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Old Chang Kee Ltd’s Latest Earnings: The Puff Goes Flat, But Should We Worry?

Old Chang Kee Ltd (SGX: 5ML) reported its fiscal third-quarter earnings for the financial year ending 31 March 2016 (FY2016) yesterday evening. The reporting period was for 1 October 2015 to 31 December 2015.

Old Chang Kee, a food & beverage retail operator, has been around since 1956, growing from a single stall outside Rex Cinema to over 80 outlets today. The company is perhaps best known for its signature Curry’O puff.

Read more about Old Chang Kee in here and here. Or, catch up on the results of the previous quarter here.

Financial highlights

The following’s a quick take on Old Chang Kee’s latest financial figures:

  1. Revenue for the reporting quarter was $18.8 million, down 1.8% compared to the same quarter a year ago.
  2. Profit for the period did worse, falling by more than a third to $1.23 million.
  3. Subsequently, earnings per share (EPS) for the quarter fell from 1.56 cents a year ago to 1.01 cents.
  4. Cash flow from operations came in at $1.96 million with capital expenditure clocking in around $2.6 million. This puts the food purveyor in negative free cash flow territory to the tune of nearly $0.7 million. This is a step backwards from the positive free cash flow recorded in the same quarter last year, though it should be noted that the curry puff seller’s operating cash flow from operations in that period was just $1.45 million.
  5. As of 31 December 2015, Old Chang Kee had $18.8 million in cash and equivalents and borrowings of about $8.5 million. A year ago, the figures were $20.1 million and $8.2 million, respectively.

In summary, Old Chang Kee’s top-line had stalled while its bottom-line shrank on the back of higher operating expenses. There was also no free cash flow generated for the quarter, in part due to larger capital expenditures. The higher spend was due to renovation needs and construction costs related to the company’s new factory.

A positive is that the curry puff company managed to maintain a strong balance sheet with a net cash position.

Operational highlights

Revenue declined mainly due to store closures related to mall revamps. As of 31 December 2015, Old Chang Kee operated a total of 82 outlets in Singapore, compared to 79 outlets a year ago. This is a decline from the 84 outlets it reported in the fiscal second quarter though.

The company’s management team gave the following commentary for the current year and the outlook ahead:

“The Group expects operating lease expenses (rental) and labour and raw material costs to remain high in the next reporting period and the next 12 months, and believes that the labour market will continue to remain tight.

The Group’s new factory in Iskandar Malaysia and expanded factory facilities in Singapore at 2 Woodlands Terrace are expected to be fully operational in the coming months. These will provide the platform for the Group to grow its business both locally and regionally.”

In short, Old Chang Kee is investing for its future expansion, despite the temporary closures of some of its outlets.

Foolish take away

At its closing price today of $0.66, Old Chang Kee trades at about 17 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 Chin Hui Leong doesn’t own shares in any companies mentioned.