(19-08-2012, 08:36 PM)RBM Wrote: [ -> ]- Pico's growth rates put Kingsmen into the shade (look at the numbers, e.g. 122% in Museums & Theme Parks!!).
- Pico's gross margin is higher than Kingsmen's (the benefits of scale?).
- Pico now has a ~ 29% higher dividend yield than Kingsmen, based on Friday's closing prices.
To me it looks like the sector which Kingsmen and Pico operate in is a good one to be in right now. But I sense that Pico are carving out a much greater proportion of new Asia Pacific Business than Kingsmen?? And who would be best placed, should a major downturn arrive??
A wise man once told me that the time to consider selling is when the hubris gets universal. I'm not going to sell my Kingsmen shares. But I do wonder if we are (recently) viewing Kingsmen through overly-rose-tinted spectactles? I stress that I am not trying to be difficult or awkward here - I just feel that this highest quality, mature and high objectivity forum may want a discussion around this.
Vested .............in both Pico and Kingsmen.
Hello RBM,
Hope you and family are having an enjoyable holiday too. It is posts such as these which make investing really interesting, as it really delves into the inner workings of the companies mentioned and attempts to place them side by side as comparison.
However, I must state at this point that I had done my research on Kingsmen and Pico and noted quite a few differences in both companies which I feel is worth highlighting. It's not really a case of comparing apples to apples, more like comparing a red apple to a green apple! Haha. Perhaps I can take your points one by one and provide my own explanations at the same time. (I would also assume you are referring to Pico FE's latest results ended April 30, 2012 - 1H FY 2012).
1) Museums and themed environment did increase by 122% for Pico, and this division would also include Interior Fit outs as well. However, do note that for 1H FY 2012, this division only took up 9% of Pico's total revenues; and for 1H FY 2011 it took up 5.2%. My previous research has told me that Pico's main strength is in Exhibitions and Events, and it can be seen that this division takes up 76.2% of revenues for 1H FY 2012. Contrast this to Kingsmen, where their M&E Division's revenues only made up 44.5% of total revenues. Note that a direct comparison between the growth potential of the theme parks division cannot be done as Pico has grown from a
low base effect for their division, whereas Kingsmen has already a larger base (as a % of revenues).
2) A related point which I wish to highlight is that Pico FE has traditionally been very strong in the China and Hong Kong markets, while Kingsmen is more of an rounder in that it covers southeast asia including Japan and Korea as well, but is not particularly strong in China. This would mean that Pico's growth would hinge a lot on the growth of events, theme parks and exhibitions in China and Hong Kong; and they are therefore more vulnerable if a slowdown should occur in these two countries. This makes Kingsmen's business more resilient as they rely on a number of countries (including Singapore) for their revenues, and there is no emphasis on any one division for revenues (Interiors and M&E contribute more or less equally) unlike for Pico FE.
3) Regarding margins, I would also like to do a quick comparison as follows:-
Pico FE
1H FY 2012 Gross Margin = 26.2%
1H FY 2011 Gross Margin = 32.2%
Kingsmen
1H FY 2012 Gross Margin = 27.4%
1H FY 2011 Gross Margin = 29.1%
So as can be seen, the gross margin drop for Pico FE is about 600 basis points (6%), while the gross margin drop for Kingsmen is just about 170 basis points (1.7%). I believe this could be due to the revenue mix for Pico FE shifting to lower margin thematic works as compared to higher margin brand signage and exhibition works, but please correct me if I am wrong as I did not read too much into Pico's financials.
4) I would also like to draw attention to the net margins of the two companies, as follows (using profit attributable to S/H):-
Pico FE
1H FY 2012 Net Margin = 5.1%
1H FY 2011 Net Margin = 5.9%
Kingsmen
1H FY 2012 Net Margin = 6.1%
1H FY 2011 Net Margin = 6.3%
Again, the above shows that not only does Kingsmen have a higher net margin than Pico FE (by 100 basis points), but their year-on-year net margi drop as also smaller (20 basis points) as compared to Pico FE (80 basis points).
5) It's not exactly accurate to compare dividend yields across the two companies. Why do I say this? If you notice, Pico has a payout ratio of 53% for their 1H FY 2012, based on an EPS of about HK$0.0766 and a DPS of HK$0.04. Kingsmen, however, has a payout ratio of just 40% (39.6% to be very exact), based on a DPS of 1.5 SGD cents and an EPS of 3.79 SGD cents. Therefore, Kingsmen can be seen to be paying out less of their earnings compared to Pico FE, which would explain the lower dividend yield. If you
normalize the payout ratios for both companies, meaning if you assume Kingsmen had paid out 53% of their EPS as DPS, this would mean an interim dividend of 2 SGD cents/share. If we use last year's final dividend of 2.5 SGD cents/share as a benchmark, and taking into account LTM historical dividend yield based on a total dividend payout of 4.5 SGD cents/share, Kingsmen's adjusted dividend yield would be 6%.
While this is arguably not as high as Pico FE's 7% yield, I am more concerned over the following points with regards to the sustainability of the yield, rather than the quantum of it:-
a) Slowdown in China (and Hong Kong?) occurring
b) Erosion of gross and net margins for Pico FE
c) Concentration risk with most of the revenues clustered in one division - Exhibition and Events
If I may, at this point, offer an alternative viewpoint - perhaps it's not that the hubris has infected market players, perhaps this is just a case of value being recognized, albeit two years too late!
Regards, and have a great weekend!