Kingsmen FY2011 Results Analysis

Kingsmen Creatives released its Q4 and FY2011 results on 27th February 2012 and this post will look into the results in detail.

Income Statement

The revenue for FY2011 increased 11.7% from $233.6 million in FY2010 to $261 million in FY2011. The cost of sales increased more than revenue at 14.5% when compared with FY2010. This caused a dip in gross profit margin from 27.3% (FY2010) to 25.5% (FY2011).

The net profits for FY2011 increased 8.4% from $15.1 million in FY2010 to $16.3 million in FY2011. The staff costs have increased 6.9% when compared with FY2010. The net profit margin was slightly lower in FY2011 at 6.3% when compared to FY2010’s figure of 6.5%. The margins have dipped in FY2011 due to lower margins from interior fit-out projects as well as on fixtures export.

Balance Sheet

The trade receivables has increased from $68.9 million in FY2010 to $88.7 million in FY2011. This is an increase of 28.7%. The revenue increase was only 11.7%. The trade receivables increase caused “Cash flow from Operations” to go down year-on-year as we will see later. The increase in trade receivables was mainly due to more billings in 2nd half of FY2011 as the projects undertaken were mostly completed since then. Long-term debt is very manageable at $2.1 million.

The ROE decreased from 26.4% in FY2010 to 24.4% in FY2011. The reason being the equity increased much more than the net profits when compared to the previous year. The increase in equity can be attributed to more cash in the coffers and an increase in trade receivables.

Cash Flow Statement

Cash flow from operations has gone down 36.7% from $20.3 million in FY2010 to $12.9 million in FY2011. The plunge is mainly due to increase in trade receivables. The capex is at $2.8 million. Therefore, the free cash flow stands at $10.1 million for FY2011.

Outlook

As of 25th February 2012, the order book stands at $106 million, which is 26.1% higher than in FY2010.

More theme parks all over Asia and beyond are being developed. Recently, Kingsmen won a $18 million contract by Universal Studios Singapore. It also won contracts for Hong Kong Maritime Museum and the Sotheby’s Visitor Centre in Hong Kong.

The interiors division is also expected to do well. The interiors business remains buoyant in Singapore and the division expects to be involved in upgrading and new projects in suburban malls and along the Orchard road belt. Two new shopping centres in Orchard, namely 268 Orchard Road and Orchard Gateway will be opening and Kingsmen may win projects to fit-out some of the shops. More global brands are coming into the region and having done considerable amount of projects for big clients, Kingsmen can continue riding on this wave. H&M and A&F stores which opened last year were fitted-out by Kingsmen. When other global brands look to set foot into Singapore, they will be looking at how its rivals are faring and who did the fit-outs. If the fit-outs are of high quality, these new brands would want to engage the same established company (Kingsmen) to fit-out its own shops. In that way, quality can be assured and the brand does not have to source for contractors.

Dividends declared for Q4 is 2.5 cents/share. Overall, I feel Kingsmen has great opportunities going forward to expand its business and create more shareholder value.