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The Three Numbers That Give Old Chang Kee “Puff”

oldchangkeeWhether you enjoy nibbling on a nugget, feasting on a fishball or crunching a crab claw, Old Chang Kee (SGX: 5ML) is likely to have a titbit to sate your plate.

Singapore’s almost omnipresent fast-food outlet, which traces its history to a single outlet on Mackenzie Road, is today a 76-strong chain of shops and kiosks and sells over 35,000 curry puffs a day. Its Return on Equity of 19.1% is also above the market average of around 11%.

Old Chang Kee is typical of most fast-food outlets in that its Net Income Margin is not especially high. The margin at 6.3% is about a third of the market average for the companies that make up the Straits Times Index (SGX: ^STI). In fact, its margin is more akin to food producers such as Del Monte (SGX: D03) and supermarket Dairy Farm (SGX: D01).

But what Old Chang Kee lacks in margin, it more than makes up for in efficiency. The company generates an above-average $2.15 of revenue for every dollar of asset used in the business. Whilst that is more than four time higher than the market average, it is the kind of efficiency expected of food retailers. The Asset Turnover for Sheng Siong (SGX: OV8) and Dairy Farm are both 2.6.

Old Change Kee also uses a bit of leverage in the business, but not excessively so. If anything, the Leverage Ratio of 1.4 slightly below the market average of 1.7.

By deconstructing the three key ingredients of Old Chang Kee’s financials, it is easy to see what gives the snack seller puff. Its Return on Equity of 19% is the product of a low but acceptable Net Income Margin of 6.3%; a high Asset Turnover of 2.15 and a small Leverage Ratio of 1.4.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.