Kingsmen released their 1Q 2013 results today (May 15, 2013), and it was not a very encouraging set of results, though there were "bright sparks" here and there. I have done a brief review of the results:-
Revenue surprisingly dipped by -9.3% from $46.9 million to $42.6 million, as a result of lower yoy revenues coming from M&E, Interiors and Alternative Marketing. Only Research and Design showed good revenue growth. In other words, it was a broad-based decline in revenues across 3 out of 4 divisions, which could have been the result of manpower constraints which Kingsmen had highlighted during their last AGM. Basically, the business is constrained from growing due to a lack of qualified personnel (executives, designers and project managers) even though the Company is receiving more requests for work than it can handle. Until this constraint is adequately resolved, the Company would most likely see growth hit the proverbial ceiling.
Gross margins, however, improved to a record high of 30.7% (the only other time it hit this level was FY 2008), as a result of more revenues being recorded for Design and Research division. This is almost pure consultancy and the margins for this business are very high, as compared to Alternative Marketing which is very labour-intensive and which commands razor-thin margins. As an example, for FY 2012, Research and Design had segment margins of 31.7% while Alternative Marketing had margins of just 1%. It should be noted that R&D saw a +57.6% rise in revenues to $2.5 million while Alternative Marketing saw a plunge of -69.2% in revenues to just $0.9 million; fortunately it was the correct division which saw the revenue increase, otherwise the margins would have moved sharply in the opposite direction! I guess this could qualify as one of the "bright sparks" amid an overall revenue decline situation.
One should note that staff costs continues to rise (by +5.6%) even though revenues have dipped, which resulted in net margins being impacted. If not for the +118% rise in profit contribution from associates, the net margin would have shrunk. Instead, net margin expanded to 5.2% compared to 4.4% last year (using Net Profit Attributable to Shareholders). Net profit due to owners of the Company was $2.227 million, +7.3% compared to 1Q 2012's $2.075 million. (One should also note that income tax was under-provided for previous periods, which led to a yoy increase of +75.4% in tax expenses which further eroded the net margin).
Interestingly, net cash per share has now increased from 20.23c/share in 1Q 2012 to 25.67c/share in 1Q 2013, and assuming a +5% increase in EPS from 2012's 8.94c/share to 9.38c/share, this would mean that Kingsmen is trading at an ex-cash prospective PER of 7.39x (95 cents minus 25.67c and divided by 9.38c).
Current ratio has improved to 1.67x from 1.5x in 1Q 2012, and it should be noted that 1.67x is the highest current ratio achieved by Kingsmen since I began tabulating their numbers from 2003. Net cash is also at a record high of $49.3 million, slightly surpassing the previous high of FY 2012 of $48.4 million. It is interesting to note that though Trade Receivables has decreased by some $18.4 million to $64.8 million, Trade Payables also decreased by roughly the same amount ($20 million), hence resulting in lower OCF generated.
If one compares the OCF generated in 1Q 2013, it would seem to be significantly lower than the OCF generated in 1Q 2012; but to put things in perspective, Kingsmen usually has its weakest quarter in 1Q, and cash flows could also be the result of timing difference in billing/collection. A history of OCF for 1Q is as follows:-
1Q 2013 - $0.495m
1Q 2012 - $11.445m
1Q 2011 - $1.8m
1Q 2010 - $6.441m
1Q 2009 - ($2.2m)
1Q 2008 - ($1.19m)
Note: Kingsmen did not release quarterly results for 2008; they only started in 2009, therefore 1Q 2007 and prior years were not available.
It can be seen that 1Q 2012 was an anomaly of sorts, as the OCF generated was significantly more than other first-quarters.
FCF for 1Q 2013 was $281k, which was lower than any other year except FY 2009 ($19k) and FY 2003 (-ve $4.19m). This is not of too much concern as 2Q will reveal if there were timing differences in cash collection.
Annualized ROE based on 1Q 2013 results was 11.8%.
Note that for the Company to pay an interim dividend of 2c/share, assuming they bump it up higher than the 1.5c/share they had paid over the last 3 years, they would have to cough up about $3.84 million. Considering their cash balance stands at $53.6 million as at March 31, 2013 (and will fall to about $48.8 million after payment of the final dividend) and with more FCF likely generated in 2Q 2013, there is a distinct possibility of a higher dividend being paid out. I can only keep my fingers crossed for this.
Q1 2012
As at 9 May 2012, we have been awarded contracts of approximately S$167 million for completion in
FY2012. With the strong pipeline of contracts and demand for our services, we are confident to do
well in FY2012, barring unforeseen circumstances.
Q1 2013
As at 14 May 2013, the Group has been awarded contracts of approximately S$166 million, of which
S$137 million is expected to be recognised in FY2013. With the strong pipeline of contracts and
demand for our services, we are confident to do well in FY2013, barring unforeseen circumstances.
The order book is about the same for both Q1 FY12 and Q1 FY13 and I think that the earning for the first half year of 2013 will not differ much from last year.
(16-05-2013, 06:46 AM)yeokiwi Wrote: [ -> ]The order book is about the same for both Q1 FY12 and Q1 FY13 and I think that the earning for the first half year of 2013 will not differ much from last year.
I read it a bit differently, since the recognition of that order book (albeit almost same in quantum) is expected to be about 20% lower in this FY.
Q1 2012
... ... S$167 million for completion in FY2012... ...
Q1 2013
... ...of which S$137 million is expected to be recognised in FY2013... ...
Some updates on Kingsmen in the Middle East (see attached).
(16-05-2013, 09:38 AM)Muck Wrote: [ -> ] (16-05-2013, 06:46 AM)yeokiwi Wrote: [ -> ]The order book is about the same for both Q1 FY12 and Q1 FY13 and I think that the earning for the first half year of 2013 will not differ much from last year.
I read it a bit differently, since the recognition of that order book (albeit almost same in quantum) is expected to be about 20% lower in this FY.
Q1 2012
... ... S$167 million for completion in FY2012... ...
Q1 2013
... ...of which S$137 million is expected to be recognised in FY2013... ...
You are right.....From the annoucement, sales will be lower....
Will net profit drop as a result??
Consensus forecasts seem to indicate a decline in margin and ROE? Any ideas why??? When is the right timing for this???
(16-05-2013, 02:47 PM)peterlim1983 Wrote: [ -> ]Consensus forecasts seem to indicate a decline in margin and ROE? Any ideas why??? When is the right timing for this???
Could you cite the evidence for this "consensus forecasts", please? Some numbers would also be useful.
Thanks.
(16-05-2013, 03:22 PM)Musicwhiz Wrote: [ -> ] (16-05-2013, 02:47 PM)peterlim1983 Wrote: [ -> ]Consensus forecasts seem to indicate a decline in margin and ROE? Any ideas why??? When is the right timing for this???
Could you cite the evidence for this "consensus forecasts", please? Some numbers would also be useful.
Thanks.
Check b-berg function "ANR", estimates revised down, ROE 18%...
(16-05-2013, 05:11 PM)peterlim1983 Wrote: [ -> ]Check b-berg function "ANR", estimates revised down, ROE 18%...
Well, that is good news isn't it! More chances to buy once everyone starts downgrading.