Kingsmen Creatives (KimEng)

Event

Kingsmen’s 1H11 revenue fell by 15.9% YoY to $93.6m, with the corresponding net profit slipping by 15.0% YoY to $5.9m. While there was a sequential pickup in 2Q11 figures, it was still a relatively slow quarter. However, management is confident that 2H11 would be stronger and that the full-year performance could eventually match that of FY10. An interim dividend of 1.5 cents per share was also declared. We continue to like the stock on valuation grounds and maintain our BUY recommendation with a target price of $0.80.

Our View The poorer 1H11 YoY performance was due to slower business in the Exhibitions & Museums division, which saw 1H11 segmental revenue fall by 40% YoY. This was because of an absence of large-scale projects compared to a year ago when Kingsmen completed several projects related to World Expo 2010. Revenue for the other segments, however, was stable with modest growth registered. Gross margin also trended higher with better efficiencies.

Total awarded contracts as at 10 August 2011 stood at $197m, of which $173m is expected to be recognised in FY11. Management expressed confidence that this would underpin a strong 2H11 performance, and more contracts would be secured towards the end of the year. To match the performance of FY10, Kingsmen would need to deliver about $9m in net profit for 2H11. This may seem daunting but when we look at historical records, the company has repeatedly achieved it for the past financial years.

Kingsmen is in various stages of negotiations for several regional theme park projects planned for the next three years. These are in countries such as South Korea, Malaysia, China and the Middle East. Contract sizes for such projects are usually quite sizeable and winning one of them would be a positive catalyst for the stock. However, we believe that significant contributions, if any, would only show up in FY12.

Action & Recommendation

We trim our FY11 revenue forecast by 6.8% but adjust for higher gross margins. Our net profit forecast remains largely intact. The stock currently trades at a compelling level of 6.9x FY11F PER with a dividend yield of 6.3%. Maintain BUY and target price of $0.80.