Old Chang Kee Share Price

0.40

Old Chang Kee

FINANCIAL
ANALYSIS BY
G2 GRP 2

0.30
0.20
0.10
0
2007

2008

2009

2010

Our Investment Decision:

The Representatives from the fund has examined the growth prospects of Old Chang Kee
(OCK) and have decided to make an additional investment of $1 million in the ordinary
shares of the company.

Why Buy OCK

1. Expansion plans to venture into the Asia-Pacific markets (China, Japan, Taiwan)
2. Strong operating cash flow, able to maintain FCF even with debt repayment and
investment activities
3. Strong financial health due to its low debt ($0 bank loans in FY10)
4. Outperformed its industry peers in 5 out of 7 key financial ratios

A One Page Snapshot of Our Analysis for OCK

OCK

Industry

Current Ratio

2.28

1.53

Quick Ratio

2.16

0.78

Debt to
Equity

0.03

1.14

Sales 5 Years
Growth

13.92

6.97

Net Profit
Margin

6.27

7.06

Return on
Assets %

12.14

7.05

Return on
Equity %

16.95

21.45

Company
Overview

Key Ratios

Strengths:

Weaknesses:

1. Good CSR practices to reuse

their residual cooking oil for
other purposes
2. Extensive network of operating
outlets
3. Diversified customer base
(certified Halal in 2005)
4. Experience executive chairmanHan Kee Juan has more than 20
years of F&B experience

1. No risk management committee

in OCKs corporate structure
2. Possible decline of labour
supply in the future, as
Singapore cut back on foreign
workers, affecting OCK as it
requires heavy manpower for its
food processing chain

Opportunities:

Threats:

1. Overseas Expansion plans

through direct investments, joint
ventures or franchising.
2. Steady increase in retail outlets
in Singapore, which further
boosts operating revenue

1. Susceptible to outbreak of food

related disease
2. Susceptible to changes in
government regulations
regarding food & hygiene
3. Competition in the F&B industry,
where barriers to entry are low

Old Chang Kee is a household name in Singapore that sells signature curry puffs and other
snacks. The company has 78 local outlets, as well as overseas operations in countries such as
Japan, China, Australia and South Africa.
Major shareholders are
Han Keen Juan
(58.21%), Goodview Properties Pte Ltd1(11.72%)
Trenz Pruca email: no_reply@apple.com
Elementary
School

ACCT101 G2 Group 2 | Group Project Report | Prof Low Lay Chin

INVESTMENT OBJECTIVE:
To propose to our fund management committee on the financial feasibility of investing $1
million into the ordinary shares of Old Chang Kee. The basis for our evaluation of Old Chang
Kee will be based on 3 key financial metrics- profitability, financial strength and management
effectiveness. These financial metrics will be expounded on in our following 6 analytical
methods.

ANALYSIS 1: INCOME STATEMENT

Total Revenue

Net Income

Net Profit Margin

Old Chang Kee: Revenues and Profitability

0.09

0.083

$ thousand

45000

0.068
0.046

30000
48437

0.051
55716

51593

15000

0.023
2234

0.045

2008

4298

2009

Net Profit Margin

60000

2851

2010

Why are we optimistic?

1. There is a steady increase in total revenue over the 3 years which is a healthy sign of
revenue growth. This is due to a parallel increase in both outlet sales and from other service
revenue. This shows that revenue are indeed rolling in as OCK increases its number of
outlets.
2. Finance costs have decreased from $99,000 in FY09 to $65,000 in FY10. This shows
OCKs prudence in managing and reducing both its finance lease liabilities and bank loans.
3. Income from sale of scrap oil increased by 81% from $134,000 in FY09 to $242,000 in
FY10. This shows creative use of OCKs byproduct (leftover oil) to generate more income.
Our team also welcome this environmentally friendly practice.
Possible Risk(s)
1. There is a decline in net income from 2009-2010. This is due to the increase in cost of sales
and selling & distribution expenses. This shows the vulnerability of OCK to fluctuations in
cost of sales which are mainly raw food ingredients.
Akash Gurung | Jeremy Lim | Subaa Maniam | Tania Singh | Roy Kim | Wen Jie Lee

ACCT101 G2 Group 2 | Group Project Report | Prof Low Lay Chin

2. The net profit margin shows a stark decline from 2009-2010, from 8.3% to 5.1%. It shows
the weakening of the companys ability to squeeze profits from its total sales. This can be
explained from rising overhead costs like from the increased selling and distributing expense
over the time period.

ANALYSIS 2: BALANCE SHEET

Total Assets
Debt/Equity Ratio

Total Liabilities

Cash and Short Term Investments

Old Chang Kee: Assets and Liabilities

0.14

$ thousand

22500

27364

24754

0.14

29695

0.105
0.07

15000

0.07
0.04

7500
0

8744
9569

2008

7518

8413

11912

2009

0.035

13024

2010

Debt/Equity Ratio

30000

Why we are optimistic?

1. Decrease in Debt/Equity Ratio: There is a significant decrease in D/E ratio from 0.14 in
2008 to 0.04 in 2010. It shows OCKs ability to pay off long-term debt. Bank loans totally
$150,000 was fully paid off in FY10.
2. Steady increase in assets: The gradual increase in assets shows smooth expansion plans of
OCK over the past years.
3. Growth in cash and short term investments: The increase in cash & equivalents from 9,569
to 13,024 in 2010 shows strong short-term liquidity. This strengths OCKs position to make
business decisions like declaring dividends and for expansion plans.
4. Increase in Other Reserves: There was an increase from $148,000 in FY09 to
$1,280,000 in FY10. This is attributed to the 28,020,000 1 for 1 warrants issued to existing
shareholders to raise capital for the company. This shows the financial ability of OCK to
execute its announced financial growth.

Akash Gurung | Jeremy Lim | Subaa Maniam | Tania Singh | Roy Kim | Wen Jie Lee

ACCT101 G2 Group 2 | Group Project Report | Prof Low Lay Chin

Possible Risk(s)
1. Decrease in intangible assets from $331,000 in FY09 to $85,000 in FY10: There was a
74% fall over the 2 years which raised concerns over the companys management of its
intangible assets. This was cause by the sale of club memberships. Net carry amount was
$232,000 in 2009 which was reduced to $0 in 2010. The companys rationale for the
decision was not disclosed in the annual report.

ANALYSIS 3: CASH FLOW STATEMENT

7000
5250

($000)

3500

4781

4063

6852

6493
2957

4054
2091

1578 1529

1750

3101

0
-1750

-1434

-3500

-3168

-5250

-3696

2008
CFO

-2044

-2716

CFI

2009
CFF

2010
FCF

Net Income

Why are we optimistic?

1. Sound operating activities: Both CFO and net profits follow relatively parallel trend. This
implies that the bulk of OCKs revenue comes from its operating activities. Despite the
decrease in net profits in FY10, OCKs operations provided a net cash flow that exceeds the
net profit over the past 3 years, which shows healthy operating activities of the firm.
2. Increased spending on property, plant & equipment: CFI decreased from FY08 to FY10,
implying that more money is spent on investing activities. We expected greater revenue
growth in the years ahead due to expansion plans of the growth by purchasing more PPE.
3. Decrease in CFF: Over FY08 to FY10, CFF has declined significantly. This shows an
outflow of cash in repayment of loans and borrowings. This is supported by the improvement
in debt ratio from 0.14 to 0.04 over the similar period of time. This reflects a healthier
financial standing of OCK.
4. Positive Free Cash Flow: Free cash flow has remained steadily positive around 2,000. This
shows the availability of cash for new investments to fuel expansion growth and management
decisions.
Akash Gurung | Jeremy Lim | Subaa Maniam | Tania Singh | Roy Kim | Wen Jie Lee

ACCT101 G2 Group 2 | Group Project Report | Prof Low Lay Chin

ANALYSIS 4: EARNINGS PER SHARE ($)

FYE 31 DEC

FY08

FY09

FY10

Earnings Per Share ($)

$0.0242

$0.0460

$0.0288

Old Chang Kees earnings per share (EPS) have been generally increasing from FY08 to
FY10. However, EPS declined from $0.0460 to $0.0288 due to higher raw material costs,
higher selling & distribution (S&D) cost and dilution of EPS from conversion of warrants.

ANALYSIS 5: DIVIDEND YIELD

FYE 31 DEC

FY08

FY09

FY10

Dividend Yield (%)

2.8%

12.7%

4.2%

Ordinary dividend per share has increased from $0.005 in 2008 to $0.01 in 2010. Old Chang
Kees dividend yield has been increasing and a special dividend on top of the original
dividend($0.01 per share) has been paid out to shareholders for FY09 and FY10. Ordinary
dividend per share has increased from $0.005 in 2008 to $0.01 in 2010. Dividend yield for
Old Chang Kee over the past 3 years is healthy when compared to the Straits Times Index
(STI)s dividend yield of 2.67% for FY10.

ANALYSIS 6: BOOK VALUE PER SHARE

FYE 31 DEC

FY08

FY09

FY10

Book Value Per Share ($)

$0.1733

$0.2125

$0.2267

In addition, book value per share has increased 30.8% from FY08 to FY10, indicating Old
Chang Kee possessing higher amount of net tangible assets per ordinary share. A higher book
value means that the investor will receive more cash per share in terms of liquidated value.

CONCLUSION
We are most optimistic in OCKs financial strength with an increasing cash flow and its low
debt ratio. In terms of profitability, we hope for a stronger net profit margin of around 7% (t0
match the industrys average), however we do realize that OCKs profitability is highly
subjected to changing raw food prices. We are bullish on OCK future expansion plans within
and beyond the Singapore market due to an experienced management team led by Han Kee
Juan. This is also made possible when a healthy supply of cash flows year on year.

Akash Gurung | Jeremy Lim | Subaa Maniam | Tania Singh | Roy Kim | Wen Jie Lee

ACCT101 G2 Group 2 | Group Project Report | Prof Low Lay Chin

APPENDIX
1. Workings
Analysis 1: Income Statement
How can it help us

Formula

Workings (using
FY2010 data)

Total Revenue

Net Income

Total receipts from

Sum of individual

$55,716

firms sales

revenue accounts

Residual income of a

Revenue - Expense

$2,851

Shows the

(Net Profit/

(2,851 / 55,716) x

percentage of each

Turnover) X 100%

100%= 5.12%

Formula

Workings (using

firm
Net Profit Margin

sales dollar earned

as net income
Analysis 2: Balance Sheet
How can it help us

FY2010 data)
Total Assets

Net Liabilities

Debt/Equity Ratio

Total value of firms

Current Assets +

$15,989 + $13,706=

asset

Non-Current Assets

$29,695

Shows liabilities

Current Liabilities +

$6,933 + $1,480=

after adjustment for

Non-Current

$8,413

contra accounts

Liabilities

Measure of a

Total Liabilities /

$8,413 / $29, 695=

companys financial

Stockholderss

0.283

leverage

equity

Akash Gurung | Jeremy Lim | Subaa Maniam | Tania Singh | Roy Kim | Wen Jie Lee

ACCT101 G2 Group 2 | Group Project Report | Prof Low Lay Chin

Analysis 3: Cash Flows Statement

How can it help us

Formula

Workings
(using FY2010
data)

Cash Flows from

Amount of cash a company

Indirect method

Operations

generates from the

used: Adjust working

revenues it brings in

capital changes, non-

$6,852

cash expense, sale of

long term assets from
net income
Cash Flows from

Aggregate change in a

Sum of money made

Investing

companys cash position

and spent on on

from investing activities

purchases and sales

-$3,696

of long-term assets
Cash Flows from

Accounts for external

Cash received from

Financing

activities such as issuing

issuing stock or debt

cash dividends, adding or

- cash paid as

changing loans, or issuing

dividends and for re-

and selling more stock

Acquisition of Debt/

-$2,044

Stock
Free Cash Flows

Represents cash a company

Operating cash flow

$6,852 -

is able to generate after

minus capital

$3,751= $3,101

laying out the money

expenditure

required to maintain or
expand its asset base

Akash Gurung | Jeremy Lim | Subaa Maniam | Tania Singh | Roy Kim | Wen Jie Lee

Analysis 4: Earnings Per Ordinary Share

How can it help us

Formula

Workings (using
FY2010 data)

Earnings Per

Gives the amount of

(Net Income -

$2,851,000 /

Ordinary Share

net income earned

Preference

99,058,488=

for each share of the

Dividend ) /

$2,851,000

companys ordinary

Weighted average

shares outstanding

number of
ordinary
shares(diluted)

Analysis 5: Dividend Yield (%)

How can it help us

Formula

Workings (using
FY2010 data)

Dividend Yield (%)

Shows the

Dividend per

($0.015 / $0.36) x

percentage of a

ordinary share /

100%= 0.042

shares market value

Market price per

returned as

ordinary share

dividends to
shareholders each
period
Analysis 6: Book Value Per Ordinary Share
How can it help us

Formula

Workings (using
FY2010 data)

Book Value Per

Indicates the

(Total shareholders

$21,282,000 /

Ordinary Share

recorded accounting equity - Preference

93,884,400=

amount for each

equity) / Number of

0.2267

ordinary share

ordinary shares

outstanding

outstanding

2. Reference
a. Old Chang Kee Annual Reports for 2008, 2009 and 2010
Old Chang Kee Website: http://oldchangkee.listedcompany.com/ar.html
b. Business Information
OneSource
Thomson One
Factiva - Dow Jones
ChartNexus