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Analyst Insight: 27 Takeaways From Kingsmen Creative Ltd’s Full Year 2018 Earnings Briefing

This is the final article for our coverage on Kingsmen Creatives Ltd’s (SGX: F8D) analyst briefing for fiscal year 2018 earnings. These are the last nine takeaways from the briefing, bringing it to a total of 27 insights from the meeting. For the previous two articles, go here and here.

19. The second Family Entertainment Centre (FEC) is targeted to be launched in 2021 with a partner. The group will look for partners, which will likely be mall owners who are looking for a fresh new concept and a strong anchor tenant. For context, each city should only have a maximum of one FEC.

20. Active marketing for NERF FEC will begin by end-April 2019 and will involve hotels, airlines and schools. The target market for the FEC will not just be teenagers and young adults, but also families with children, tourists and also corporate clients (e.g. for team-building events). Online engagement will involve tapping on social media and Hasbro will also be helping out with a global awareness campaign for NERF FEC.

21. NERF FEC has different zones where players are able to engage in different types of activities and will have different concepts within the play area. Kingsmen is creating an all-encompassing experience for visitors in order to encourage them to make repeat visits.

22. Capital expenditure was much higher in 2018 at S$18.5 million. Around S$15 million of this involved the construction of the new headquarters (~S$10 million) and renovation plus purchasing of new equipment (~S$5 million). The remaining S$2 million to S$3 million is considered normal “maintenance” capital expenditure and the run rate should remain constant for this portion in 2019 as well.

23. Kingsmen’s lease on their old premises expires end-April 2019, so for the first four months of 2019, the group will still be impacted by rental expenses. Previously, rental expenses came up to around S$2 million a year. With the new HQ costing around S$30 million and depreciated over a useful life of 30 years, depreciation expense per year will come up to S$1 million a year. So, moving forward, there will be some improvement to the income statement and a significant improvement on it cash flow.

24. For the new HQ, 30% of it is available for leasing and currently, Kingsmen already has four external tenants there. This allows the group to earn some rental income on the side.

25. A S$20 million bank loan was drawn down for the construction of the new HQ, to be repaid over 13 years. Kingsmen will pay the debt down slowly, although they have options for early repayment should they choose to do so. Operating cash flow remains healthy and the higher debt taken up to fund the new HQ should not be a major concern.

26. Additional expenses for 2018 also came in the form of higher finance costs (due to higher debt levels), some costs to re-jig back-end processes in their Malaysian factory, as well as costs incurred for activation of the NERF team.

27. As for other IP acquisitions, Kingsmen is on the lookout but they are doing this slowly and steadily. The ability to scale is important as standalone IPs would not have favourable economics and would not be something the group is looking into.

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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 Chin Hui Leong does not own shares in any of the companies mentioned.