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Old Chang Kee: Initiated a long position at 26c.

Tuesday, October 18, 2011

If we go out in the evenings or on weekends, we will see most of the restaurants packed and some of the more popular ones even have long queues. 

A friend of mine invested in Soup Restaurant which gives its shareholders a card that gives a 15% discount off the total bill for dining at their outlets.

Personally, I like going to Soup Restaurant too. However, I think of it as more upmarket, similar to Lao Beijing. 

In a recession, their businesses could take a hit. In this respect, I find Old Chang Kee to be a more attractive proposition.

Old Chang Kee's food kiosks are ubiquitous and always seem to be doing good business. Well, at least for those I see. 

I doubt very much that, in a recession, we will see people cutting back on their favourite curry puffs, sotong sticks or yam cakes in a big way.

Old Chang Kee's shares are thinly traded and it is rather risky to put in overnight buy orders.  

I look at it from time to time but did not do so recently for a few days when it touched a low of 22.5c a share. Less than 200 lots changed hands in 4 sessions at under 26c a share.

When it was trading at 38c and higher just a few months ago, I found it too expensive for my taste (pardon the pun). 

Now, at 26c, I decided to take a nibble (sorry, another pun) as it is definitely more attractive.

Six months basic EPS improved from 1.03c to 1.28c, year on year. 

However, as the company issued warrants in August last year, on a fully diluted basis, EPS improved from 1.03c to 1.07c year on year. 

It is quite obvious to me that this is a growth company.

Warrant holders are also in the money since they paid only 5c per warrant which has an exercise price of 10c. 

A good investment they made in Old Chang Kee, no doubt.

Gross profit improved 11.6% while net profit improved 25.9%, year on year. 

A pro forma full year EPS of 2.14c would give a PE ratio of 12.15x for the company. 

The company's balance sheet has also strengthened with lower outstanding bank loan balances. 

Cash and cash equivalents also increased almost 50%, year on year. Strong cash flow from operations has been cited as being the main reason for this.

The company could continue to pay a dividend of 1.5c per share which means a dividend yield of 5.77% at 26c a share.

The only other blog post I had on Old Chang Kee was rather tongue in cheek, if you remember. 

Now that I am a shareholder of the company, eating a curry puff will be a somewhat more savoury experience. I hope so, anyway. ;)

Read the Half Year 2011 report here.

Related post:
Old Chang Kee: Filling not enough.


Singapore Man of Leisure said...

I am a fan of Old Chang Kee! Never fail to buy some puffs at Penisula whenever I am at Funan to look at electronic "toys".

OK, then next time I munch into another puff, I will remember I will be supporting indirectly you - a minority shareholder ;)

By the way, congrats to your nibble - at 30% discount to your first look at 0.38 cents, its not all that bad!

Markets can go up or down tomorrow - who knows!? But if we secure that we purchase our investments at reasonable prices, that's our margin of safety ;)

Anonymous said...

I also had a small position in OCK.
I believe this company is cheap
based on Enterprise Value which is
0.13 cents, versus NAV 0.22.


Marco said...

Must try it out during my next visit to Singapore.

AK71 said...


I intend to accumulate more shares of Old Chang Kee if there should be further weakness. I like the idea that every Old Chang Kee curry puff I purchase from now will do some good for my financial health if not my physical health. Haha.. ;p

I guess almost all counters have seen their share prices decline a good deal since late 2010 and early 2011. As there is no way of knowing if the market has hit bottom (until it is over), buying in gradually as value presents itself is a hedge. :)

AK71 said...

Hi Goldmansion,

Are you looking at Old Chang Kee as a possible acquisition target? ;)

AK71 said...

Hi Marco,

Most certainly, you must. Old Chang Kee is almost a national institution here in Singapore. :)

Hwang said...

Well, i always joke with my non-Singaporean friends that the favorite past times of Singaporeans are

1. Queuing
2. Squeezing
3. Old Chang Kee

I am not wrong right? Haha..

AK71 said...

Hi Hwang,

I don't like to queue and I don't like to squeeze. However, I like Old Chang Kee! :)

Musicwhiz said...

My humble views on OCK - it is a household brand yes, but the barriers to entry are low. Gross margins are 60% for 1H 2011, but net margin is just around 4%. It's quite amazing that their selling & admin expenses are equal to their COGS! If you look at their P&L structure, 56% of revenues are eaten up by rental and staff costs. That's quite a lot indeed.

Considering rental is likely to remain high in the near future (with locked-in leases) and salaries can only go up, one wonders if they can use economies of scale to reduce their chunk of selling/admin expenses. I guess the key is to not expand too fast or else you may suffer from cash burn(out). That's definitely not palatable (mind the pun).

Balance sheet looks pretty healthy with low borrowings and a good cash balance, then again quite a bit of working capital is required for day to day operations and also putting down rental deposits should they decide to open new outlets. Hence, this requirement should be balanced against excess cash which can be paid out as dividends.

Of course, assuming a constant 1.5c payout on a 26c share price would imply a yield of 5.76% which is not too bad. The Company has consistently generated good FCF but whether this can be maintained has yet to be seen as it only recently listed. Market share should be pretty stable as it is a ubiquituous brand here, but I wonder if it has the ability to raise prices without affecting demand and hence volume? One curry O used to cost 80c, now it costs $1.30! (Incidentally, I bought some today).

Just my humble 2-cents view.


AK71 said...

Hi MW,

Thanks for the analysis. Much appreciated.

Yes, the lack of a longer track record suggests that we be more conservative investing in OCK.

Other than this, I feel that this company has great potential and I liken it to companies selling comfort food like ice cream and sweets.

Just like Dairy Queens and See's Candies, I see similar potential in OCK. A strong regional branding, similar to Dairy Queens and See's Candies, is what OCK has. Leveraging on this and expanding through franchising will help its bottom line, I believe.

Will have to see how things unfold. It is early days yet. :)

Musicwhiz said...

Hi AK71,

It's interesting that you mentioned Sees Candies, which Berkshire bought over. Do you see OCK as having a similar kind of franchise/brand value as Sees? I would have thought Hsu Fu Chi is more similar to Sees as they also do candy and such foodstuff. Assuming it has the ability to leverage on its brand and reputation, economies of scale can do the rest and enable large increases in profits with minimal working capital requirements. Whether this is so remains (as you said) to be seen.

Since you mentioned franchising, do you know how many of OCK's outlets are franchised and how many are company-owned? Also, what is the franchising structure like (e.g. one-time fee or % of revenues etc?).


Calvin said...

Hi AK,

I love eating Old Chang Kee. However, the stock is quite illiquid and has very little volume. One look at the bid ask spread tells me a lot about the counter.

So as much as I love Old Chang Kee, it is somewhat considered close to a penny stock to me. Therefore I can't invest in it.

Also, I noticed that OCK doesn't have a track record for paying dividends. Quite unusual for such an old and established brand.

Good luck.


AK71 said...

Hi MW,

I believe OCK as a brand has great value. Say OCK to anyone in Singapore and it will most likely be recognised.

I also like how OCK is branching out to other countries. Singapore's domestic market is too small and OCK is a mass consumption story. Reaching out to regional markets is the right thing to do.

OCK is always looking for franchisees and information can be found here:
OCK Franchise.

This is from its annual report:

Franchise income is recognised as the services are rendered or the rights used, completion of the designated phases of the franchise set-up, or when the supplies of equipment and other tangible assets are delivered or title passed to the franchisee.

Royalties income is recognised on a periodic basis as a percentage of the franchisees’ turnover in accordance with terms as stated in the franchise agreement.

As for how many outlets are run by franchisees, the impression I get is that OCK owns all the outlets in Singapore, Malaysia and China while the outlets in Indonesia and Philippines are run by franchisees.

AK71 said...

Hi Calvin,

No track record for paying dividends? OCK was public listed in 2008 and it paid dividends yearly in 2009, 2010 and 2011 since.

As for being an illiquid counter, yes, some would not buy into an illiquid counter. However, I do know of some true blue value investors who have no qualms about investing in illiquid counters. ;)

FoodieFC said...


I used to like eating OCK Curry Puff. However, in the recent, years it's standard has dropped and i have stopped eating it since.

However, somehow, every outlet has long queues during peak hr. and during any office event, OCK is often bought...

maybe my bosses and colleagues are their share holders too =)

AK71 said...

Hi FoodieFC,

I am old enough to remember Old Chang Kee's original outlet in a corner coffee shop across the old REX Theatre.

My father would usually stop his car by the roadside to buy curry puffs from the old uncle. They were much nicer then, I agree.

The fact that we still see long queues at Old Chang Kee's kiosks and their food items at catered functions is testament to how entrenched the company is in the local food scene.

I have lost count of the number of times visitors to my workplace would buy Old Chang Kee curry puffs for us over the years, for example.

All this discussion about Old Chang Kee got me craving for a curry puff and I bought one earlier this evening when I was at a shopping mall running some errands. I had to queue. What's new? ;p

AK71 said...

Old Chang Kee has recommended a final dividend of 1c per share together with a special dividend of 0.5c per share.

Based on my entry price of 26c, that is a dividend yield of 5.77%. :)

AK71 said...

OCK went XD today.

Final DPS 1.5c.
Special DPS 3c.

1.5c interim DPS was declared earlier in the year.

Total DPS for FY2016 = 6c.
Based on my entry price, dividend yield is 23%.

In FY2015, total DPS was 4.5c or 17.3% yield on cost.

Kevin said...

Congrats AK for the windfall. Have you attended any of the AGM?

I wonder do they serve their famous curry puffs or their finger food during the AGM. :P

AK71 said...

Hi Kevin,

I usually don't go to AGMs. I lazy. -.-"

OCK has new rendang curry puffs now. Must try! ;)

AK71 said...

Hello AK,
Its me again. I was looking at AIMs AMP cap reits and noticed that the volume for this REIT is rather low. So I wanted to ask whether you considered the volume when it comes to buying stocks? AIM volume is quite low but yet you still buy so much. Not scare that next time its hard to sell? :)


Hi HP,
People told me the same thing when I bought into Old Chang Kee years ago.
I told them the best stocks to buy are the ones I have no intention of ever selling. ;p
Best wishes,

AK71 said...

Hi Assi,
I have recently attended your meet up with AK and I am impressed by your blog and analysis.
I just read your post about old chang kee. May I check with you, with pe ratio 19 and ROE at 14%, dividend around 4%, will you consider it now with prices falling alot recently


For a F&B stock, I think this is more attractive compared to Breadtalk... So, comparatively, it is a better buy. To buy or not to buy, that is up to you.

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