Kingsmen Creative PATAMI fell 8.2% to S$3.2m

Revenue slipped 9.8% on fewer projects.

Kingsmen Creative reported its 3Q13 results, which saw PATAMI falling 8.2% yoy to S$3.2m and a 9.8% drop in revenue because of fewer sizeable projects being completed as at end of the quarter, reported OSK-DMG.

The research firm noted though that the outlook for Kingsmen Creative remains positive, especially for 4Q13, due to a healthy orderbook which should see roughly S$107m in recorded revenue.

Here's the complete results analysis from OSK-DMG:

3Q13 PATAMI fell 8.2% y-o-y to SGD3.2m as on a 9.8% y-o-y drop in revenue, mainly due to fewer sizeable projects being completed as at end-3Q13. Nonetheless, KMEN’s orderbook remains healthy and 4Q13 is expected to be strong, with the usual hive of activities at the Interiors division in the run-up to the festive season. Maintain BUY, with SGD1.08 TP, based on a 8x FY13F P/E (ex-cash).

3Q13 gross margin improves even as revenue slips 9.8%. The revenue decline was mainly due to the lower number of projects reaching a stage at which its exhibitions and museums division can reasonably record as revenue as at end-3Q13. KMEN records its revenue on a progressive basis. The y-o-y revenue drop from exhibitions and museums was somewhat offset by a 5% y-o-y growth from the interiors division, as luxury retailers continued to refurbish and open new stores. Despite the lower revenue, 3Q13 gross margins improved by 3.8 ppt as the company achieved better cost efficiency.

Outlook positive, thanks to healthy orderbook. KMEN’s orderbook has grown to SGD351m (vs 2Q13: SGD294m and 3Q12: SGD289m), of which SGD293m is expected to be recognized in FY13. This indicates that at least SGD107m in revenue is likely to be recorded in 4Q13, although historically, KMEN generates slightly more revenue in 4Q than what it expects (sometimes due to variation orders or finishing a project sooner than expected).

Lowering revenue assumptions down a tick. KMEN had a net cash balance of SGD49.6m (SGD0.26/share) as at end-3Q13. While we are optimistic that the company would continue to secure projects and chalk up steady growth given its track record, we are keeping our view of growth likely to moderate as KMEN continues to face rising staff costs. Given the slightly weaker than expected 3Q13 revenue, we are tweaking our FY13F revenue slightly lower to SGD299m (from SGD313m). Taking into account improving gross margins, this leads us to our PATAMI estimate of SGD18.5m (from SGD18.9m). Maintain SGD1.08 TP and BUY rating.