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Challenger Technologies Limited’s Latest Earnings: A Mixed Quarter

Challenger Technologies Limited (SGX: 573) is an operator of the Challenger chain of IT retail stores and online tech marketplace, Hachi.tech. Currently, the group has a total of 37 stores comprising one flagship Challenger megastore store, 25 Challenger superstores and 11 small format stores in Singapore.

On Friday (3 August), Challenger announced its financial results for the second quarter ended 30 June 2018.

Overall revenue for the latest quarter fell 3% year-on-year to S$76.2 million. The fall was largely due to lower contribution from IT products and services. Revenue from this segment decreased by 2.8% to S$75.1 million mainly due to lower revenue from Hachi.tech. This was partially offset by better performance from its retail operations, and sales growth from both corporate sales and tradeshows.

Revenue from the electronic signage services business declined from S$0.5 million last year to S$0.1 million in the reporting quarter while revenue from the telephonic call centre and data management services grew 10% to S$1.1 million.

Quarterly net profit rose 3% to S$4 million. Lower employee benefit, depreciation and operating expenses resulted in the increased net profit. Decrease in gross profit due to weaker online sales partially offset the higher bottom line.

Consequently, earnings per share increased 3% to 1.16 Singapore cents. The net profit margin for the latest quarter came in at 5.2%, up slightly from 5.0% a year ago.

As of 30 June 2018, Challenger had S$63.6 million in cash and cash equivalents with no debt. In comparison, at the end of last year, it had cash and cash equivalents of S$63.2 million with zero borrowings.

Cash flow from operations improved strongly for the 2018 second-quarter. This metric almost quintupled from S$1.3 million a year ago to S$6.3 million in the reporting quarter. With negligible capital expenditure for the latest quarter, free cash flow was S$6.3 million as well. A year ago, it reported a negative free cash flow of S$0.2 million.

Shareholders would receive an interim dividend per share of 1.10 Singapore cents, unchanged from the previous year. The dividend is well-covered as the dividend payout in terms of free cash flow is around 60%.

Challenger said that it noticed a slowdown in retail sales towards the end of the second quarter. Going into the second half of 2018, the company warned that the challenging operating environment is expected to persist.

However, Challenger is not resting on its laurels. It added:

“[W]e will continue to widen our retail network in Singapore market. As such, the Group is introducing two new concept stores branded “Musica.Boutique” and “PIT.money”, which are set to open in the third and fourth quarter of this year. Besides, another Challenger superstore at Paya Lebar Quarter is due to be opened in the fourth quarter of this year.”

Challenger shares closed at S$0.49 apiece on Friday, giving a trailing price-to-earnings ratio of around 9 and a dividend yield of 6.7%.

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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 Sudhan P doesn’t own shares in any companies mentioned.