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Old Chang Kee Ltd’s Mixed Track Record In Growing Its Business

Food & beverage retailer Old Chang Kee Ltd (SGX: 5ML) has been around since 1956, growing from a single stall outside Rex Cinema to 89 outlets in Singapore as of 31 March 2017. Old Chang Kee may be best known for its signature Curry’O puff, a popular Singapore snack.

One of the things that I like to do when analysing a company is to study its track record. The past is no guarantee of the future. But historical information is the most reliable thing that we can use as our basis to forecast what lies ahead.

And this brings me to the main purpose of this article, which is to have a quick overview of Old Chang Kee’s historical business growth.

A mixed record

The table below is a snapshot of Old Chang Kee’s important financial metrics from FY2013 (financial year ended 31 March 2013) to FY2017:


Source: Old Chang Kee FY2017 annual report

Here are a few points worth highlighting:

1. Firstly, the company’s revenue had grown from S$65.6 million in FY2013 to S$78.3 million in FY2017. This translates to a CAGR (compound annual growth rate) of 4.5%.

2. Secondly, its profit before tax declined from S$6.1 million in FY2013 to S$2.4 million in FY2017. Even if we exclude a one-off loss of S$3 million in FY2017 (from the revaluation of the company’s properties), its pre-tax profit in FY2017 would have been S$5.4 million, down by a cumulative 11% over the last five years.

3. Thirdly, for the period shown in the table above, Old Chang Kee’s pre-tax profit margin fell 9.2% to 3.1%. If the aforementioned one-off loss was excluded, the company’s pre-tax profit margin would have been 6.9% in FY2017.

4. Lastly, Old Chang Kee’s return on equity had also declined during the period, moving down from 17.9% to 6.4%, mainly due to the contraction in its pre-tax profit margin.

A Foolish conclusion

In sum, given what we have above, I think that Old Chang Kee has been facing pressure in managing its expenses in its last five fiscal years, resulting in lower profits despite higher revenue. Moreover, the company has hinted that the challenges in maintaining its expenses will not abate in the short term, at least. This what Old Chang Kee said on the topic in its FY2017 annual report:

“As the labour shortage situation in the Food & Beverage sector shows no signs of abatement, labour costs are expected to continue trending upwards, while the general consumer sentiments remain cautious.”

As such, the future performance of the company will depend on how well it can address its escalating cost structure.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.