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Analyst Insight: 9 Takeaways From Kingsmen Creatives Ltd’s Full Year 2018 Earnings Briefing

Kingsmen Creatives Ltd (SGX: 5MZ) released its full-year 2018 earnings update on 19 February 2019 and the company had invited my colleagues for its earnings presentation. Here are the first nine takeaways my fellow Fools had from the briefing. Check back for more insights tomorrow!

1. Kingsmen reported good growth numbers overall for 2018 but was hit by a larger than expected tax expense which caused net profit to fall 16% from a year ago to S$8.1 million. There were several reasons for the tax bill: (a) Higher profits were booked in regions with higher effective tax rates, such as China with a tax rate of 25%; (b) there were tax losses which could not be brought forward to offset profits in the USA; (c) the Productivity and Innovation Scheme in Singapore ceased, which resulted in lower deductible expenses for the company’s local operations. The good thing is most of the aforementioned factors are one-offs.

2. The dip in Kingsmen’s gross margin to 22.7% in 2018 was due to a few large but lower-margin projects. Moving forward, as part of cost optimization actions and a shift towards increasing efficiency, Kingsmen believes it will be able to bring its gross margin up gradually.

3. Kingsmen incurred higher expenses during 2018 as a result of: (a) Relocation costs, as the company shifted from its old rented premises to new headquarters; (b) a write-off off bad debts from the Art Stage Singapore event; and (c) investments to build the team for the Brands and Entertainment division to prepare for the NERF Family Entertainment Centre project.

4. High-end retail is slowly coming back and is recovering after several years of being in the doldrums. At a regional directors’ meeting held in January 2019, Kingsmen’s regional division heads reported healthy demand for corporate expansion in the high-end sector. This bodes well for the prospects of the Retail & Corporate Interiors division.

5. However, the retail landscape has been structurally altered too. Gone are the days when high-end luxury brands would open a chain of stores across Asia, providing Kingsmen with multiple locations to exercise its roll-out management program. In the current environment, brands prefer to open large-scale flagship stores in key locations, leading to lower volume of business for Kingsmen. But, there are still pockets of opportunity exist for the company to exploit.

6. Kingsmen is not averse to seeking out new areas of growth, such as fitting out hotels and hospital suites.

7. Although attendance at Kingsmen’s recent event, TOYBOX by Hasbro at Palawan Green in Sentosa, was lower than expected, the management team’s intention was to experiment with a new concept for branding and marketing purposes. Organisations from other countries are now approaching Kingsmen to extend the TOYBOX concept, and this could result in the company hosting more of such events in the future.

8. There are several key events to watch out for in 2019 for Kingsmen: (a) The Singapore Bicentennial; and (b) the completion and opening of JEWEL at Changi Airport in April 2019. Kingsmen is also pitching for 2019’s National Day Parade and Christmas decorations and fixtures (the company did work for both events in 2018).

9. Kingsmen is working with Nassal, an established theme park player, to work on the Universal Studios Japan theme park located in Osaka. The theme park is planning a revamp and there are several parcels of work up for grabs. Other theme park projects in the region which Kingsmen is pitching for include Universal Studios Beijing and Legoland Korea.

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The Motley Fool Singapore contributor Royston Yang contributed to this article. Royston owns shares in Kingsmen Creatives.

The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore writer Chong Ser Jing owns shares in Kingsmen Creatives.