8 Facts Investors Should Know From Kingsmen Creatives’ Latest Earnings Update
Yesterday, Kingsmen Creatives Ltd (SGX: 5MZ) announced its 2018 third quarter earnings update. For context, Kingsmen Creatives is is a leading communication design and production group that was established in 1976. The company has a network of 21 offices and full service facilities serving global clients in its Exhibitions & Thematic, Retail & Corporate Interiors, Research & Design, and Alternative Marketing segments.
Here are eight key highlights from the company’s latest earnings release:
1. Revenue for 2018’s third quarter increased by 33.1% to S$91.2 million from S$69.1 million a year ago. This was contributed by better revenue from the Retail & Corporate Interiors division (up 57.1% to S$48.0 million) and also the Exhibition & Thematic division (up 18.7% to S$38.4 million).
2. Gross profit, however, increased at a slower pace of 14.4% to S$18.7 million, as higher cost of goods sold led to a lower gross profit margin of 20.4% for the reporting quarter, compared to 23.7% for 2o17’s third quarter.
3. Kingsmen Creatives’ net profit attributable to shareholders rose 99.3% from S$819,000 for the third quarter of 2017 to S$1.6 million in the reporting quarter, boosted by a currency exchange gain and also staff costs which rose much less than gross profit. In fact, the company’s net profit would have been much higher if not for higher finance costs (as the company took on higher levels of debt) as well as a share of loss from associates during the reporting quarter.
4. The balance sheet had S$61 million in cash and S$27 million worth of debt. Debt increased from just S$13.9 million at the end of 2017 as the company drew down on loans to finance the construction of its new headquarters at Changi Business Park, which it just shifted into in September 2018.
5. Operating cash flow was a negative S$3.1 million for 2018’s third quarter, as receivables increased for work done and billed but that are yet to be collected. Capital expenditure was slightly higher at S$4.6 million compared to S$3.3 million a year ago as Kingsmen Creatives spent on the construction and fit-out of its new headquarters.
6. Looking at Kingsmen’s divisions, Exhibitions & Thematic registered a 12.7% increase in revenue to S$103.4 million for the first nine months of 2018 compared to the same period a year ago, as the company worked on major events such as National Day Parade 2018, Formula 1 Singapore Grand Prix, and Food & Hotel Asia 2018, to name a few. The Retail & Corporate Interiors business saw its revenue rise by 12.8% year-on-year to S$117.9 million for the same period as Kingsmen performed work for clients such as AIA, Coach, Fendi, Nike and Singtel.
7. As of 31 October 2018, Kingsmen Creatives had secured contracts worth S$403 million, of which S$345 million is expected to be recognized in 2018. As a comparison, for 31 October 2017, the company had secured contracts of S$315 million, of which S$295 million was expected to be recognized in 2017. So, for 2018 so far, there has been an increase of 28% and 17%, respectively, for contracts secured and revenue to be recognized.
8. Kingsmen Creatives’ trailing earnings per share now stands at S$0.054. At its closing share price of S$0.51 on 8 November 2018, the company has a trailing price-earnings ratio of 9.4. The trailing dividend is S$0.025 per share, which translates to a dividend yield of 4.9%.
Kingsmen Creatives has turned in a good set of results for 2018’s third quarter and in fact, its quarterly profit is the highest since 2015, when a downturn in luxury spending in Asia began. It’s also encouraging to see the company’s order book rise above S$400 million, which is the highest announced order book on record since the company started disclosing quarterly numbers for orders secured.
I had previously written an article stating four reasons why we should feel optimistic about Kingsmen Creatives, and the growth of its order book was cited as one of the reasons. Kingsmen Creatives’ order book growth is coming through now into higher revenues and net profit and as the fourth quarter of the calendar year is seasonally the company’s strongest quarter, we may continue to see an improvement in its earnings over the previous year.