SINGAPORE (Apr 29): For years, Kingsmen Creatives’ business model was to provide a range of design work for its clients, whether for their retail stores, exhibition spaces or museum displays. It could also be a big swathe of theme parks such as Universal Studios at Resorts World Sentosa, where friendly giant Shrek from the movie of the same name features prominently.

The company is now moving into something different. Instead of contractual work, for which Kingsmen gets paid for building and installing what its clients want, it wants to generate a growing stream of recurring income by operating activity centres.

On April 24, the company announced an agreement with US entertainment giant Discovery, which owns the Animal Planet franchise. Under the terms of this worldwide deal, Kingsmen will help conceptualise, build and operate a series of Animal Planet “travelling experiences” to let visitors learn and have fun. The first of this “experience” will be opened in Singapore by year-end.

The agreement with Discovery comes after a similar agreement with toymaker Hasbro. Come October, Kingsmen will launch and operate the world’s first so-called NERF centre for fans of the family of foam-pellet-shooting toy “blasters”. The NERF franchise is owned by Hasbro. Kingsmen is responsible for rent and upkeep of the centre, and will pay Hasbro royalties of an unspecified amount. In return, its earnings will come from ticketing revenue and sales of related merchandise.

The 18,000 sq ft NERF centre, at Marina Square, is just the beginning. Kingsmen plans to roll out at least seven such centres elsewhere over the next three to five years, with the first one in North Asia. “The new business will not generate a lot of top line, but the margin will be better, so the bottom line will be attractive for us,” says group CEO Andrew Cheng in an interview with The Edge Singapore.

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Cheng (left, with Wee and Chong): The new business will not generate a lot of top line, but the margin will be better, so the bottom line will be attractive for us

The NERF centre is not just for children or teenagers to “shoot” one another but it is available for company team-building activities too. “There’s a subtle education -element to it,” says Anthony Chong, group managing director for Kingsmen’s exhibitions and events, thematic and museums division.

The company is confident that NERF, a 50-year-old brand, still commands a global following. More than a billion blasters have been sold so far and 30 million to 40 million are still sold every year. “This is a well-established brand that continues to sell well. We believe [the centre] will be hugely successful,” says Cheng.

Kingsmen is not saying what the admission prices to the NERF centre will be, but Cheng gives the assurance that they will be “very competitive” to draw in the crowds. Before Kingsmen embarked on this project, it commissioned two separate market research firms to help make decisions on variables such as location, pricing and positioning. “We don’t try and second-guess the market,” says Cheng.

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For Kingsmen shareholders, the new business should be something to look forward to. For FY2018 ended Dec 31, the company’s revenue grew 17.5% y-o-y to $360.9 million. However, earnings dropped 16.3% y-o-y to $8.2 million, as margins fell from 25.1% to 22.7%.

Besides lower margins last year, the company also had to book additional costs incurred when it shifted to new premises. There were additional business development costs such as those for the NERF centre. Even with the earnings decline, Kingsmen plans to maintain a full-year dividend of 1.5 cents. Year to date, its share price increased 8% to close at 54 cents on April 24, which values the company at a price-to-earnings ratio of 13.21 times. As at Jan 31, 2019, the company had an order book of $103 million, of which $87 million is to be recognised this year.

While it builds up its new business, Kingsmen continues to be a direct beneficiary of the various landmark projects in Singapore, such as the recently opened Jewel Changi Airport. The company was able to win $30 million worth of contracts to build the Mirror Maze attraction and also fitted out a dozen retail and F&B outlets in Jewel.

There are bigger potential contracts in the pipeline. On April 3, both of Singapore’s integrated resorts (IRs) announced plans to spend $4.5 billion each to expand and refurbish their existing properties. In 2008, when Resorts World Sentosa was built, Kingsmen won contracts worth some $80 million for the Universal Studios theme park there. Since then, Kingsmen has done work on other Universal Studios, such as the ones in Osaka and Beijing. Presumably, Kingsmen stands a chance to win this repeat business.

Besides the IRs, Kingsmen is eyeing a piece of another huge project: the $1 billion redevelopment of Mandai nature precinct, slated for completion by 2023. Currently where the Singapore Zoo, the River Safari and Night Safari are located, the whole precinct will see the development of new facilities and two new attractions: the Rainforest Park and the relocated Bird Park from Jurong. “Hopefully, we can secure some contracts. We are one of the key players,” says Cheng.

There is also a consistent stream of events and activities within Singapore that will provide potential contract opportunities for Kingsmen. That includes the annual Formula 1 race, the bicentennial commemoration and various trade shows, exhibitions and corporate events. “It’s going to be quite busy for us over the next five years or so,” says Chong.

Kingsmen also has a steady revenue stream helping big fashion brands such as Fendi and Christian Dior fit out their retail stores across the region. Increasingly, it is doing more work for F&B and co-working spaces, says Alex Wee, Kingsmen’s group managing director, who runs the retail and corporate interiors division.

To keep up with the competition, physical retailers are upgrading or refreshing their space every three to five years. The budget they allocate to each revamp remains relatively similar. What has changed is their spending allocation. They are now spending more on technical equipment, such as large video panels, which are no longer just displays, but touchscreens that come with interactive functions for sales transactions. “The whole shopping experience is a lot more engaging; there’s a steady demand for such work to transform stores,” says Wee.

Just as its clients are constantly refreshing and updating, Kingsmen is constantly transforming. If the company can have its way, it will be partnering with intellectual property (IP) owners other than just Hasbro and Discovery to help them create unique attractions.

However, for the longer term, Kingsmen wants to do more than just license others’ IP and help build attractions based on it. It wants to create its own IP and be an IP owner itself. “Ultimately, we want to have our own carnivals and events, which we can brand ourselves and scale and move around the region,” says Cheng. “This is what our future driver will be.”

He is not worried that by creating its own IP, the company will be seen to be in direct competition with some of its existing clients. Cheng explains that its IP will focus more on “local flavours”, versus the Hollywood movies and sports themes of clients, which are more global in nature. “What we do will be more complementary, and we can even form joint ventures. The whole idea is to create experiences and put us in a new direction,” says Cheng.

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