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Old Chang Kee Ltd’s Latest Earnings: What Investors Should Know

Old Chang Kee Ltd (SGX: 5ML) reported its first-quarter earnings for the financial year ending 31 March 2017 (FY2017) yesterday evening. The reporting period was for 1 April 2016 to 30 June 2016.

As a quick introduction, Old Chang Kee may be best known for its signature Curry’O puffs that are sold in its namesake retail outlets. The company has been around since 1956, growing from a single stall outside a cinema to 85 outlets across Singapore today.

You can read more about Old Chang Kee in here and here.

Financial highlights

The following’s a rundown on some of the latest financial figures for Old Chang Kee:

  1. Revenue for the reporting quarter was $18.6 million, up 2.2% compared to the same quarter a year ago.
  2. But, profit for the period was down sharply, falling by more than 37% to $0.9 million.
  3. Subsequently, diluted earnings per share (EPS) fell from 1.19 cents in FY2016’s first-quarter to 0.74 cents in the reporting quarter.
  4. Cash flow from operations came in at $2.7 million with capital expenditure clocking in around $1.3 million. This puts the food purveyor in positive free cash flow territory to the tune of nearly $1.4 million. Yet, this is down from the free cash flow of $2.8 million recorded in the same quarter last year ($3.8 million in cash flow from operations and $1.0 million in capex).
  5. As of 30 June 2016, Old Chang Kee had $20.5 million in cash and equivalents and borrowings of about $8 million. This is a slight decline from the $22.8 million in cash and equivalents and borrowings of $8.6 million it had a year ago.

In summary, Old Chang Kee’s top-line growth had stalled while its bottom-line shrank due to higher depreciation cost from the company’s new factory. Last year’s quarter also included one-off insurance proceeds in relation to damaged equipment, thereby boosting the bottom-line for the period.

But, the curry puff retailer managed to maintain a net cash position on its balance sheet and generated positive free cash flow.

Operational highlights and the road ahead

Revenue increased due to contributions from new outlets and growth from existing outlets. This was partially offset by store closures in malls which are undergoing revamps. As of 30 June 2016, Old Chang Kee was operating 85 outlets in Singapore, compared to 84 outlets a year ago. The group’s signature puff products accounted for 33.2% of its revenue for the reporting quarter.

The management team provided a brief outlook:

“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 is pleased to announce that it has in June 2016 obtained halal certification for its factory facility in Iskandar Malaysia and has commenced operations. The Group’s new factory in Singapore when completed and operational, together with its Iskandar factory, will provide the platform for the Group to grow its business both locally and regionally.”

At its closing price yesterday of $0.725, Old Chang Kee traded at about 16 times trailing earnings with a dividend yield of 8.3%. Please note that the trailing dividend includes a one-off special dividend of $0.03 per share. Without the special dividend, Old Chang Kee would have a yield of 4.1%.

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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.