In line with expectations. 3Q12 results were in line with expectations. Revenue was SGD70.4m (-18% YoY) coupled with softer earnings of SGD3.6m (-19% YoY). This makes up 62.8% of our 9M12 earnings estimates. We are expecting the bulk of the earnings to be recognised in the fourth quarter, as was the case with FY11's 4Q results that accounted for 36% of the FY11 results. We are positive about Kingsmen’s strong orderbook of SGD289m, on the back of strong consumer optimism in Asia. We roll forward our valuations to FY13 estimates, based on a blended valuation of 9.7x FY13F earnings, and derive a new TP of SGD0.96 from SGD0.85. Maintain BUY.

Lower recognition from Interiors division. Earnings of the interiors division declined by 30.4% YoY to SGD31.9m in 3Q12, due to lower recognition of projects than in 3Q11. Non-core segments recorded a healthy YoY earnings growth rate of 25% to reach SGD5.8m. Gross margin increased by 2ppt to 21.5% in 3Q12, while net margin stayed at 5.1%, lower by 0.1ppt YoY.

Strong orderbook of SGD289m. Kingsmen has a solid orderbook of SGD289m (+25.2% QoQ): SGD274m will be recognised this year. Kingsmen successfully delivered works for the London Olympics and F1 Singapore in 3Q12.

Expect stronger results from E&M and Interiors. In the final quarter, we are expecting higher sales recognition from the interiors division, where fit-outs are needed before the festive season. Museum projects such as Gardens by the Bay, the GuangZhou HengDa Exhibitions Centre, and the Hong Kong Maritime Museum will also be delivered by the end of the year.

Roll over to FY13, raise TP to SGD0.96. We are maintaining our forecasts and rolling forward our target price to FY13F estimates. We will be monitoring contract wins for amusement parks as a strong earnings booster for the year going forward. Kingsmen declared an interim dividend of 1.50cts last quarter and we are expecting another 2.05cts to be paid out in the next quarter, thus implying an overall dividend payout ratio of 45% and a dividend yield of 5.3%.

Source: Maybank Kim Eng Research - 06 Nov 2012