Pico Far East Holdings

Limited
Ticker Symbol: 752 HK
Share Price: HKD1.95
Target Price: HKD4.63

Company Description
Revenue by Geography

Revenue by Business Segments

3%

6%

8%

8%

14%
24%
62%
75%

Exhibition and Event Marketing Services

Greater China (inc HK, Taiwan and PRC)

Brand Signage and Visual Communication

South Asia (Singapore, Malaysia, Vietnam, India)

Museums, Themed Environment, Interior and Retail

Others (Europe, North America, Japan, Korea)

Conference and Show Management

Middle East

3KPs

Revenue boost in 2015 from World

Expo and ITMA

Weak near term outlook, excess

capacity drag on margins

Solid company merely under

industrial headwinds

1 Revenue boost in 2015

World Expo

Last held in 2010 in Shanghai, China

Upcoming one in 2015 in Milan, Italy
Contracted for Malaysian Pavilion
Expect order announcements around end of this month

Land Area
(Hectares)

Revenue
(HKD m)

2010

528

478.8

2015

200

181.4

Conference and Show Management Revenue

ITMA

350

Worlds largest international textile machinery exhibition

Last held in 2011 in Barcelona, Spain
Upcoming one in 2015
Contribution estimated at HKD200m in 2011
Expanded size for 2015 due to heavy demand for space

300.0

300
Revenue (HKD m)

Year

250
200
150

99.0

52.8

50
0
2010

4,500

89.0

86.0

100

2011

2012

2013

300

Pico Far East

4,000
250
3,500
3,000

200

2,500
150
2,000
1,500

100

1,000
50
500
0

0
2010

2011

2012
Revenue, HKD m (LHS)

2013

2014F

2015F

Net Income, HKD m (RHS)

2016F

1H2014

2 Weak near term outlook

Weak near term outlook

Headwinds in key MICE market (China)

MICE business arrivals have fallen about 42% from 2011 to 2013
Time needed for recovery

Excess capacity drag on margins

Recently completed 2 new facilities in Beijing and Shanghai in 2H13
Increase in SG&A expenses will be a drag on margins in the absence of strong growth
Net margins to decline from 6% to 5% in FY14-16

14,000

3,500

12,000

3,000

10,000

2,500

8,000

2,000

6,000

1,500

4,000

1,000

2,000

500

0
2010

2011

Total MICE Business Arrivals (inc China)

2012

2013

China MICE Business Arrivals

2014F

2015F

2016F

Exhibition and Event Marketing Services Revenue

Revenue (HKD m)

Business Arrivals ('000)

3 Solid company under headwinds

Fundamentally sound

Weakness in performance solely due to industry slowdown

Revenue for exhibitions for its competitors has been similarly sluggish
Pico is still the largest player in the Exhibition Services space with best margins
This efficiency will allow Pico to compete successfully for projects
EV/EBITDA: 6.28 | P/E: 11.4 | FCF yield: 7.1% | D/E: 0.06
Inexpensive financial ratios (EV/EBITDA and P/E) with low debt and decent FCF yield.
Exhibition Revenue and Margins

14.0%

Kingsmen Creatives
80.0%

500.000

450.000

70.0%

12.0%
400.000

60.0%

10.0%

250.000
6.0%
200.000

% of Revenue

Margins

300.000
8.0%

Revenue (SGD m)

350.000

50.0%
40.0%
30.0%

150.000

4.0%

20.0%
100.000
2.0%
50.000

0.0%

0.000
2010

2011

2012

2013

Pico Far East (RHS)

Kingsmen Creatives (RHS)

Cityneon Holdings (RHS)

Pico Far East (LHS)

Kingsmen Creatives (LHS)

Cityneon Holdings (LHS)

10.0%

0.0%
2010
China

2011

2012

Exhibitions and Museums

2013
Interiors

Valuation
WACC
Int. Exp.

Kd

2%

Eq Risk Premium

6%

Marginal Tax Rate

24%

B/V

46%

Ks

8%

S/V

54%

WACC

5%

% of Total Debt
Current Borrowings

2010

2011

2012

2013

(3.982)

(3.047)

(2.351)

(1.600)

7.2%

20.2%

18.3%

14.9%

24.773

14.374

12.470

9.762

1H10

1H11

1H12

1H13

1H14

Current
Borrowings

22.343

116.646

58.498

23.626

98.019

Non-current
borrowings

40.272

Finance
Expenses

-1.988

-1.338

-0.631

-0.598

(0.813)

Interest Rate

3.17%

1.15%

1.08%

2.53%

0.83%

Average
Interest Rate

1.75%

Business
Risk

Financial
Risk

ERP

Business
Risk

Financial
Risk

ERP

Business
Risk

Financial
Risk

ERP

High

Low

6%

Medium

Low

4%

Low

Low

2%

High

Medium

7%

Medium

Medium

5%

Low

Medium

3%

High

High

8-9.5%

Medium

High

5.9%

Low

High

3.9%

Valuation
EPV Valuation

Steady-state EBITDA: 5-year average due to cyclicality

EBITDA

259.78

Zero Growth CAPEX

(44.99)

350

Minorities

(7.98)

300

250

Rental Income

35.08

200

Adjusted Earnings

257.31

EBITDA
$322.7

Exceptionals

EPV

5,349.12

Cash

875.56

HKD m

$301.6
$272.3

$268.4

$261.5
$245.6
$217.9

150
100
50

Adjustments for Pico

Thailand

47.95

0
2010

MV of Debt

(98.02)

Operating Leases

(149.72)

Minority Interest

(55.14)

Equity Value

5,927.61

Undiluted Shares
Outstanding (m)

1,220.95

Target Price

4.63

2011

2012

2013

2014F

2015F

2016F

Non-cash entries (fair value gains etc.) hence omitted

Market Cap x Percentage ownership - Net Book Value