(BUY, S$0.56, TP S$0.76)
Kicker from new F1 deal. Kingsmen is the supplier of some Grandstands and Corporate Suites for the F1 race over the five-year contract. It is still not known if Singapore would continue to host the F1 race for a further five years, but if no agreement is reached after next year’s race, Singapore will have to continue hosting the event for another two years (i.e. there will be an F1 race for at least the next three years). On top of the contract value (~S$5m annually), there are additional billings each year for variation orders. Should Singapore continue to host the F1 for a further five years, we believe Kingsmen would remain a choice contractor. Assuming the same contract value and the same parcels of work are assigned, we can expect better margins from the F1 event as the fixed cost of the grandstands would have been fully depreciated.
Greater visibility would help secure more projects. Being involved in the F1 event would help elevate Kingsmen’s visibility in the events space. This would open up more regional opportunities for Kingsmen. Kingsmen is in various stages of discussions for several regional theme park projects. Securing a regional theme park contract would give Kingsmen’s earnings a boost. The upcoming major events next year, such as the Singapore Airshow, are keeping Kingsmen busy. Retail customers are continually refurbishing or setting up new outlets.
May need to raise funds in near future. Kingsmen is looking to build an office building in Singapore as the lease for its current premises will end in 2016. There is a possibility that it may need to undertake fund raising activities for this purpose in the near future.
Share price showing resilience. Kingsmen’s share price has remained stable, hovering around S$0.56, despite the market volatility over the past weeks. We continue to like Kingsmen for its attractive dividend yield. Maintain BUY with TP S$0.76, pegged to 9x FY11F earnings.
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