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Kingsmen Creatives’ Earnings: What You Need to Know

Kingsmen Creatives Ltd (SGX: 5MZ), or Kingsmen for short, is a leading communication design and production group. The group was established in 1976 and has a network of 21 offices in Asia and the USA. Kingsmen serves global clients in four main divisions – exhibition and thematics, retail and corporate interiors, research and design, and alternative marketing.

The group released its first-quarter 2019 (Q1 2019) earnings yesterday. There was a mix of good and bad in the earnings report but do note that Kingsmen is in the process of building up its new Intellectual Property (IP) division, and therefore, near-term earnings may get hit.

Here are some highlights from Kingsmen’s latest earnings, while I’ll also delve into the group’s prospects going forward.

1. Group revenue rose by 25.7% year-on-year to S$76.7 million, and the increase was broad-based, with a 12% year-on-year increase in exhibition and thematics revenue, and an impressive 51.5% year-on-year increase in revenue from retail and corporate interiors.

2. Cost of goods sold rose at a higher 29% though, resulting in gross profit rising by a lower 16% year-on-year to S$17.8 million. Gross profit margin fell from 25.2% in Q1 2018 to 23.3% in Q1 2019.

3. Due to a 6.2% year-on-year increase in staff costs and also an increase in depreciation as well as upkeep and maintenance expenses-cum-utilities, profit before tax ended up at S$492,000.

4. Income tax expense tripled year-on-year, which resulted in a 47.4% drop in net profit attributable to shareholders. This was probably due to expenses that were not allowed for income tax deduction, as well as the group having business operations in higher tax rate jurisdictions.

5. Kingsmen has moderated the pace of growth of its gross debt as the construction of its new headquarters at Changi Business Park is complete. Gross debt stood at S$34.7 million as at 31 March 2019, a slight decline from the S$35.7 million as at 31 December 2018. Net cash was S$36.5 million for Q1 2019, which translated to net cash per share of 18.1 Singapore cents.

6. The first quarter is seasonally the weakest for Kingsmen, and operating cash flow was negative at S$5.2 million, but capital expenditure has declined substantially to S$1.6 million as the headquarters is now completed, and before the group ramps up spending on the NERF Family Entertainment Centre (FEC) located in Marina Square.

7. Some of the major projects and events which Kingsmen worked on include Changi Experience Studio (located within JEWEL at Changi Airport), Singapore Bicentennial Event and the Singapore Motorshow 2019.

8. Kingsmen’s clients in the retail and corporate interiors division include global brand names such as Coach, Kate Spade, Michael Kors, Ralph Lauren, and Tiffany and Co.

9. As of 30 April 2019, Kingsmen had secured contracts worth S$217 million. This was 11.3% high than the secured contracts of S$195 million a year ago (i.e. 30 April 2018), and bodes well for revenue recognition for the remainder of 2019.

Outlook for Kingsmen

Kingsmen reported a decent set of earnings during their seasonally weakest quarter. There was broad-based growth in key divisions but this was partially offset by higher expenses relating to their new headquarters and also their new IP division. Anticipation is building for their new NERF FEC, to be launched in Q4 2019 and which will be first such FEC in the world for the NERF brand; one of the best-selling brands of Hasbro.

On the edutainment front, the signing of the license for Animal Planet Travelling Shows with Discovery Inc also marks Kingsmen’s first foray into travelling exhibits. This should be ready by year-end and would add another source of revenue for the group. Investors will have to put up with higher expenses in the interim as part of the growing pains that the group will have to go through in order to build up their new IP division.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang owns shares in Kingsmen Creatives Limited.