2Q11 earnings exceeded our expectations. Kingsmen Creatives (Kingsmen) reported 2Q11 revenue of S$57.1m, representing a YoY drop of 11.6% but a 56.6% QoQ increase. The YoY decline was due largely to the absence of the Shanghai World Expo major project which was completed in 2Q10. Net profit registered a 2.8% YoY fall but surged 224.3% QoQ to S$4.5m as 1Q is typically its weakest quarter. For 1H11, revenue slid 15.9% to S$93.6m, forming 39.2% of our FY11 forecasts. This was within expectations as 2H is traditionally stronger, especially in the fourth quarter due to increased demand from its retail clientele in preparation for the yearend festive period. Net profit of S$5.9m (-15.0%) constituted 48.1% of our full-year forecasts and this exceeded our expectations, largely due to improved gross profit margin (+1.9 ppt YoY to 29.5%). An interim dividend of 1.5 S cents has been declared, similar to a year ago, and in line with our expectations.
Interiors division expected to remain as main contributor. Kingsmen believes that the entry of new and existing global retail brands into Asia would help to underpin growth in its Interiors division. Management highlighted that they had not experienced any belt-tightening from its retail clients despite growing concerns of the global economic recovery. We opine that the tepid growth in the U.S. and Europe could instead incentivise these brands to increase their penetration into Asia to capture the rising consumerism tide. Hence Kingsmen continued to receive numerous enquiries from global retailers.
Order book remains healthy. Management delineated a series of potential projects which it is pursuing. We believe that its thematic business would continue its momentum into FY12, as the group is confident that it would be able to secure a few sizeable theme park projects in the region given its proven track record (such as USS). As at 10 Aug 2011, total contract wins amounted to ~S$197m (versus S$187m in Aug 2010), of which S$178m is expected to be recognised in FY11.
Higher earnings estimates, but maintain HOLD. We see the need to bump up our earnings estimates by 18.9% for FY11 (6.7% for FY12), driven largely by higher gross profit margin assumptions. We also roll forward our valuation to 9x blended FY11/12F EPS and our fair value in turn increases from S$0.575 to S$0.71. While we continue to like Kingsmen for its attractive prospective dividend yield of 6.3%, strong management and healthy balance sheet, valuations appear fair, in our opinion, with the stock trading at 6.8x FY12F PER, comparable to its 3-year average forward PER of 6.9x. Maintain HOLD.
No comments:
Post a Comment