Old Chang Kee

Old Chang Kee to sell durian & jackfruit curry puffs from July 27, 2018
https://mothership.sg/2018/07/old-chang-...urry-puff/

Old Chang Kee posts 14.6% increase in FY19 earnings to $4.3 mil on higher revenue; declares 1.5 cents final dividend

By: Samantha Chiew
30/05/19, 05:41 pm

SINGAPORE (May 30): Old Chang Kee announced that its FY19 earnings have increased by 14.6% to $4.3 million, compared to $3.8 million in FY18.

This came on the back of a 5.0% increase in revenue to $89.8 million from $85.5 million in the previous year.

Revenue from retail outlets increased by 4.2% y-o-y mainly due to revenue contribution from new outlets and an increase in revenue from existing outlets, partially offset by absence of revenue from closed outlets and outlets temporarily closed for renovations.

As at Mar 31, the group operated a total of 86 outlets in Singapore, as compared to 90 outlets in the same period a year ago.

As cost of sales decreased by 3.0% y-o-y to $32.3 million, FY19 gross profit came in at $57.5 million, 10.1% higher than $52.2 million in FY18.

Share of results of joint venture widened to $301,000 from $76,000 due to its first flagship outlet in London’s Covent Garden.

As at end-March, Old Chang Kee’s cash and cash equivalents stood at $15.4 million.

The group has declared a final dividend of 1.5 cents per share.

Old Chang Kee says its first London flagship has generated positive reviews although it still faces high overheads and manpower costs.

Therefore, the group says that it will continue to fine-tune its product offerings to adapt to the UK market, and to manage its manpower and food costs more effectively, as it becomes more familiar with the UK retail market.

More details in https://www.theedgesingapore.com/old-cha...ents-final

Old Chang Kee today closed at S$0.78.

See also https://links.sgx.com/FileOpen/Full%20Yr...eID=561661

XD today, 1 ct!

Cash and cash equivalents at the end of the financial period :- 28.5milos,

Statement of Comprehensive Income
For the period from 1 April 2021 to 30 September 2021 (“1H2022”), the Group’s revenue increased by
approximately S$341,000 or 0.9% mainly due to higher delivery and retail sales, partially offset by a decrease
from catering sales. As at 30 September 2021, the Group operated a total of 89 outlets in Singapore, as compared
to 88 outlets as at 30 September 2020.
Revenue from retail outlets increased by approximately S$7.8 million or 28.4% mainly due to incremental revenue
from new outlets and increase in revenue from existing outlets. The comparable period was affected by social
distancing measures imposed during the Phase 1 circuit breaker (“CB”), as a result of Coronavirus Disease 2019
(“Covid-19”) outbreak. The increase in retail revenue was partially offset by a decrease in revenue from closed
outlets.
Revenue from other services, such as delivery and catering services, decreased by approximately S$7.4 million
mainly due to absence of packed meals catering to foreign workers dormitories, partially offset by higher delivery
revenue during the current period.
The Group’s gross profit margin decreased by 1.7% to 64.3% in 1H2022, mainly due to absence of economies of
scale savings from the large-scale catering of packed meals to foreign workers dormitories.
Other income decreased by approximately S$511,000 due to lower government grants, mainly the absence of
foreign worker levy rebate of about S$420,000 and lower property tax rebates offset by higher Job Support
Scheme (“JSS”), rebates, and additional job growth support scheme income for the current period.
The increase in selling and distribution (“S & D”) expenses was largely due to higher staff cost, to support the
increase in retail revenue from outlets, absence of the waiver of foreign worker levies received in April 2020 and
lower rental rebate of about S$2.0 million received from landlords, partially offset by lower depreciation expenses
and packing material expenses during 1H2022.
The decrease in administrative expenses was mainly due to lower legal and professional expenses, lower
entertainment and bonus provision arising from the decrease in profit for 1H2022, offset by higher medical, bank
charges, property tax, and repair and maintenance expenses.Interest expenses decreased by approximately S$46,000, mainly due to lower loan interest rates and lease
interest.
Other expenses increased by S$207,000 mainly due to
(i) impairment of amount due from (a) our joint venture in United Kingdom (”UK”) of approximately S$26,000
and (b) the Company’s Malaysian associate of approximately S$51,000; and
(ii) higher exchange loss of approximately S$178,000 mainly due to exchange rate loss on foreign currency
denominated payables to related companies within the Group.
As a result of the above, the proportion of total operating expenses compared to revenue increased from 58.6%
in 1H2021 to 63.9% in 1H2022.
The decrease in depreciation expenses was mainly due to an increase in fully depreciated assets attributed
to the right-of-use assets and property, plant and equipment, partially due to recognition of impairment for
loss making outlets in the prior year.
The Group’s taxation expenses decreased by S$378,000 mainly due to the drop in profit before tax for the
current period.

OCK reported their 1H24 results recently. Top line seems to have fully recovered from their covid-19 impact/lows and has also hit a new high (in terms of 1H year). The previous top line record was achieved in FY19. Below is a quick comparison between the current results and previous high:

Pre-Covid 19 record period (1H19 ending Sept2018):
Total Revenue: 45,748k
Revenue from outlet: 45,252k
Revenue from non-outlet: 496k
PBT: 2,909k
No. of outlets: 89
Revenue/outlet: 45,252k/89 = 508k/outlet
GPM margin: 64%
PBT margin: 6.8%

1H24 ending Sept2023:
Total Revenue: 50,239k
Revenue from outlet: 44,812k
Revenue from non-outlet: 5,427k
PBT: 5,732k
No. of outlets: 82
Revenue/outlet: 44,812k/82 = 546k/outlet
GPM margin: 66%
PBT margin: 11.4%

Things to note:
- Outlet sales has stayed stagnant but in 2022, it probably closed down underperforming outlets, resulting in a single high digit improvement in revenue/outlet. Each outlet is getting more efficient.
- Revenue from non-outlet (catering) has jumped 10x and accounts for ~10% of revenue. This accounts for the bulk of the new 1H record in revenue.
- In terms of margins, GPM is slightly expanded, thanks to the strong SGD when importing raw materials and probably also that stealth " 10-20cent price increase and/or 5% volume reduction" that most people are not able to detect/remember. With rising scale and business diversity aiding operating leverage, rising operating costs (eg. rent) are not so scary after all?

1H24 results: https://links.sgx.com/FileOpen/Half%20ye...eID=778100

The previous "in depth" discussion on OCK was done many years ago. From FY13 onwards, OCK embarked on their expansion project, spending ~45mil (inclusive of regular CAPEX) in the next 6 years till FY18 to transform their central kitchen. It might be interesting to take a look again:

Asset:
- Working capital: Inventory~11days, receivables~2days, payables~100days --> negative 87days (or close to 3 months) as for any retail facing business.
- 10% geared as of FY23. The debt are amortizing mortgages for its PPE invested between FY13-18. For context, peak gearing was ~40% back in FY18.
- In essence, the balance sheet is made up of ~85% cash, ~40% PPE and balanced out by 10% gearing + 15% funded by suppliers.

Business
- Total retail outlets in Spore has not changed much over the last 10years. But annual revenue/outlet has increased ~20% from 847k/outlet (FY14) to 1024k/outlet (FY23). And more importantly, non retail outlet revenue has increased many fold from ~1.1mil (FY14) to 8.8mil (FY23).

- The central kitchens that came online since FY18 seems to have boosted its subsequent years' GPM by 2-3% and look like a game changer for the business to continue to scale, especially to grow the non-retail portion of the business, whether is it food catering or supplying to its overseas franchisee.

- Unfortunately, while GPM and outlet sales efficiency have improved, SGA costs (% of GP) does not get lower (but higher) over the same comparison years used above. The headwinds of rental and manpower in Spore are permanent as everyone knows it.

- After spending huge amt. of CAPEX from FY13-18 (~7.4mil per year), the next 5 years (FY19-23) CAPEX was just ~1.4mil per year. As a result, annual depreciation topped out in FY20 and is on a steady declining trend. Since depreciation is >> CAPEX since FY19, abundant cash has been built up on the balance sheet.

Structure
- Everyone is eyeing the 85% cash on the BS, which has been slowly built up since they completed their CAPEX cycle in FY18. Before Covid (FY12-20), for every dollar that Chairman Han took in salary, he received another 1.6dollar in dividend. Unfortunately from FY21 onwards, it was the other way around - for every dollar of salary, it was 0.6dollar dividend. Did anything changed during Covid-19 to warrant this? Is there PPE expansion or acquisition of new F&B brands in the pipeline to warrant the use of cash?

- 2 special dividends were given in the past decade. The last special dividend was in FY16 due to 60year anniversary. How time flies as it will be their 70yr anniversary in ~2.5years time.....

F&B is tough in Spore. The small population, while willing to spend, is spolit for choice. There are all sorts of nationalities, all sorts of food and so unfortunately all sorts of competitors.

But some F&B folks keep it simple and make loads of money selling unfanciful caipng, so much that they make news buying 7 figure shop lots. Nonetheless, putting caipng aside, another FMCF (fast moving consumer food) like on-the-go curry puffs/fried stuff may be mining big money too.

Another great year for every Sporean's heritage brand (at least that is what they want you to believe), Old Chang Kee:

FY24
Revenue: 101mil (+12% YoY)
PATMI: 9.6mil (+57% YoY)
Revenue per outlet: 1.14mil (+11% YoY)
GPM: 67.6% (FY23: 64.9%)
SGA costs (% of GP): 77.7% (FY23: 79.6%)

The icing on the cake is that topline and efficiency growth (GPM, SGA costs, revenue per outlet) more than made up for increasing operating (manpower/utility/lease) costs that seems to be plaguing everyone with a customer-facing business. However, the most unfortunate thing would be Towkay Tan keeping the dividend the same. OCK is getting fat for its 70year anniversary celebration?

Looking at the shareholding stats, it is owned 58% by founder and 12% by Far East Org ppl.

Old Chang Kee is a reputable local brand and this has served to be a great moat. The controlling shareholder can do what he wants such as strangling OPMIs and he can get away with it because he has a controlling majority stake.

It looks a lot like the breadtalk story where delisting is on the cards after it has branched out well enough into verticals. At exisitng moment, it is still struggling on the catering and quick restaurant front. But once these 2 segments work out, I think there is a strong chance that the company will delist due to the postiive cashflow generation ability. Bosses are still human and we have rarely seen generous beings. It is a delisting story in my view.

Hi CY09,

To add onto the ownership structure to make it whole - 2 close associates of Chairman Tan each own a high single digit. So max free float is <15%.

If Chairman Tan wants to delist, he would probably be doing it before the other verticals branch out successfully, not after.  Due to its asset light structure and negative working capital, it is bubbling with cash and with the Woodlands/Johor central kitchens still relatively recent (full ops since FY18), the cash will only keep building up. The only risk I see is them using the cash to buy over food brands in the name of expansion/diversification.

Far East Org's stake is probably too minor for themselves to bother and my guess is they are as passive as an index fund (don't even have an NINED to represent them on BOD). After all, they probably make more money going along with entrepreneurs, than against them.

Nonetheless, rules are moving in the correct direction for OPMIs. I would argue SGX's enacted delisting safeguards has given some reprieve for OPMIs but the latter has to be realistic about anyone buying out at full value. Once expectations are realistic, I think opportunities are bountiful and aplenty!

Last time there was this buy-over offer but cannot rem at what price.

This eventually didn't materialised. Can any buddies here remember?

(06-06-2024, 10:52 AM)hh488 Wrote: Last time there was this buy-over offer but cannot rem at what price. 

This eventually didn't materialised.  Can any buddies here remember?

That was more than 10 years ago. There was no offer price and it involved Chairman and his associates contemplating a sale to a "3rd party".

POSSIBLE TRANSACTION INVOLVING THE SHARES OF THE COMPANY

https://oldchangkee.listedcompany.com/ne...3933.1.pdf