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4 Things To Know From Old Chang Kee Ltd’s Latest Earnings Update

Old Chang Kee Ltd (SGX: 5ML) is perhaps one of Singapore’s most well-loved local snack food chain. Since operating a single stall back in 1956, the food and beverage chain has grown to a total of 90 outlets, and has also opened stalls in Australia, Indonesia, Malaysia and most recently United Kingdom. Last month, Old Chang Kee released its earnings update for the first quarter ended 30 June 2018. Here are some of the key points to take away.

Revenue and profit grow

Revenue rose by 8.5% in the quarter to S$22.3 million. Cost of sales only increased by 1.9%, resulting in 15.2% increase in gross profit, and a wider gross margin of 64.7%. The higher revenue was due to same store sales growth and contribution from new outlets. The group had 90 stalls at the end of the quarter, compared to 89 in the same time last year.

Cost of sales decreased due to better food cost management and improved manpower efficiencies through the use of automation of production processes.

Profit after tax was S$1.25 million, up 86.4% from the corresponding period last year. Earnings per share stood at 1.03 cents for the quarter.

Healthy financial position

The group maintained a healthy balance sheet with S$15.2 million in cash and S$10.2 million in total debt, giving it a net cash position of S$5 million. Net asset value per share was S$0.24, up marginally from S$0.23 per share recorded in the preceding quarter.

The group generated S$4.0 million from its operations and spent S$1.0 million in capital expenditure. As such, it generated S$3 million in free cash flow during the quarter.

Outlook

The management said that it was encouraged by the fact that its efforts to improve gross margin were bearing fruit. It also added that initial sales at its flagship outlet in Covent Garden, London, were encouraging and it is in the midst of fine-tuning its product offering to cater to the local market. It does, however, expect rental, labour and raw material costs to remain high in the next 12 months.

Stock valuation

Old Chang Kee Ltd delivered a good set of results for the quarter. This is a continuation of its good performance recorded for the fiscal year ended 31 March 2018, where both revenue and net profit climbed by around 9% and 130% respectively. Old Chang Kee shares currently trade at S$0.75 per piece, giving an annualised price-to-earnings ratio of 18.2 and a price-to-book ratio of 3.1.

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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 writer Jeremy Chia doesn’t own shares in any companies mentioned.