Kingsmen (SGX:5MZ) and Pico (HKG:0752) are both widely recognized as leaders of Asia Pacific's corporate and events marketing field. However, these 2 firms have experienced vastly different fate in recent years.
Pico Up, Kingsmen Down
|Source: FT Markets|
Fundamentally, Pico has reported increased yearly net income since 2013. In contrast, Kingsmen's income has been stagnating since 2012 before suffering a big dip in 2016. To make matters worse, Pico has outperformed Kingsmen on all measures of returns efficiency.
|Source: Google Finance, 2012 till date|
Over the course of the long term, share prices inevitably collapse in line with businesses' fundamental performance. As such, it is of no surprise that Pico's share price has outperformed Kingsmen since 2014. Since 2012, Pico has logged a 120% gain in share price while Kingsmen's share price is hovering around 0% gain.
Naturally, Pico is also trading at higher multiples. Pico's PE and PB is around 13 and 2.15 respectively, while Kingsmen's PE and PB trades around 10 and 1 respectively.
Reasons for Kingsmen's Downfall
Kingsmen was once many value investors' darling. As such, I found it worthy to devote some time towards understanding the reasons for their downfall.
|Source: Kingsmen's Annual Reports|
NOTE: All segment profits are not consolidated
Here are some points that we can glean from this:
1) While Retail and Corporate Interiors and Exhibitions and Thematic have always contributed the lion's share of Kingsmen's net income, the mix has changed vastly since 2013 with the former decreasing in importance and the latter growing in significance.
2) Kingsmen's problems are primarily driven by the fall in Retail and Corporate Interiors's net income since 2013. This, in turn, is caused by a reduction in profit margins to razor thin levels.
3) On the bright side, Exhibitions and Thematic has reported both increased profits and improved margins. However, worryingly, revenue from this segment fell in 2016.
Much of whether Kingsmen can turn their business around depends on their Retail and Corporate Interiors segment. At present, Kingsmen appear to be hopeful - they are adopting a policy to defend their market share by operating on lower margins.
In general, there is much uncertainty with Kingsmen's fate now. With the digital revolution ongoing, it remains to be seen if the retail sector will ever regain its future glory. Their failure to grow Exhibitions and Thematic's market share also hampers their pivoting strategy. Perhaps most importantly, Kingsmen are undergoing a change in leadership.
As for Pico, they have demonstrated much greater resiliency than Kingsmen in similar market conditions. The fact that they have defended and even grew their margins amidst this tough operating environment is particularly laudable.
I will continue to monitor both companies as I ponder on when to begin dabbling my fingers in foreign exchanges.
Regardless, here is to wishing everyone fruitful investments!