SINGAPORE (Feb 15): Phillip Capital is maintaining its “buy” call on Old Chang Kee with a following the group’s release of its 9M18 results, which came in at 78% of the research house’s full year expectations.
See: Old Chang Kee posts 9.3% decline in 3Q earnings to $1.2 mil on higher expenses
In a Thursday report, analyst Soh Lin Sin highlights the group’s strong sales, as demonstrated over 9M18, which is reflective of its continuous efforts to innovate new products and subsequently stimulate demand, in her view.
Soh also underscores inorganic growth as demonstrated by the opening of the group’s new stores, seven of which were opened over the 9M period with the closure of two underperforming stores upon their lease expiration.
Nonetheless, the analyst expects Old Chang Kee to review its pricing and promotional strategies in conjunction with the impending GST hike.
While the group’s first flagship outlet in London, UK is on track to open in 2018, Soh does not think it will contribute significantly to the group’s bottom-line in the near-term as it could take longer than the usual period to break even, compared to opening a new store in Singapore, where the Old Chang Kee brand has a strong presence in.
“We have increased our FY18E sales growth expectation to 7.2% y-o-y from 4.2%. However, we have also trimmed our FY18E/19E gross margins by 20bps/5bps to 61.5%/63.0% respectively. Our investment thesis remains intact – successful integration with the adjacent new factory would be the inflection point for Old Chang Kee,” says Soh.
Shares in the group closed 0.67% higher at 75 cents on Thursday, or 3.3 times FY18E book.
