Friday, April 30, 2010

April 2010 Portfolio Summary and Review

April 2010 started out boring, but ended up being somewhat interesting and filled with significant doses of news – well, enough to keep me occupied and my mind churning anyhow. Add to that the news of the Icelandic volcano disrupting air travel in an unprecedented fashion, and you really end up with one of the more intriguing months thus far. The weather was also strangely wet, considering it was April and close to the traditional dry season in Singapore. It was practically raining (thunderstorm, not drizzle) daily and I was careful to have my umbrella on hand wherever I went to.

Before I start out on summarizing some economic and business news, first of all I must state how thankful I am for the opening and commencement of the Circle Line, which has managed to cut short my travel time by about 40%. Even though I am not a shareholder of SMRT, I can still appreciate the social good which they are bringing to ordinary, working-class citizens such as myself. The time savings can be used for more research, which in turn translate to more money and also additional quality time with my family and friends. In time to come, I foresee that Singapore will become a very well-connected country via MRT lines which are in the midst of sprouting up like mushrooms, with the current Downtown Line being constructed followed by the Thomson Line. In 8-10 years time, there are more plans for an Eastern Region Line and also other lines which will probably make Singapore’s route map look like that of the London Tube!

The most mind-blowing business news in recent weeks was the civil suit brought against Goldman Sachs, and now Britain is also launching a probe into Goldman’s affairs to see if there was any fraud involved. This may, in turn, precipitate further actions against other “errant” Wall Street Banks which knowingly sold CDOs and CDS to an unwitting public and withheld important details about the counter-party. Of course, the banks took the brunt of the news with their share prices tumbling, as the SEC would probably go on a “witch-hunt” to root out more wrong-doing and to pin the blame of the financial crisis on one or more parties. On another note, Greece and Portugal’s debt was also downgraded by Standard and Poor’s, resulted in a major sell off as there were fears of another debt contagion infecting the economics of the Eurozone.

China’s economy continued to expand at a sizzling 11.8% in 1Q 2010, thus raising concerns about over-heating (I am sure this was brought up every single time by the USA, especially on the RMB reforms, but they always fall on deaf ears anyway). The whammy came in the form of even more draconian measures implemented by the Government to control and rein in runaway property prices, which had risen far faster than incomes in the last 2-3 years. Just Google to find out more about the measures which were taken to cool the property market, and you can tell that the Chinese mean serious business this time. Whether or not these measures will have a long-term impact to cool prices remains to be seen, though.

In Singapore, our own property market continued to sizzle, with private home prices rising 5.1% in 1Q 2010. The URA Index is 1.9% below the peak achieved in 2008, but “experts” believe this level will be breached in a matter of time. The prices of EC (Executive Condos) also shot up 70% from 1Q 2007 to 1Q 2010, compared with just 39.6% rise in mass market home prices. Developers sold 1,761 homes in total for March 2010, which was 47% more than in Feb 2010. From the looks of things, the recent Government measures to curb speculation and cool prices have failed to rein in the buyers, who are continually pushing prices to new highs. HDB resale prices remain at all-time highs and COV was last reported to be S$24,000, putting a lot of newly wed couples in misery as they search for a house which is more “affordable”. In spite of what the Government says, affordability is seriously becoming a challenge and many Singaporeans face the prospect of being indebted for more than half their lives, judging by the lofty HDB and private home prices. Unless prices come down somehow, a lot of Singaporeans (and PRs) are going to spend most of their lives fattening the pocketbooks of the banks which are granting them their mortgage loans.

For this month, FSL Trust and Suntec REIT released their 1Q 2010 results, and these were largely within expectations. Both had declared dividends as well and this will add to my cash stash for May 2010. I continued to build up my cash reserves and there were no transactions made during the month of April 2010. Currently, I may be looking at one or two potential companies for investment, though valuations at this point can be said to be “fair” or “expensive” (depending on which company you looked at), hence making the selection process all the more difficult as I insist on obtaining a margin of safety for the purpose of capital preservation. Below is a snapshot of my portfolio and associated comments for April 2010:-

1) Boustead Holdings Limited – Boustead was relatively quiet for April 2010, with only a minor announcement that they were liquidating a 30% associated company called Optivest Investments Pte Ltd. They will be releasing their FY 2010 results some time in late May 2010.

2) Suntec REIT – Suntec REIT released their 1Q 2010 results on April 27, 2010. A distribution per share of 2.513 cents was declared (down 13.9% from same period last year), and based on my cost of S$1.11, this represents an annualised yield of about 9%. The dividend will be paid on May 28, 2010.

3) First Ship Lease Trust – FSL Trust released their 1Q 2010 results on April 20, 2010. The DPU was 1.5 US cents per share (as expected), and the charter-free value of their vessels had increased 5.5% from US$590.5 million to US$623 million as at March 2010; representing 129% of the outstanding indebtedness of US$484.3 million. The minimum value to loan coverage ratio stands at 100% until the end of 2Q 2011, after which is reverts to 145%. Considering the shipping industry is making a gradual recovery, and that FSL Trust is voluntarily paying down about US$8 million per quarter, this means that at the end of 2Q 2011 FSL would have paid back another US$40 million, which reduces indebtedness to US$444.3 million. Assuming another 10% rise in asset value to US$685 million, this would represent a loan to value ratio of 154%, and would not trigger any loan redemption covenants. But please note that the 10% increase I used is arbitrary, and is just a conservative projection. If the increase is 5%, the value would be US$654 million and the ratio would be 147%, which means FSL would still be “safe”. In the meantime, the Trust also announced that they were finalizing an acquisition with the proceeds from the equity issuance of US$28 million, so this acquisition may be yield-accretive and add to DPU; while at the same time Management have an eye on the debt markets and Asian Banks to assess if more funds can be tapped to grow the Trust.

4) Tat Hong Holdings Limited – There was no news from Tat Hong during April 2010. Their FY 2010 results will be released some time in late May 2010.

5) MTQ Corporation Limited – Since I had already written a detailed post on MTQ back on April 23, 2010, I will not say anything more about recent corporate developments in this portfolio review. However, MTQ released their FY 2010 results on April 30, 2010. Revenue fell by 9%, while gross margin increased from 36% to 41.1%; and net profit went up by 10%. A final dividend of 2 cents per share was declared. I will be doing a full review and analysis of the FY 2010 results in a later post.

6) GRP Limited Unsurprisingly, there was no news from GRP for the month of April 2010. In other words, shareholders are still waiting with bated breath to find out what Management intend to do about their cash stash!

7) Kingsmen Creatives Holdings Limited – There was no news from the Company for April 2010. The AGM was held on April 26, 2010 and the Annual Report FY 2009 made a pretty interesting read, though it did not shed much light as to the future plans and prospects of the Group. Watch out for the 1Q 2010 results, which should be released some time in mid-May 2010.

Portfolio Review – April 2010

My realized gains increased to S$54.0K as a result of the dividend from FSL Trust for April 2010 (to be received in May 2010). The portfolio improved from an unrealized gain of +10.5% to an unrealized gain of +14.9%.

May 2010 should see very important corporate result announcements from MTQ, Boustead as well as Tat Hong, and dividends will start to trickle in from Kingsmen Creatives, Suntec REIT and FSLT Trust. I am also hoping the three companies which are announcing results in May will also, at the same time, declare decent dividends to boost my cash inflows.

My next portfolio review will be on May 31, 2010 (Monday).

Tuesday, April 27, 2010

Sun Tzu - War On Business Part 4 (Asian Woman)

We have come to Part 4 of the Sun Tzu series, and so far it’s getting more and more interesting with many examples of how to improve on business operations and how to apply strategic thinking. James is articulate and has good insights on all sorts of businesses; and he also engages “consultants” in the form of experienced entrepreneurs who are knowledgeable about a particular industry to give their expert views and opinions. This all adds up to a holistic appraisal of the business, and he is able to deliver his “verdict” on how to improve. My lingering grouse is that totally no numbers are presented at all throughout the episodes thus far, and this is one aspect which can be improved on.

Episode 4 goes back to Singapore again, and shows an entrepreneur called Kavita Thulasidas (an Indian lady) who designs a specialized line of clothing. She has a retail shop somewhere near Selegie area and her shop is called Asian Woman. The designs are a fusion of Western and Indian styles and in her own words, are supposed to reflect contemporary designs catered to a higher-end clientele. Unfortunately, James’ first observation is that the location of the shop is poor, in that it is located in a run-down building where there is only one other retailer present. In true Sun Tzu style, he mentions that Terrain (“Di” in Chinese) is one of the important aspects of a battlefield, and one must position oneself in a good location to be able to capture maximum consumer traffic and give good visibility to the business frontage.

As James steps into the shop, he is pleasantly surprised by the rich and elegant designs of the clothing, many of which have been hand-sewn with beads and sequins. Kavita then shows James a room upstairs where many of the gowns and dresses are further altered and “made-to-measure”. It appears that many of the garments are customized and James is forced to rethink the business model, as he previously thought that the shop attracts walk-in customers. When he speaks to one of the customers, who is an Indian lady buying a gown for her wedding to be held in Scotland, he realizes that Kavita attracts a dedicated customer base who seek her out for her special expertise in designing beautiful gowns, meaning she serves a niche segment of the market.

The problem, as Kavita relates, is that she had previously tried to expand by opening another retail shop in a busy mall but was forced to close it down as she did not want to divide her time between the two outlets, and also because of family commitments. Also, she does not have the expertise in terms of a good Management team to help her out, and like Dominic and Feng, is a very “hands-on” entrepreneur. She is thinking of how to expand her business instead of staying as a one-shop business, but is unable to break out of her current business model. That’s where James comes in, as he also enlists the assistance of Elim Chew, the founder and CEO of the clothing line 77th Street.

First, James did a simple test. He took some of Kavita’s designs and put them on models and “displayed” the models in Orchard Paragon and asked some passers-by (shoppers) for their opinions. The surprise came when many of these “contemporary” women felt that Kavita’s designs were somewhat old-fashioned and antiquated, while others remarked that there was “too much cloth” and the dresses look too layered. James then suggested to Kavita in the War Room that she had to start a new clothing line to differentiate from the old line, all the while keeping both lines distinct and separate so as to not create confusion. Another point James brought up was Kavita’s business model of selling her clothes in her own retail shop. Elim also agrees that this does not give the brand much visibility and Kavita is unable to scale up ther operations easily. Elim herself owns about 16 outlets and has expanded her brand successfully over the years. James therefore suggests using different channels to push the brand, and to market it through retailers. He gives Kavita 3 months to work on this and to hold a fashion show to display her new line to potential retailers.

The process of starting a new line and organizing the fashion show is far from easy, and Kavita works hard at it. James also enlists the help of an expert with fashion shows, who is on hand to give Kavita some advice about salient aspects of a successful fashion show, like the timing of the models and the banners to be used. Kavita starts a new fashion line called “Vita”, but in the end the fashion show is hurried and is described it as “Schizo”!

The lessons which can be garnered from this episode include:-

1) Owning a good location for a retail outlet – Obviously, a retail outlet specializing in high-end fashion needs to be located in a good mall where human traffic is high. This contributes to the perception of the store even though rental costs would be higher. James did mention that being located in a remote part of Singapore would “cheapen” the image of the brand.

2) Understanding your target customer and consumer behaviour – Apparently, Kavita did not have much clue as to what her consumers were looking for or found desirable. When James conducted a street survey using her clothing decked on models, the result was surprisingly unpleasant. So it pays to be aware of one’s consumers and to keep up with trends, especially if you are in the fast-moving fashion industry. Unless you are carrying a line which is a timeless classic, it will be prudent to innovate and evolve to remain relevant.

3) Product Segmentation is the key to a successful business – Notice how James encourages her to start a separate line in addition to her own existing line? This is to cater to more than one customer segment and to create multiple streams of income; plus broaden her customer base. This is one reason why drink companies like Coca-Cola have come up with variants such as Coke Zero (without sugar) to cater to health conscious people. If one segments their product lines clearly and creates brand loyalty in each segment, this could lead to significantly improved sales performance and clear revenue growth.

4) Succession Planning – A key theme of this episode was also succession planning, as Kavita was the only one who truly knew how to run her own business and no one else did! She herself admitted that she had not planned for any contingencies should she suddenly be unable or unavailable to run the business, and this could have a negative impact on her legacy.

5) Lack of proper delegation – Another problem seen her with Kavita which was similar to previous episodes is that the owner tends to be a little too “hands-on” and does not have proper delegation of key duties to skilled personnel to handle. If this is fulfilled, it can free up the CEO (i.e. boss) of valuable time to strategize and plan, which is basically what a CEO is for!

Watch out for Episode 5 of Sun Tzu where I will be discussing on a gym business in Beijing called Ozone Gym, which has interesting implications on understanding demand, and how lifestyle trends and culture affect business decisions.

Check out Asian Woman's website at

Friday, April 23, 2010

MTQ – Commentary and Review of Recent Corporate Developments

MTQ is not normally a company which releases a lot of corporate updates or announcements. In fact, since its market capitalization is consistently below S$75 million, there is no mandatory requirement for it to report quarterly results; and this actually helps to cut down on manpower costs involved in the additional reporting requirement to SGXNet. However, in the recent month MTQ has released quite a few updates on corporate developments, thus as an investor who keeps a close tab on the company, I feel I should give my thoughts on these developments and how they may impact the company in the next few years.

The first announcement was actually released on March 15, 2010 and concerns the acquisition of a company called Premier Fuel Injection Service Pty Ltd (‘Premier”) by MTQ Engine Systems (Aust) Pty Ltd (“MTQES”). Premier is a privately-owned company and is engaged in the diagnostic and repair of diesel fuel injection parts and engine management systems. The primary reason for this acquisition was to expand MTQES’ network of 9 branches in Australia (recall MTQES also partnered with Bosch as announced back in Nov 2009). Premier is located in Northern Territory, which is one of the few capital cities in which MTQES has no presence in. The consideration for the purchase was A$500,000 (about S$640,000) and will be financed through internal funds and fully settled in cash. MTQES will operate from Premier’s existing workshop for 3+3 years (subject to extension) and they have also employed Brian Agostini (the founding shareholder of Premier) for his technical expertise.

Comments on this announcement – As mentioned in the press release to this announcement, this acquisition will broaden the reach of MTQES and enable MTQES to enhance value to new and existing customers. It can be viewed positively as the transaction did not cost much (valued almost at cost, so MTQ are paying 1x book for it; earnings were not mentioned so unsure what valuation MTQ paid for Premier), and could be funded by internal cash flows are MTQ has a track record of generating steady Free Cash Flows. MTQ was also smart in retaining the founding shareholder to run the business, and this is in line with Warren Buffett’s philosophy of retaining Management to run the business even after he acquires companies. This is because Management usually has the connections and network to enable the business to grow and flourish further. Assuming minimal incremental investment is made into Premier as compared to its revenue-generating potential, this deal could result in enhanced top-line growth for the Engine Systems division and may also result in greater economies of scale as MTQES now have 10 branches within Australia. Gross margins could improve as the deal with Bosch also has a positive effect on the division, while Chairman Kuah Kok Kim hinted that Northern Territory’s proximity to Timor Leste and Indonesia may have positive spillover effects into that region which may lead to further growth for the division. Interestingly, if one traces back to FY 2003 to FY 2005, MTQ had unsuccessfully tried to penetrate the Indonesian market by setting up a subsidiary in Surabaya at the time; and plans were afoot in FY 2004 to expand to other major Indonesian cities. However, by FY 2005, MTQES’s Indonesian operations had yet to turn a profit amid severe competitive pressures, and the division was folded soon after. It is hoped that MTQES had learnt a valuable lesson from 5 years back about Indonesia’s market and not repeat the same mistakes again.

The second announcement and press release were made on April 5, 2010 and involved the award of a contract by MTQ Oilfield Services W.L.L to a building contractor worth US$9.6 million (about S$13.15 million) to construct a 2-storey workshop cum administrative block on the Bahrain International Investment Park, where MTQ’s new facility will be located. The agreement was signed on March 30, 2010 after a rigorous tender process and the entire investment will be funded by a mixture of internal cash flows and bank borrowings (the exact ratio was not mentioned). Mobilisation has already begun and this Phase 1 of the construction is expected to be completed by December 2010. Phase 2 will only commence after initial operations begin at the new workshop cum office.

On a separate note, the press release also makes mention of Tatweer Petroleum, a joint company between National Oil and Gas Authority of Bahrain, Occidental Petroleum Corporation and Mubadala Development Company. They intend to develop the Bahrain oil field in the next 20 years and MTQ views this as being positive for their oilfield engineering division in the long-term.

Comments on this announcement – Finally, the Bahrain expansion is getting on track! Recall that the very first announcement was made on January 5, 2009 about MTQ’s intention to expand into the Middle East, and that Bahrain had been chosen as the country of choice for their expansion due to many positive factors. Since then, MTQ had set up a subsidiary company in Bahrain (which is 100% owned) in June 2009, and then proceeded to increase their injected capital in this subsidiary on March 30, 2010. After nearly 1.5 years of preparation, the construction of the new facility is under way and I am glad to hear that everything is on schedule and is proceeding as planned. MTQ has also identified Bahrain as having huge potential for oil development in the next decade or so, and this paves the way for long-term business in the region, in spite of there being other incumbent competitors. Of course, my question now would be how much MTQ will eventually spend building the facility (taking into account possible cost overruns), and also how much bank borrowings they will require to take up. All these factors will significantly affect MTQ’s near-term dividend payout and also showcase their ability to manage their cash flows. Knowing that Kuah Kok Kim is a conservative and prudent businessman, I am sure he would have computed the correct ratio of bank borrowings to internal cash flows so as to not over-strain the Balance Sheet. On the other hand, using less borrowings and more internal cash may put a strain on the Cash Flow Statement and reduce the availability of short-term working capital as progress payments have to be made to the contractors for the next 8 months till Dec 2010. Hence, this is going to be a delicate balancing act and I hope more insights will be revealed when MTQ releases their FY 2010 results in late May 2010.

The third announcement came on April 14, 2010 and was in two parts. The first part mentioned the sale of land cum property by MTQES at 32 Raynham Street, Salisbury, Queensland on April 12, 2010 for A$975,000 (about S$1.25 million, less agent fees). Considering the written down value (WDV) of the land and building was only A$407,000 (about S$521 million), MTQES will stand to recognize a one-off exceptional gain of about S$729,000. The rationale given for the disposal was for MTQES to continually streamline its operations and that the site at Salisbury posed challenges as it was not optimised to support the level of business activities (implying it was too small and perhaps run-down, with old equipment).

The second part of the announcement was a major one as it mentioned that Mr. Kuah Kok Kim would step down as Executive CEO with effect from July 1, 2010. Stepping into the shoes of CEO would be his son, Mr. Kuah Boon Wee, who has experience in helming the growth of PSA as well as working as the ex-CFO of ST Engineering. He is a very capable and prolific man who has a degree in Mechanical Engineering and is also a Qualified Chartered Accountant. Mr. Kuah Boon Wee has been on MTQ’s board since 2006 but is now resigning from PSA to take on a more active Management role and steer the Company to better organic growth, and also on overseas ventures. Mr. Kuah Kok Kim will remain as the Chairman of MTQ to provide strategic guidance and advice to the Group. This was all part of MTQ’s succession planning to ensure continuity in the business.

Comments on these announcements – The first part about selling the property seems (to me) like a very good tactical move, as retaining an ageing building with old equipment would most likely pose more harm than good. Since MTQES had already consolidated all its operations under one roof since July 2009 (and probably was enjoying better economies of scale as a result), it made commercial sense to put up the Salisbury property cum land for sale to realize some cash. Even though the transaction will result in a one-off gain for MTQ (probably to be recognized in FY 2011), I think the more important aspect of this sale is to claw back some cash of about S$1.25 million, which will boost MTQ’s cash reserves for their expansion plans.

The second piece of news about the leadership handover and succession plan was surprising, though not unexpected. It would seem that the Chairman was already planning for the long-term and putting in place measures to ensure MTQ grew from strength to strength. I guess this may be why Mr. Kuah Kok Kim purchased 93,000 shares in his own name at S$0.72 back on March 17, 2010 (just a few days after announcing the purchase of Premier). With Mr. Kuah Boon Wee’s extensive experience in overseas businesses with PSA, as well as his strong understanding of numbers, accounting and financials from his previous work as a CFO (and bolstered, no doubt, by his prestigious Chartered Accountancy degree), MTQ may be set for much greater growth in the years to come.

It will indeed be exciting to see what the future has to offer for MTQ in the near-term, as their new facility takes shape in FY 2010 and 2011. The Company is on the cusp of steady growth and it should continue to do so in the steady hands of the Kuah Family. I will be providing a FY 2010 review and analysis once the results are out in late April 2010, but note the review may only be posted some time in June 2010 as Boustead and Tat Hong will also be simultaneously releasing their FY 2010 results in May 2010 (I will be kept inordinately busy!).

P.S. - Do note that MTQ had recently revamped their website and it now looks more modern and is easier to navigate, plus it has news announcements stretching all the way back to FY 2001! Check it out to read up more about the Group.

Monday, April 19, 2010

Are We Mistaking A Bull Market for Brains?

Clearly, the title above may elicit some gasps of astonishment and surprise amongst readers, as the thought may not have crossed their minds that this is a “bull market”. However, during the last few months, it has become more noticeable that share prices have, in general, been moving upwards. Despite the gloomy and often depressing news, there were also bits and pieces of positive “green shoots” peppered in between which would make one smile and feel optimistic. Overall, the feeling is one of general caution and most investors would feel some measure of trepidation and would hesitate before jumping in. Or perhaps I am wrong? If one observes the recent Top 30 volume, one will notice that they are mostly made up of penny stocks, and these are businesses which frequently need to raise cash and are at most worth a punt. However, they continue to dominate the Top 30 Volumes listing with a very high churn rate, and supposedly are being traded in large volumes by large institutional players and small-time retail speculators.

This all sounds well and good, or does it? The general sentiment is that things will begin to improve, but how does that factor into our analysis of the businesses we hold? In order to answer that, one must constantly and consistently take a close look at the business to ensure everything is proceeding as planned, and that the numbers still look respectable. There have been many cases of “buy and forget”, which have resulted in an initial investment dwindling to 10% or less of its value (and in worst-case scenarios, the company goes bust and the investor loses everything). If one has taken a close hard look and is assured that all is well, the next question to ask would be – should I continue to add to my position at current valuations or should one adopt a “wait and see” attitude? Clearly, there is no definitive answer to this million-dollar question, and one must use one’s professional judgement as well as experience in reviewing business affairs to make an informed decision.

All is made much more difficult in the case of a bull market, where “a rising tide lifts all boats”. In the last 2-3 months, it has been observed that valuations had risen steadily as economic conditions reverted closer to the long-term average, and when a strong rebound in the economy and growth was anticipated. On April 14, 2010, the STI finally crossed the 3,000 psychologically important mark, its highest level since June 2008. An investor has to do double work in such cases – firstly to ascertain if business conditions are indeed improving and will positively affect the business in which he is invested in, and secondly to determine if valuations are still fair or excessive (they can’t be “low” because the bear market has long passed us). This may be one of the most “objective” methods I can suggest to review and see if it makes prudent sense to continue investing, or to hold and wait; as other methods may hinge too much on price levels and general sentiment and be unable to stand up to close scrutiny when called for. However, this method is far from simple and requires quite a bit of research, reading and delving into numbers, as well as the use of assumptions. Let me elaborate a little more.

The first step an investor has to take to distinguish between a bull market and brains is to assess the business climate affecting the company in question, and to determine if it has indeed improved or remains subdued or in the doldrums. For example, if you are invested in a high-end watch retailer (e.g. Hour Glass, Cortina), you could check out news articles on consumption spending of luxury items, and also how the industry as a whole is faring (e.g. are competitors expanding or lying low for now). Next is to examine the business model and numbers belonging to the company you are invested in and to sieve out any plans or intentions they may have to expand or grow. For example, a mass market food retailer may start expanding a chain of food courts because the middle class pool has grown larger in a developing nation, or a property company decides to go ahead with property launches as compared to 6 months ago when they laid low. All these signs point to heightened economic activity pertaining to the company you are scrutinizing, and these signs, coupled with a strong Management Team, usually indicate decent growth ahead in top line and perhaps bottom line as well. Cost control is another aspect one can assess, and this is by observing the quarterly gross margins which a firm enjoys. A recent example I can think of are Swiber and Ezra, whose gross margins seem to be shrinking even though oil prices seem to be rising. This either portends weaker rates, higher costs or more competition. Either way, one has to take note of all these and factor them in accordingly in order to make an informed judgment call.

The paragraph above briefly describes how to assess a company and weigh its fundamentals and prospects, and also to observe how it executes its plans. Track record also counts a lot when assessing companies, as some relatively new companies may have Management which are inexperienced and who have not gone through crises. Finally, a conservatively financed company with a strong Balance Sheet and consistent free cash flows also has a better chance to grow strongly once the economy bounces back, and there is even a chance of them increasing their dividends (which would count as a bonus) if revenue and earnings are lifted.

The second part is, admittedly, a lot more difficult to assess, and involves reviewing the current and expected future valuation of the Company to ascertain if it is still a bargain, or if it may exhibit signs of being over-valued. The difficulty here is one of future expectations, uncertainty over earnings (which is always the case) and most importantly, what is deemed to be “reasonable” in terms of valuations. If we take the first two items aside because we are not astrologers and cannot predict the future, that leaves us with the definition of “reasonableness” when it comes to valuations. Recall that during the brutal bear market, valuations of 1-2x PER and 0.4-0.5x P/B were extremely common, and many companies traded lower than their NAV. By contrast, bull market valuations (to take a leaf from late 2007) average anything from 15x to 30x for extreme cases. Thus, the long-term average is probably somewhere around 7-12x, and many pundits have stated that the index is fairly valued at about 13-15x PER. If we also account for the fact that we are in the midst of a slow recovery from a brutal recession (the worst since the Great Depression, apparently), then valuations should begin to normalize and a region of around 5-8x would be deemed reasonable.

By no means should readers take this as the gospel truth, as there is no way to determine what stage of the market we are in at any one point, and in fact it is always hindsight which tells us if a company was under or over-valued. Therefore, the conclusion is that even if one were to expect decent growth (not explosive), one should ensure a margin of safety by not purchasing a company whose historical PER exceeds 10x, and whose earnings growth rate averages 10-20% in the long-term. Since valuations are a tricky business, it is entirely up the individual investor to comfort himself that a margin of safety exists in his purchase based on all facts present, and he has to ensure he has covered a broad enough spectrum of variables to give himself the confidence to purchase a stake in the company for the long-term.

To end this article, to differentiate between a bull market and brains, all one needs to do is to analyze and focus on the business, and ignore the stock price unless it becomes so painfully obvious that we are in a runaway bull market and that valuations are unsustainably high; then it may make more sense to sell to Mr. Market!

Thursday, April 15, 2010

Kingsmen Creatives – Analysis of Purchase Part 3

In Part 3, I shall elaborate on the Competitor analysis for Kingsmen, which is a section I devote to understanding the competitive forces present which may affect Kingsmen’s business, and to evaluate the threat of scaling their competitive moat. Simple and brief write-ups will be provided on three of Kingsmen’s competitors. I will then touch on prospects and plans which the Company has in store to grow further, and finally wrap up with my decision for purchasing shares in the Company (weighing pros against cons).

Competitive Analysis

Pico Far East (“Pico”) is the market leader in the MICE industry and also does fitting out for reputable clients. Essentially, they have been in this business for as long as, if not longer, than Kingsmen Creatives. Pico is Hong-Kong based and listed on the Stock Exchange of Hong Kong, and as mentioned earlier most of its business is centred in Hong Kong and China, though it has a pan-Asian presence in many countries as well. More information can be found on its website.

More importantly, I used Pico as a benchmark for comparing Kingsmen as they are the certified market leader. Metrics such as revenue growth, gross and net margins were compared and I also looked at the list of clients which Pico had and some of the events which they were helping to organize. That was when I got surprised – there were overlaps in the event management arena (e.g. for Formula 1 Singapore) for both Pico and Kingsmen, which made me realize a mega-event could be so massive in scale that all players get a slice of the “action”.

In terms of financials, Pico had far higher revenues than Kingsmen (I used financials for half-year ended April 30, 2009), but net margins were slightly lower. Revenue was HK$1.05 billion (about S$210 million) for 6 months, thus annualising this would mean revenues of about S$420 million for full-year, about double that of Kingsmen. Gross margin for Pico was 33.7% against Kingsmen’s gross margin of just 26.4%, so it was obvious that Kingsmen had more room to go in managing their COGS (much of this depends on scale). However, Pico’s net margin was just 5.75%, while Kingsmen had a net margin of 5.9% for 9M 2009 and 7.4% for FY 2008. Even though Pico appears to have much higher gross margin, Kingsmen had better expense control and still managed to stay on par with the market leader. This is a comfort of sorts as it shows that Kingsmen did not fall behind Pico on too many aspects.

Design Studio is a premier furniture manufacturer, and the company also provides interior fitting out specialist outside Singapore. Design Studio's three complementary and versatile core businesses - the supply and installation of manufactured furniture products to private residential developments, interior fitting-out services to hospitality and commercial projects outside Singapore, Malaysia, Thailand, Vietnam and Indonesia, and distributorship of renowned imported brands (in Singapore only) and the export of two widely received in-house brands have been customised to reach a comprehensive spectrum of residential and commercial developments across major countries around the world. More information can be found on its website.

Suffice to say that Design Studio is starting to be a credible competitor to Kingsmen in the Fitting Out aspect, even though the Company was only started in 1991 (about 19 years of history). However, the difference ends there. Design Studio are more of a furniture manufacturer and they tie up with prestigious property developments (e.g. high-end condominiums) to provide quality furnishings; so the Company actually has a manufacturing plant and houses inventory, unlike Kingsmen which are purely service-based and rely more on human expertise. This is also why Design Studio has a much higher net margin that Kingsmen (at close to 20%). On the flip side, its working capital requirements are much higher due to the fact that they need to manufacture and stock up, and well as handle logistics and transportation of their finished goods.
I could not do a direct comparison between Kingsmen and Design Studio as the core nature of the businesses are different, even though people have lumped them together on many occasions as “comparatives”. Design Studio actually competes with other furniture manufacturers like HTL, Lorenzo and Sitra while Kingsmen’s direct competitor is more Pico.

Cityneon is a company which deals with exhibitions, events and fitting out, though it is a much smaller competitor to Kingsmen. Its annual revenues for FY 2009 stood at about S$90 million compared to Kingsmen’s S$242 million for FY 2009. It also has large clients for fitting out such as Asia Jewellers’ Boutique, YKK showroom and K4 Retail Superstore, among others. Along with Kingsmen, they are also providing services at the upcoming Shanghai Expo 2010. This is another example of overlaps in the events, which require more than one event management company to assist in.

The conclusion is that Pico and Cityneon seem to be targeting the same space as Kingsmen, but the overlap demonstrates that there are ample opportunities for all players to work on these mega-projects. While all players have a strong clientele base and international clients as well, Kingsmen can hold its own with its own client base. Competition will continue to be keen but with the growth of the industry and many more major upcoming projects, there is still room for growth in top line and bottom line for all the players. However, as a prudent measure, I will be closely watching the margins for Kingsmen as well as their order book to ascertain that all is going well.

Prospects and Plans

Kingsmen also has experience in thematic and scenic construction, from its experience with the Universal Studios Theme Park. This enables it to enter a new business segment within its Museums and Exhibitions division, and start to bid for theme parks in South-East Asia. Universal Studios also recently announced, on Jan 19, 2010, that they plan to build its largest theme park in South East Asia in South Korea at a cost of S$3.7 billion. There are also plans by China and the Middle East to build theme parks in the next couple of years, and these present opportunities for Kingsmen to grow their business.

In the meantime, they will continue to grow their order book with iconic events in the MICE space within Singapore and South-East Asia, and are continually attracting more international clients for their fitting out contracts.

The second phase of Universal Studios is also up for grabs, and Kingsmen are confident they can secure contracts for this. Most of the rides and structures also need maintaining and refurbishment over the next few years, which will provide Kingsmen with steady business.

Conclusion and Wrap-Up

The purchase decision was made based on the following points which are summarized below (negative points will be separately elaborated on):-

1) Track Record and Reputation – Kingsmen has been around for nearly 34 years, and has built up a solid track record of providing quality work done and professional services with its trained and experienced staff. Because of this, the Company has a stellar reputation and is known as one of the leaders in providing fitting out and organizing exhibitions.

2) Brand Recognition and Visibility – Kingsmen has a recognizable brand name and brand equity, and they are effectively leveraging on this to grow their business. Their focus on quality and high standards also means that they can easily attract international brands and big names to sign up with them.

3) Strong Management with years of experience – To be frank, this reason is always stated as a reason to invest on many listed company’s fact sheets. But let me just reiterate once more that Benedict Soh and Simon Ong (who were the founders) have a wealth of experience in managing the business and have built it up literally from scratch to where it is today. OK, end of cliché, let’s move on to the next point.

4) International Clientele – Kingsmen has a myriad of international clients such as The Gap, Burberry, Swarovski and others; and the good thing is that many of these are repeat customers, which means their customer base is strong and also growing. The presence of big name clients also mitigates the risk of bad debts, which are an important aspect of this business as most of the time the event has to be organized and over before clients pay up (though of course, they have to pay an upfront deposit first).

5) Economies of Scale provide barriers to entry – Some may argue that it is easy to organize such events and hire sub-contractors to set up the tentage or to do fitting out. This is true, and I do know of smaller companies who cater to the smaller scale road shows (of generic products or smaller brands). However, costs are always an uphill battle as there are no economies of scale or pricing power; so the smaller players are always struggling to contain costs and their profit margins are even lower than Kingsmen (assuming they even manage to break even, as it is a cutthroat business when you are a small player). Thus, Kingsmen’s scale gives them an advantage in terms of being able to bid for large projects with better revenues and margins, and to manage their costs better through economies of scale. This also acts as a barrier to entry as it is not easy for a small player to get larger because of existing business relationships between Kingsmen (as well as other large players like Pico) and international clients.

6) Low Working Capital Requirements – Kingsmen is essentially a service-based company and has no inventory, so this eliminates the risk of over-production and/or product obsolescence. As a result, it also has low working capital requirements as most of its expertise lies in its staff’s skills and service levels. Though staff costs are a large component of its cost structure, this is essentially a fixed costs except when using sub-contractors. This is the reason why the business requires little additional investment to scale up to other countries and it can continue to generate FCF every financial year.

7) Steady and increasing dividends – From the chart in Part 1 of this analysis, it can be seen that dividends are increasing every year since Kingsmen started paying an interim dividend, and this can be attributed to its business model which generates good FCF which it can pay out to shareholders twice a year. As the business is growing due to scaling up of competencies and capabilities, it looks like the dividend can at least be sustained. Assuming a yearly dividend of 3 cents per share (conservative), based on my purchase price of 56.5 cents, this represents a dividend yield of 5.3%.

As with any business, below are the negative aspects of Kingsmen which I have to list down as well, in order to make an informed decision:-

1) Low Margin Business – As a result of the nature of the business, net margins in this industry are generally low at 6-8%, and seldom exceed 10%. Low margin businesses are more vulnerable to “shocks” when expenses suddenly increase without warning, and a Company can fall into losses more easily if it does not practice good expense control. The good news is that the business is not exposed to commodity prices (raw materials), and also does not have financing costs as it is in a net cash position. This mitigates the risk somewhat.

2) Order-Book Driven Business – Kingsmen’s business is essentially order-book driven, and this has risks pertaining to % of completion of projects as well as ability to continually garner contracts/projects to ensure a steady revenue stream. Revenues and costs may also be “lumpy” due to the timing of recognition and progress billings.

3) Staff Costs are a major component of Kingsmen’s business model – As staff costs make up a large percentage of their total costs, Kingsmen are vulnerable to any economic or social policies implemented by Singapore which has a negative impact of staff costs, both in terms of welfare and benefits. For example, the Government recently announced hikes in Foreign Workers Levy (FWL), but it is not known if Kingsmen has a large proportion of foreign workers, so the impact of this measure should be muted.

4) Expertise and Experience is inherent in staff – Much of the expertise and skills which drive the business are inherent and internalized within staff and do not count as an asset on the Balance Sheet. This brings up the risk of key staff resigning or being “poached” by competitors, thereby taking with them valuable information and/or skill sets which Kingsmen may have painstakingly spent money to inculcate and develop. What the Company can do is to initiate a “buddy” system in which two staff have overlapping roles, to minimize the risk of a “vacuum” being left behind in case one suddenly resigns or falls ill.

5) Reliance on Sub-Contractors – Due to Kingsmen’s high reliance on contractors and sub-contractors, an increase in costs of materials will flow through to contractors and in turn, affect the margins Kingsmen enjoys through provision of services. Contractors may also have the upper hand in dictating prices to charge Kingsmen as Kingsmen may be highly reliant on them; this risk can be somewhat mitigated if Kingsmen uses more than one sub-contractor for a single event or fitting out.

6) Business is not recession-proof – Kingsmen’s business is NOT recession-proof, unlike industries like food and clothing which are considered necessities even in the event of a sharp downturn. Businesses will scale back on renovations and refurbishments during recessions and this will directly impact Kingsmen’s top line; for MICE industry, less exhibitions and trade shows will be held too if countries struggle to grapple with the effects of a prolonged recession.

From the above, it can be seen that the negative aspects are almost as numerous as the positive ones, which means a higher margin of safety is required. I have invested based on conservative price-earnings assumptions, low to zero growth and a constant (and perhaps decreasing) dividend payout. The economic recovery is not a given and many obstacles still abound, so being conservative means I still get to enjoy decent yield with no upside expectations. Therefore, I am unlikely to feel too disappointed and any upside in terms of earnings and valuation adjustments will represent a bonus. In the meantime, I will continue to keep a close watch on the Company's business, financials, industry and fundamentals.

Disclaimer: This 3-part analysis is not meant to be a guide or solicitation for readers to either purchase or sell shares in Kingsmen Creatives. It is merely meant to be a diary of my thought process when evaluating a Company for potential investment. Please do your own research and consult a trained professional if you are unsure of what to do.

Saturday, April 10, 2010

Personal Finance Part 17 – The Core Concepts of Cycling

I guess the first question many readers would ask when seeing the somewhat confusing title above is: how does cycling factor in personal finance? Well, my reply is that after seeing how COE prices have skyrocketed (yes, I can find no better word) to S$28,000+ for small cars, S$36,000+ for larger cars and S$42,000 for Open Category, I felt compelled to pen down my thoughts on how cycling can be a very rewarding alternative form of transport, albeit with its associated “cons”. In our small island called Singapore, somehow no one really gives cycling the kind of attention it deserves, and it seems to be relegated to two different camps: one of the enthusiasts (who are decked out in full gear including helmet, aerodynamic body suit, arm and knee pads and matching shoes), as well as foreign workers, who use cycling as a simple and cheap mode of transport to get from one work site to another, or from their work site to their living quarters. There seems to be scant attention paid to cycling as not just a form of recreation, but also a practical way of getting around the island.

For myself, I use my trusty bicycle for almost everything from buying groceries at nearby NTUC, for leisure rides (exercise), buying supper and also commuting to and from my tuition student’s house (I choose a student near my place which is accessible by bicycle). I only use the bus or my feet for purchases of bulky items, or during inclement weather. On average, I cycle about 10km per trip, with some leisure trips at East Coast Park bringing me a total of about 30km plus.

Let’s break down this topic into a few core central concepts (hence the title!):-

The Cost of Cycling

This is obviously a no-brainer, but I think it would be good to list the associated costs of owning a bicycle, in order to properly compare the cost of cycling (in monetary terms) compared with owning a car or taking public transport. I think there are enough websites dedicated to breaking down the cost of owning a car, such as this website, so I will simply delve into the costs of owning a bicycle.

Note: All the costs below relate to my current mountain bicycle, which was purchased in 2003 (from Rodalink at East Coast Road). The other incidental costs relate to repairs and maintenance plus replacement parts to keep my bicycle in working condition to this very day!

Cost of Bicycle: S$240
Cost of Brake Pads (replacing per year): About S$5
Cost of New Seat: S$30
Cost of New Wheel*: S$36
Cost of General Maintenance (per year): S$50

Adding up everything gives a total of about S$700, over a period of 7 years. This translates to about $100 per year or less than $10 per month. The figure above excludes the cost of a very good cable lock (about S$30-S$40) to securely lock your bicycle to prevent theft.

*Note: My front wheel got stolen some time in 2005 as I parked my bicycle near East Coast Road. To this day, I still wonder why anyone would bother to just steal one wheel and leave a bicycle “marooned”. Nowadays, I lock my bicycle’s body AND wheel too using 2 separate locks. These thieves are relentless……

The Benefits of Cycling

There are quite a few benefits related to cycling, and these are not just based on financial or health considerations. One of these is convenience, as one can go almost anywhere on a bicycle without much worries for traffic flow direction, and can also “squeeze” through narrow lanes or fields to “short-cut” one’s time taken. Couple this with a bag pack and basket (I don’t have one), and the bicycle becomes a perfect tool for grocery shopping. I use the bicycle for library books (borrowing and returning), buying groceries, visiting showflats nearby, commuting to tuition, running simple errands and buying food from hawker centres or McDonald’s.

The fact that one can “park” the bicycle anywhere also means you can mount and dismount almost anytime, and that to me is the ultimate convenience. With a car, one has to find a parking lot or else illegally park, and then the coupons or cash card has to be used for parking fees. A bicycle has no such additional fees and one can park anywhere as long as one does not obstruct the flow of traffic.

Cycling also has obvious health advantages in that one can build stamina and thigh muscles similar to cycling a stationery bicycle at the gym. I usually use the bicycle to work up a sweat and this ensures I get my weekly dose of exercise.

The Disadvantages of Cycling

The disadvantages of cycling are mainly due to distance, and weather conditions. Singapore being the humid and hot country that it is, makes it very tough to cycle for prolonged distances without ending up drenched in sweat. Even a short five-minute cycle to the nearby grocery shop in warm weather has my shirt soaked in perspiration, of which I have to change out of and maybe take a shower. I think this is the KEY reason why I do not see more Singaporeans (especially girls) using the bicycle as a mode of transport. Imagine cycling to your favourite mall dripping in sweat with half your make-up flowing down your face! Not a very pretty sight indeed. This is in contrast to China where the cool weather and low humidity means that droves of young people make use of cycling to get around (yes, including young nubile females too). This is one of my main grouses of cycling in Singapore, but over the years I have got used to it somewhat. If I need to, I just bring a towel and some change of clothing as well as a bottle of water and I can get by.

Another pet peeve of mine is that the roads are generally quite dangerous for cyclists, and weirdly enough, except for Tampines, everywhere else in Singapore it is considered a crime to cycle on the footpaths! Another contrast to China – there is a dedicated “cycling lane” just for scooters, motorized bikes and normal bicycles in most cities. This makes it very safe for bikers to use such lanes to get from one place to another, and cars also are careful to watch out for such cyclists as it is part of the inculcated culture. In Singapore, most motorists are impatient with cyclists and will honk at the first opportunity. Others simply like to speed (even across pedestrian crossings) and this makes it a bigger hazard for cyclists. Even with reflective clothing and back lights, cyclists remain at high risk on the roads. So, most of the time I stick to footpaths, even though technically it’s “illegal”. Add in a little courtesy (“excuse me, thank you”) and it all works out well in general.

Yet another major problem with cycling is that of the weather, which is somewhat of an understatement. Knowing Singapore’s tropical climate and penchant for sudden, thunderous rain storms, this makes cycling a rather unpredictable affair. These days I have learnt to anticipate strange weather conditions much better, and can act as an amateur weather forecaster because for me, it is so important to know the weather before you set out. Of course, even the best planning can fall flat and often times the return journey can be severely disrupted because of a sudden passing cloud. Suffice to say cycling is close to impossible if the rain gets heavier than a drizzle. Not only is visibility obscured, but the rain makes roads much more slippery and is also causes the dreaded “splash effect” (ok, it’s my fault for not installing a mud guard).

Suggestions on how to Enhance the Cycling Experience

The Government, in its relentless attempts to wean Singaporeans off the car, should actively promote the use of bicycles as they give out less pollution (more environmentally friendly) and take up much less space. But seeing how bicycles are not subject to expensive COEs and ERP systems, I guess the Government would be somewhat shooting itself in the foot if it promotes cycling as it will deprive itself of an extremely lucrative source of revenues. Nevertheless, I will list down a few suggestions I have on how to make cycling a safer and more economical alternative to driving or public transport.

First off, making ALL footpaths cyclist-friendly would be a good next step, other than just designating Tampines as a “cycling town”. This seems to imply that cyclists only exist in Tampines (of which I am not a resident of), which is somewhat ridiculous. Secondly, the Government could increase awareness of cyclists and educate road users on how to give way to cyclists and watch out for them on the roads. This can be done via incorporation into a motorist’s Basic or Advanced Theory lessons at driving school.

Another suggestion would be to set up bicycle points at strategic locations around the island, where cyclists can lock their bicycles under shelter. Currently, there are only “ad-hoc” bicycle locking locations and these locations are not enough and may be exposed to the elements. In a further bid to encourage cycling, the authorities can look into the “Ride and Park” scheme – bicycles can be rented out from one location and “returned” at another location (similar to borrowing library books); but users are charged a flat fee per month.


I have a Class 3 Driving License but still choose to use the bicycle as my main mode of transport. For purely personal reasons, I enjoy the thrill which cycling gives and the feeling of freedom. Maybe for reasons unknown, I tie back the feeling to the ones I had during my childhood and therefore experience the same kind of child-like joy when I am on my bicycle, even though I am a middle-aged adult now. Since happiness, pleasure and satisfaction are intensely personal, I can’t vouch that everyone who rides on a bicycle will feel the same way; but I am hoping they can trigger some sort of positive emotional response nonetheless. It constantly amazes me how many people do NOT know how to even cycle (mostly women). To me the two important life skills are swimming (in case you fall into the sea) and cycling. But in an urban jungle like Singapore, perhaps only swimming is emphasized; and cycling is overlooked because there is neither infrastructure nor impetus for this skill to be learnt.

If only more Singaporeans could look to cycling as a viable means of transportation, we could, as a group, lobby for the Government to take cycling to new levels. Currently, all I see around me are cyclists who are mainly foreign workers commuting to and fro; as well as the hard core fanatic cyclists who are decked out in full gear. Probably at least for the next 10-20 years, I do not see a change occurring anytime soon. Singaporeans will continue to be car-crazy (notwithstanding the high COE prices) and most will prefer to squeeze bum to bum in a crowded MRT carriage or bus. This post is just to highlight that cycling can be part of one’s personal finance plan to cut down on expenses over the long-term.

Monday, April 05, 2010

Sun Tzu - War On Business Part 3 (Plastered 8)

Part 3 of Sun Tzu is also set in Beijing, China; but this time it focuses on a T-Shirt retailer called Plastered 8 (“P8”). This small business is located in a shophouse near a popular tourist belt and is headed by a Briton called Dominic Johnson-Hill (“Dominic”). He has been living in Beijing with his wife (Laura) for the past 17 years and is reasonably fluent with the Chinese language, so this helps in communicating with the locals and, we shall see, in getting his new T-shirt designs as well.

Essentially, the business designs T-Shirts with bold and progressive designs and then on-sells them to customers who enter the shop. Iconic images around Beijing are put on funky-looking T-Shirts as designs, capturing a significant amount of creativity (mostly coming from Dominic). Unfortunately, the business has stayed stagnant over the years and has not grown (though it is still profitable). The problem has been identified by James Sun as competition, which comes in the form of nearby shops who shamelessly imitate the designs and ideas which Dominic has painstakingly searched for. Dominic is a tireless entrepreneur who will be personally involved (same problem as in Part 2’s CCC) in trawling the streets of Beijing for ideas with which to put onto his T-Shirts to make them eye-catching and funky. (Note: Once again, numbers such as number of T-Shirts sold, gross margins and revenue figures are not provided in this program).

James Sun interviews some passers-by on the street and their reply was that P8 did not differentiate itself much from the competition, and they do not feel that P8’s designs are unique or ground-breaking. This is due to the intense copying which other shops have started to do, and so the main differentiator in this case would be price. In fact, P8 is feeling the heat here and is starting to advertise for 2 T-Shirts for the price of 1. James feels that once a business starts competing on price without product differentiation, it is the beginning of a downhill battle in which all players will lose. On a side note, this is akin to price wars initiated by telcos or airlines in which only the customer benefits (but not the companies itself). Dominic himself has admitted he is not a “numbers guy” and is more focused on designs and ideas, hence the business has been unable to grow.

In the War Room, James once again enlists the help of Yifei Li and together they both inform Dominic that he needs to differentiate his brand from the competition. They suggest using music to bring the brand to a wider audience, and for him to create a sub-culture with his T-Shirts which will then sell well as it will cater to a particular market segment. Dominic agrees to the re-branding exercise and promises to make use of music to cement his brand amongst the youth and to project a more “hip” and “cool” image.

5 weeks later, Dominic has enlisted the services of one of Beijing’s Top 10 rock bands to supply them with P8 T-Shirts, and also to perform in a venue along one of Beijing’s busiest streets. The costs of this event are not mentioned, but the important fact is that it will provide an immediate boost to visibility for the brand and also Dominic’s T-Shirt designs.

The concert proceeds smoothly and helps to cement P8’s T-Shirts as cool, hip and decidedly underground. By targeting such a niche segment, P8 has differentiated their brand from all the other wannabes out there who are simply copying and pasting designs without much originality. A website has also been created for selling P8 T-Shirts online to further boost sales, in addition to walk-in customers to the brick and mortar store front. This two-prong approach will increase P8’s reach and customer base as the proportion of customers who do online shopping is steadily increasing.

The lessons to learn here are as follows:-

1) Delegate and Segregate – Similar to the lessons in CCC, Dominic has to learn how to delegate some of the more menial work to his Management Team, and to segregate duties properly so as to avoid inefficiencies and duplication. He himself, being a designer, should use his ideas to inspire rather than getting down and dirty to look for new designs. This can be “outsourced” to other designers who can come up with innovative ideas as well.

2) Leverage on Branding – Throughout the program, I get the feeling that Dominic is a competent designer and businessman but he somehow under-estimates the power and influence of branding, to his detriment. His P8 brand does not have a clear brand identity and was becoming lost in the cacophony of brands being churned out like a factory floor out in Beijing’s streets. In order to regain control again, he needed to do proper and targeted branding which includes events and sustained A&P activities.

3) Price is not a competitive edge – In the early part of the program, Dominic can be seen putting up a sign for a discount on P8’s T-Shirts, essentially under-cutting his competition. This had the potential to escalate into a price war, and would be disastrous for all players in the industry. Competing on price alone is NOT a competitive advantage unless you can produce much more cheaply than all your competitors, which was not the case for P8.

4) Identifying relevant niche segments – It was interesting how James and Yifei Li mentioned that P8 needed to lock arms with music and create a brand identity. In a way, they are encouraging Dominic to identify and relate to niche segments which can help the brand to thrive and grow.

Overall, I feel that Dominic had become wiser from the experience, and has begun to see things in a different light after receiving advice from James and Yifei in the War Room. He now realizes that he has to do more to differentiate his brand and grow his business. Competition will always inevitably set in and one must always innovate and think of ideas on how to differentiate one’s brand from the copycats. It’s a never-ending process and that is what characterizes the job of a business owner. He must always be vigilant for changes in the competitive landscape and industry and react accordingly, otherwise he will be left behind in the dust.

Part 4 of this series shall cover business owner Kavita, and he clothing business Asian Woman based in Singapore.

Please visit Plastered 8's website at