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

Yesterday, Old Chang Kee Ltd (SGX: 5ML) reported its fourth quarter and full year earnings for its financial year ended 31 March 2017 (FY2017).

As a quick background, Old Chang Kee is a food & beverage retail outlet operator that traces its roots back to 1956. The company, which is popular for its curry puffs, has 89 outlets in Singapore today.

Financial highlights

Here’s a rundown on some of Old Chang Kee’s latest financial figures:

1. Fourth-quarter revenue was $19.2 million, up 8.7% compared to the same quarter a year ago. For FY2017, Old Chang Kee recorded $78.3 million in revenue, an increase of 6.1%.

2. For the reporting quarter, Old Chang Kee recorded a loss of $2.1 million, down from the profit of $1.1 million a year ago. For the full year, Old Chang Kee’s profit fell 64.9% to $1.75 million.

3. Diluted earnings per share (EPS) for the quarter was a negative $0.0173. For FY2017, EPS was $0.0144, a 64.9% decline from FY2017.

4. Cash flow from operations for the reporting quarter was $1.19 million with capital expenditure at $1.59 million. These gave rise to a negative free cash flow of $0.4 million. In the same quarter a year ago, Old Chang Kee had free cash flow of $1.1 million. For the full fiscal year, the firm had $1.3 million in free cash flow, down from $3.9 million in the previous year.

5. As of 31 March 2017, Old Chang Kee had $15.6 million in cash and equivalents and borrowings of about $10.5 million. The balance sheet has deteriorated from a year ago when there was $19.4 million in cash and equivalents and $8.3 million in borrowings.

In summary, Old Chang Kee grew its sales in the fiscal year, but its profit fell due to a sharp increase in the “Other expenses” cost category (a 254% jump). But, the curry puff company maintained a net cash position on its balance sheet and generated free cash flow for the year.

Old Chang Kee also proposed a final dividend of $0.015 per share, unchanged from a year ago. In FY2016, the firm paid out a special dividend of $0.03 but there was no special dividend this year. Together with the interim dividend of $0.015, Old Chang Kee will pay out $0.03 per share in dividends for FY2017, unchanged from FY2016 (excluding the special dividend).

Operational highlights and what lies ahead

Old Chang Kee’s revenue for the year increased from incremental revenue from new outlets. This was partially offset by store closures due to mall revamps, as well as lower sales from existing outlets. As of 31 March 2017, Old Chang Kee was operating 89 outlets in Singapore, compared to 83 outlets a year ago. The company’s signature puff products accounted for 31.8% of its revenue in FY2017.

Old Chang Kee’s Other expenses increased sharply during the year mainly due to a downward revaluation of $3.0 million for its Singapore and Malaysia factory buildings.

In its earnings release, Old Chang Kee had the following outlook statement:

“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 will be integrating its factory in Iskandar Malaysia and its expanded factory facilities in Singapore at 2 and 4 Woodlands Terrace in the coming months. These will provide the Group with a platform to expand its product range and grow its business both locally and regionally.”

Old Chang Kee shares closed at $0.84 each yesterday. At that price, the company has a price-to-earnings ratio of 58 and a dividend yield of 3.6%.

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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.