SINGAPORE (Nov 14): Old Chang Kee announced last night 2Q18 earnings dropped 52.6% to $748,000 from $1.58 million in 2Q17.
Revenue for the quarter increased 5.9% to $21.4 million from $20.3 million a year ago.
Revenue from retail outlets increased by 6.4%, due to revenue contribution from new outlets and increase in revenue from existing outlets.
As at Sept 30, the group operated a total of 87 outlets in Singapore as compared to 89 outlets in the same period a year ago.
The group’s signature puff products remained the major contributor to its revenue and accounted for about 29.6% of the total revenue in 2Q18, as compared to 33.4% in 2Q17.
Cost of sales were also up by 17.1% to $8.55 million from $7.31 million last year.
Hence, gross profit for 2Q18 remained steady at $12.9 million compared to the same period last year.
Other income was 58.3% lower at $217,000 from $521,000 last year, mainly due to government grants of around $209,000 to support the group’s productivity and internationalisation projects in 2Q17 which was absent in 2Q18, as well as a gradual scaling back of government grants under the Special Employment Credit scheme amounting to approximately $104,000 in 2Q18.
Finance costs was up by 73.8% to $73,000 from $42,000 in the previous year, mainly due to loan taken, including loans drawn down in the first quarter of the financial year ending March 31, 2018, to finance the construction and renovation of factory facilities.
Following the group’s results announcement, Phillip Capital is maintaining its “buy” call on Old Chang Kee with a target price of 98 cents.
In 1H18, the group recorded strong performance from its retail outlets as it recorded an 8.7% y-o-y increase in revenue from its retail outlets, driven by contribution from new outlets and higher same store sales growth.
In addition, the group continues to expand its business locally and globally.
Its first flagship outlet in London is scheduled to open in 2018.
In a Tuesday report, analyst Soh Lin Sin says, “While we do not expect the new revenue stream generated (with only one store) to contribute significantly to the group’s bottom line, it will serve to uplift Old Chang Kee’s brand positioning in the global platform.”
The analyst also expects the group to open up three new stores in 3Q18, predicting that its store count will reach 92 by end-FY18.
However, factory integration costs along with higher raw material costs have eroded the group’s gross margin.
The group’s management shared that majority of the factory integration has been completed and is on track for full integration by 3Q18.
Meanwhile, management noted prices for chicken meat, cooking oil and margarine were higher during the period.
In its outlook, Soh expects the group to face headwinds in the near-term but remains positive on the group’s long-term outlook, as new stores opening and product innovations will continue to drive topline growth.
The analyst is optimistic that the new factory will yield manufacturing efficiencies and new product offerings, while increasing the group’s capacity to fuel its expansion domestically and regionally.
As at 11.59am, shares in Old Chang Kee are trading at 75 cents or 3.3 times FY18e book with a dividend yield of 4%.
