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Old Chang Kee Share Price

0.40

Old Chang Kee
老曾记

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 OCK’s 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

083 $ thousand 45000 0. There is a steady increase in total revenue over the 3 years which is a healthy sign of revenue growth. These financial metrics will be expounded on in our following 6 analytical methods.000 in FY10. Possible Risk(s) 1. This shows that revenue are indeed rolling in as OCK increases its number of outlets. This is due to the increase in cost of sales and selling & distribution expenses.profitability.051 55716 51593 15000 0. Akash Gurung | Jeremy Lim | Subaa Maniam | Tania Singh | Roy Kim | Wen Jie Lee 2 . This is due to a parallel increase in both outlet sales and from other service revenue. Income from sale of scrap oil increased by 81% from $134. Finance costs have decreased from $99.046 30000 48437 0. financial strength and management effectiveness. 2.000 in FY10. The basis for our evaluation of Old Chang Kee will be based on 3 key financial metrics.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.000 in FY09 to $65. This shows creative use of OCK’s byproduct (leftover oil) to generate more income.045 2008 4298 2009 Net Profit Margin 60000 2851 2010 0 Why are we optimistic? 1. There is a decline in net income from 2009-2010. ANALYSIS 1: INCOME STATEMENT Total Revenue Net Income Net Profit Margin Old Chang Kee: Revenues and Profitability 0. 3.09 0. This shows the vulnerability of OCK to fluctuations in cost of sales which are mainly raw food ingredients.023 2234 0 0. Our team also welcome this environmentally friendly practice.068 0. This shows OCK’s prudence in managing and reducing both its finance lease liabilities and bank loans.000 in FY09 to $242.

Bank loans totally $150.020.280.04 in 2010. 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 0.024 in 2010 shows strong short-term liquidity.000 was fully paid off in FY10.14 $ thousand 22500 27364 24754 0. from 8.ACCT101 G2 Group 2 | Group Project Report | Prof Low Lay Chin 2. 2. This shows the financial ability of OCK to execute its announced financial growth.1%.07 15000 0. Increase in “Other Reserves”: There was an increase from $148.569 to 13.14 29695 0. Growth in cash and short term investments: The increase in cash & equivalents from 9. 3. Decrease in Debt/Equity Ratio: There is a significant decrease in D/E ratio from 0.07 0. This strengths OCK’s position to make business decisions like declaring dividends and for expansion plans.000 in FY09 to $1. Steady increase in assets: The gradual increase in assets shows smooth expansion plans of OCK over the past years.000 1 for 1 warrants issued to existing shareholders to raise capital for the company. It shows OCK’s ability to pay off long-term debt.105 0.14 in 2008 to 0.3% to 5. The net profit margin shows a stark decline from 2009-2010. Akash Gurung | Jeremy Lim | Subaa Maniam | Tania Singh | Roy Kim | Wen Jie Lee 3 . This is attributed to the 28.000 in FY10.035 13024 2010 Debt/Equity Ratio 30000 0 Why we are optimistic? 1. 4. It shows the weakening of the company’s ability to squeeze profits from its total sales.04 7500 0 8744 9569 2008 7518 8413 11912 2009 0.

implying that more money is spent on investing activities. This shows the availability of cash for new investments to fuel expansion growth and management decisions. CFF has declined significantly. This reflects a healthier financial standing of OCK. Despite the decrease in net profits in FY10.14 to 0. This implies that the bulk of OCK’s revenue comes from its operating activities.04 over the similar period of time. Positive Free Cash Flow: Free cash flow has remained steadily positive around 2. OCK’s operations provided a net cash flow that exceeds the net profit over the past 3 years. 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. Decrease in CFF: Over FY08 to FY10.000. Decrease in intangible assets from $331. 3. The company’s rationale for the decision was not disclosed in the annual report. Increased spending on property. We expected greater revenue growth in the years ahead due to expansion plans of the growth by purchasing more PPE.ACCT101 G2 Group 2 | Group Project Report | Prof Low Lay Chin Possible Risk(s) 1.000 in FY09 to $85.000 in 2009 which was reduced to $0 in 2010. Akash Gurung | Jeremy Lim | Subaa Maniam | Tania Singh | Roy Kim | Wen Jie Lee 4 . This was cause by the sale of “club memberships”. This shows an outflow of cash in repayment of loans and borrowings. Net carry amount was $232. plant & equipment: CFI decreased from FY08 to FY10. 2. 4. Sound operating activities: Both CFO and net profits follow relatively parallel trend. This is supported by the improvement in debt ratio from 0. which shows healthy operating activities of the firm.000 in FY10: There was a 74% fall over the 2 years which raised concerns over the company’s management of its intangible assets.

higher selling & distribution (S&D) cost and dilution of EPS from conversion of warrants. A higher book value means that the investor will receive more cash per share in terms of liquidated value. EPS declined from $0.01 in 2010.8% from FY08 to FY10. 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 2.2125 $0.005 in 2008 to $0. CONCLUSION We are most optimistic in OCK’s financial strength with an increasing cash flow and its low debt ratio. In terms of profitability.0288 due to higher raw material costs. 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.67% for FY10.01 in 2010.0288 Old Chang Kee’s earnings per share (EPS) have been generally increasing from FY08 to FY10. ANALYSIS 5: DIVIDEND YIELD FYE 31 DEC FY08 FY09 FY10 Dividend Yield (%) 2. we hope for a stronger net profit margin of around 7% (t0 match the industry’s average). Akash Gurung | Jeremy Lim | Subaa Maniam | Tania Singh | Roy Kim | Wen Jie Lee 5 . book value per share has increased 30.2% Ordinary dividend per share has increased from $0. However. indicating Old Chang Kee possessing higher amount of net tangible assets per ordinary share.1733 $0.7% 4. however we do realize that OCK’s profitability is highly subjected to changing raw food prices.2267 In addition. Old Chang Kee’s dividend yield has been increasing and a special dividend on top of the original dividend($0. This is also made possible when a healthy supply of cash flows year on year. ANALYSIS 6: BOOK VALUE PER SHARE FYE 31 DEC FY08 FY09 FY10 Book Value Per Share ($) $0.01 per share) has been paid out to shareholders for FY09 and FY10. Ordinary dividend per share has increased from $0.8% 12.0460 $0.ACCT101 G2 Group 2 | Group Project Report | Prof Low Lay Chin ANALYSIS 4: EARNINGS PER SHARE ($) FYE 31 DEC FY08 FY09 FY10 Earnings Per Share ($) $0.0460 to $0.0242 $0.005 in 2008 to $0.

ACCT101 G2 Group 2 | Group Project Report | Prof Low Lay Chin APPENDIX 1.716 firm’s sales revenue accounts Residual income of a Revenue .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 firm’s Current Assets + $15.695 Shows liabilities Current Liabilities + $6.Expense $2.413 / $29.480= after adjustment for Non-Current $8. 695= company’s financial Stockholders’s 0.989 + $13.851 Shows the (Net Profit/ (2.851 / 55.283 leverage equity Akash Gurung | Jeremy Lim | Subaa Maniam | Tania Singh | Roy Kim | Wen Jie Lee 6 .716) x percentage of each Turnover) X 100% 100%= 5.706= asset Non-Current Assets $29. 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 $55.413 contra accounts Liabilities Measure of a Total Liabilities / $8.933 + $1.

cash paid as changing loans. or issuing dividends and for re- and selling more stock Acquisition of Debt/ -$2. non- $6.101 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 7 .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.852 - is able to generate after minus capital $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.751= $3.852 cash expense. adding or . sale of long term assets from net income Cash Flows from Aggregate change in a Sum of money made Investing company’s cash position and spent on on from investing activities purchases and sales -$3.044 Stock Free Cash Flows Represents cash a company Operating cash flow $6.

282.Preference 93.884.Analysis 4: Earnings Per Ordinary Share How can it help us Formula Workings (using FY2010 data) Earnings Per Gives the amount of (Net Income - $2.400= amount for each equity) / Number of 0.488= for each share of the Dividend ) / $2.042 share’s 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’ $21.058.000 company’s 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 ($0.851.000 / Ordinary Share net income earned Preference 99.2267 ordinary share ordinary shares outstanding outstanding 8 .000 / Ordinary Share recorded accounting equity .36) x percentage of a ordinary share / 100%= 0.851.015 / $0.

Dow Jones • ChartNexus 9 . Business Information • OneSource • Thomson One • Factiva .com/ar. Old Chang Kee Annual Reports for 2008.html b. 2009 and 2010 Old Chang Kee Website: http://oldchangkee.2.listedcompany. Reference a.