MENU

Where to Next for Steady Dividend Payer Old Chang Kee? – Part 2

Credit: www.SeniorLiving.Org

Welcome to the second part of the article on Old Chang Kee Ltd (SGX: 5ML). In my previous article, I covered the revenue for the company. In this article, we look at the profit and balance sheet for the company.

As a recap: Old Chang Kee has been around since 1956, growing from a single stall to 80 outlets. The company’s shares are up 300% in the past 5 years. In comparison, the capital gain returns of the SPDR STI ETF (SGX: ES3) was 80.3% for the same duration.

A closer look

Old Chang Kee 2-1

Source: Company Earnings Report; reporting period changed in FY2011/2012; FY2011/2012 represents a 15 month reporting period

As mentioned in my previous article, Old Chang Kee managed to grow its topline at an annualized compounded rate of 5.6% in the five financial years above. Its net income, though, grew at a slower rate of 4.9% over the same period. We should look at the company’s free cash flow next.

Old Chang Kee 2-2

Source: Company Earnings Report; reporting period changed in FY2011/2012; FY2011/2012 represents a 15 month reporting period

The operating cashflow for Old Chang Kee looks a lot better, rising almost 11% on an annual compounded basis for the five plus year period above. The capital expenditure has been kept below the operating cashflow for the same duration as well – meaning that Old Chang Kee has been solidly free cash flow positive. We should look at the balance sheet next for more clues.

 

Old Chang Kee 2-3

Source: Company Earnings Report; reporting period changed in FY2011/2012; FY2011/2012 represents a 15 month reporting period

Old Chang Kee excelled on the balance sheet as well, increasing its cash position alongside the positive free cash flow. Borrowings have been kept to a minimum as well for the entire five plus year period. The curry puff seller ended FY2014 with a little over $20 million in cash and equivalents and $4 million in borrowings.

Foolish summary

Old Chang Kee is a small to mid-sized food provider with a market capitalization that is a touch under $100 million. It has demonstrated growth without adding too many stores, but we should also look towards future growth from its excursions around Asia as well as the introduction of new food retail concepts. Keeping in mind its failures from overseas expansion in the past, Foolish investors should look for signs of quality of growth so that the company is able broaden and lengthen its growth runway for the future.

As of the closing price on 26 December 2014 of $0.80, Old Chang Kee traded at a trailing earnings ratio of about 20, and has a dividend yield of around 3.8%.

For more (free!) stock analyses and investing tips, sign up here for your FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock SingaporeIt will teach you how you can grow your wealth in the years ahead.

Like us on Facebook to follow our latest hot articles.

The Motley Fool's purpose is to help the world invest, better.

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