SINGAPORE (Oct 14): RHB has reversed its call on Kingsmen Creatives, putting out a “neutral” recommendation on the belief that the company is now fairly valued at 80 cents. The brokerage downgraded the stock to “sell” back in August 14, with a then price target of 78 cents.

“The current quarter is expected to remain challenging for the company, led by a slowdown in the expansion of high-end retailers and translation losses from CNY and MYR depreciation,” writes analyst Juliana Cai in her Oct 14 report.

“However, we think that the worst is over, as the company embarks on new initiatives to improve its revenue stream,” she adds.

Cai believes Kingsmen’s retail interior segment to continue to remain challenging in the current third quarter. However, she notes that the company has been going after new business in food and beverage industry, with clients like Ippudo at Mandarin Gallery Singapore, The Handburger and a Hard Rock Café in Thailand.

“While we like its tenacious attitude in seeking a new client base during difficult times, we note that these projects from restaurants and local brands will also yield lower margins, which would impact its bottomline,” she cautions.

However, for the other key business area, exhibition and museum, will ‘continue to soar’ given its strong pipeline of projects all the way to FY2019. Cai sees revenue from this segment to increase by 40% y-o-y in the current FY15 and another 15% y-o-y in FY16.

Cai’s new target price of 80 cents is pegged to 10 times FY16 earnings. “We believe the worst is over for Kingsmen as it pursues a new client base. Given that its share price has fallen 16% since mid-August, we upgrade our call to NEUTRAL as we believe the market has priced in the weaker earnings for this year,” she states.

As at 4.39pm, Kingsmen Creative shares were down 1.5 cents to 76.5 cents.