Part 4 will touch on Kingsmen’s competitors, namely Cityneon (listed in Singapore) and Pico Far East (listed in Hong Kong) and compare some key ratios, as well as to assess if Kingsmen has an edge over them. Some mention will be made of their different business models and focus so as to draw some comparisons and to assess if Kingsmen can hold its own against them.

4 comments:

tongchen@seattle said...

Greetings from USA! Your blog is really cool.
Are you living in Singapore?
You are welcomed to visit me at:
http://blog.sina.com.cn/usstamps
Thanks!

Singapore Man Of Leisure said...

Hello Musicwhiz,

I am more a top down sector play kind of speculator. Your part 3 analysis of the MICE and tourism sector is very informative to me.

I am more into using Genting, CDL, or SIA as my vehicle to tap this sector's growth, but now I have another vehicle I can tap into. Thanks!

I have some dealings with Kingsmen and Pico in my previous life in the Singapore furniture industry - we do exhibitions and they are our contractors. I must say you are quite spot on.

Just one small correction. H&M is not a luxury brand. It's a man in the street kind of brand in Scandinavia - a bit like uniqlo from Japan.

Musicwhiz said...

Hi Tong Chen,

Thanks for visiting!

Cheers,
Musicwhiz

Musicwhiz said...

Hi SMOL,

Thanks too, glad I could help! I think having macro-views is indeed very useful, but when it comes to the crunch, some companies do indeed fare better than others even within the same niche or industry. I guess this boils down to the power of fundamental investing whereby the investor will assess the characteristics of the firm and its Management to determine if the Company is being run efficiently.

I'm surprised that I was "spot on" haha because so far my research stems from just extensive reading and making some deductions from there. It's good to know that your real-life experience supports what I mentioned here, and thanks for affirming that. I hope to be able to go down to my first Kingsmen AGM this year (I missed it last year due to work commitments) and ask some questions.

Oh yes, thanks for the correction on H&M!

Regards,
Musicwhiz