Anyone in search of a tasty snack in Singapore must have come across Old Chang Kee Ltd (SGX: 5ML), or OCK for short. It has been present in Singapore for over 60 years and manufactures and distributes a wide range of 30 types of snacks and food products such as curry puffs, chicken nuggets, fishballs, and chicken wings. The group has a few brands such as Old Chang Kee, Curry Times, Take 5, Mushroom and Bun Times. As of 31 December 2018, the group had a total of 88 outlets throughout Singapore.
With its wide portfolio of snacks and a ubiquitous presence around Singapore, OCK has managed to capture a dominant market share over the years, with the signature curry puff being one of its most recognisable products. It is also one of the major curry puff chains in Singapore, with the other being Tip Top – a brand owned by SGX-listed ABR Holdings Ltd (SGX: 533). What investors would like to know, though, is are there tasty growth prospects for this home-grown company? And can OCK grow its top and bottom lines?
Financial history and dividends
Source: Old Chang Kee’s FY 2018 Annual Report
A quick look at OCK’s five-year history does not paint an encouraging picture. Though revenue has steadily risen over the years from S$68.9 million in FY 2014 to S$85.5 million in FY 2018 (OCK has a March 31 year-end), net profit declined steadily over the years from a high of S$6 million to S$4 million in FY 2018. The main issues here are manpower costs (which have trended higher over the years due to inflation and a manpower shortage in the food and beverage sector) and rental expenses (which are ever-increasing as OCK is located mainly in shopping malls).
However, offsetting this is the fact OCK has had a very steady dividend history, paying out a total of 3 Singapore cents per year for FY 2017 and FY 2018, and 6 Singapore cents for FY 2016 (due to a 3 cent special dividend). At the last traded share price of S$0.79, OCK’s historical dividend yield is 3.8%, paid twice-yearly.
Seasonal and new products continue to entice
OCK continues to innovate and release a variety of new snacks every few months, in order to satisfy Singaporeans’ palate. These “seasonal” items are introduced as one-off items to generate buzz and to attract customers but can be added as permanent items to its range of products if they prove successful. Some of the recent new food items include the Nasi Lemak Curry Puff, Kaya Puff and Cheesy Curry Puff.
Overseas expansion plans
OCK also has an overseas presence, with one store in Australia (Perth), two in Malaysia, five in Indonesia and a new one in the UK (London). From the most recent annual report (segment breakdown), Australia and Malaysia’s contribution to revenue are minimal, with both countries registering a loss after factoring in depreciation. Though the London outlet is receiving positive reviews, manpower costs continue to remain high and the outlet is unlikely to breakeven anytime soon.
Risks abound for the group
OCK has a strong brand franchise and a wide presence in Singapore. However, investors may wish to find out how the group intends to deal with the high manpower and rental costs before deploying their money to purchase its shares. Though the group is adept at coming up with new food item concepts, it may not be able to generate sufficient incremental revenue to offset rising costs. It is still early days for its overseas foray into London and so far the group has not managed to achieve the same level of success in overseas markets. Investors are advised to wait and watch for now.
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