Kingsmen’s plan to develop NERF attractions is one of the key reasons why I invested in this company so I wanted to share what I learned during the 2018 annual general meeting.
The total investment in NERF Marina Square is expected to be around SGD5 million so Kingmen can survive the hit even if this attraction is a complete failure.
This 18,000 square feet attraction will be sited near the Marina Square taxi stand (the one near Mindchamps pre-school) and tourist bus centre so it should benefit from decent footfall. Marina Square NERF will have several large activity zones and even smaller party rooms for private events. NERF merchandise exclusive to the location will also be sold.
|NERF Marina Square break-even||SGD||Comment|
|Annual opex including depreciation||8,000,000|
|Assumed price per visit (SGD)||40||Same as Super Park|
|Visitors needed to break even per year||200,000||Singapore Flyer gets 1.3MM visitors|
Annual operating expenses including depreciation is expected to amount to SGD7-8 million and if we assume a ticket price of SGD40 per visit, that works out to 200,000 visits to break even. This should be achievable given the popularity of NERF. NERF represented 18 of the top 20 blasters in the US and and NERF Strongarm was the #1 unit volume driver on Amazon in the entire toy and game category according to Hasbro’s 2018 annual report. The NERF Singapore Facebook group alone has 2,900 members which implies repeat visit potential from locals.
For perspective, the Singapore Flyer gets around 1.3 million visitors per year (ticket price is SGD35). Meanwhile Universal Studios Singapore received 4.4 million visitors in 2018 (ticket price ranges from SGD59-79).
According to Kingsmen, “minimal” profit contributions are expected until Kingsmen is successful in opening more overseas NERF attractions. These overseas attractions will be owned by third parties and Kingsmen has the potential to get recurring income from these attractions. The plan is to open 7 more NERF attractions in the Asia Pacific region. If we assume SGD0.5 million of net profit contributions from each of location, that works out to SGD3.5 million of net profit or ~40% upside to its 2018 net profit.
All of the above is speculation until the outcome of first attraction is known. NERF Marina Square opens on 1 October 2019. Incidentally, 2019 will be the 50th anniversary of NERF so NERF Marina Square should benefit from some of Hasbro’s promotional activities.
I recently bought shares near the current price (SGD0.51) because the market seems to think the entire business is worthless. Kingsmen is a services company with limited assets so the company should be trading above book value but the company is currently trading at 0.93x tangible book and 0.85x price to book. If NERF Marina Square is still unprofitable after the 2nd year, I will consider selling my position. In the meantime, the 4.8% dividend yield provides some comfort.