Secures the very first contract by Disneyland Shanghai. Kingsmen's capabilities in Thematic and Scenic construction received another stamp of confidence, when it secured the first contract to be awarded by Disneyland Shanghai. We believe this would place Kingsmen in a good position to secure more theme parks contracts in the region. Having gained prior experience (from USS) in this space, management is optimistic that net margins for this project would be better than that for its USS project.

Likely to secure a contract for F1 Singapore. Given its past works done for the Singapore Grand Prix, we think Kingsmen is likely to secure a contract for the extended F1 Singapore race.

Shift in the type of exhibitions being held. Previously, exhibition events are largely, trade shows. Kingsmen only need to build the pavilions for the shows. However, there has been a shift in the exhibitions trend recently, where events are more non-trade show in nature. We can expect to see more of such proprietary events (events that only have one focus) going forward. Revenue from non-trade show contracts is generally better than trade show exhibitions, but margins could be a tad lower, as more resources are needed. Kingsmen recorded more non-trade show exhibitions works, which contributed to the YoY lower margins from this division. During the year, Kingsmen also gave a SGD1.2m sponsorship to a customer, to showcase its works to clinch future contracts. Through this sponsorship, Kingsmen secured SGD4.0m contracts.

Taking a cautious approach to finding suitable location for new HQ. Kingsmen's current lease with Mapletree Logistics will expire in 2016. While it has the option to renew the lease for a further three years (with an additional three year option), Kingsmen has been exploring the possibility of building its own HQ. To date, it has not found a suitable location. Given that it takes about one and a half to two years to build an industrial building, Kingsmen still has some time to find a suitable location. We think management is taking a cautious approach of not buying a piece of land at too high a price, given how property prices have risen recently. In the event that it does not find one, Kingsmen would still be able to continue to lease its current premises at the prevailing market rate come 2016. Going by current industrial rental trends, it would result in a significant increase in operating lease expense.

Does not rule out taking on debt to build its new HQ. Should Kingsmen find a suitable location to house its HQ, management is open to the possibility of funding the purchase and construction with some debt. A ballpark figure of possibly SGD40m to SGD50m would be needed to build the new HQ, depending on where it secures the land from.

 Source: OSK