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What Investors Need to Know about Old Chang Kee’s Double-Digit Profit Growth

Old Chang Kee (SGX: 5ML) is a Singapore-based food and beverage company. It is most famous for its Old Chang Kee food retail outlets that are found in many major malls in Singapore. Those outlets would also be no stranger to lovers of curry puffs (Old Chang Kee’s signature item) and other fried snacks.

The company had humble roots as it started only as a small stall outside a coffee shop in 1956. Under the leadership of its Chairman Mr. Han Keen Juan, Old Chang Kee is now a popular F&B chain in Singapore.

With the announcement of the company’s results last Thursday, let’s see how it fared.

Operating results

Old Chang Kee has two main business segments: Retail; and Delivery and Catering Services. For the financial year ended 31 March 2014 (FY2014), Old Chang Kee recorded total revenue of S$68.9 million, which is 5% more than the previous year. Most of the growth had come from the retail business, which takes up about 98.4% of the company’s total revenue. Meanwhile, the delivery and catering segment had seen a sharp drop in revenue for the year. The decline in the catering business was due to a change in the company’s strategy of only accepting bulk orders for delivery and catering.

In any case, Old Chang Kee managed to improve its gross margin from 61% to 62%, leading to a 6.3% increase in gross profit to S$42.8 million. The company had also been able to maintain its operating costs at a relatively similar level to the previous year, ultimately resulting in a huge increase in its net profit for the year; Old Chang Kee ended FY2014 with S$6 million in net profit, some 20.8% higher than the previous year.

The balance sheet of the company remains very strong. Old Chang Kee has more than S$16.5 million in net cash (total cash minus total debt), up from S$13.4 million in the previous year. Old Chang Kee also generated good cash flow for the year due to the nature of its business – most of its customers pay for their curry puffs and fried snacks using cash. Free cash flow had almost doubled from S$2.7 million a year ago to S$5.2 million.

Foolish Summary

Old Chang Kee had recommended a dividend of S$0.015 per share. That is S$0.05 per share less than the previous year due to a special dividend that was only given out back then. The company is currently trading at S$0.98 per share and valued at 20 times trailing earnings.

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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 contributor Stanley Lim doesn’t own shares in any companies mentioned.