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

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.

K-REIT: 17 for 20 rights issue.

K-REIT will be seeking approval at an EGM for a rights issue priced at 85c per rights unit. 

This is to partially fund the purchase of Ocean Financial Centre. 

Mr. Market does not like this whole deal and sold down the units to a low of 93c this morning.

What do I think? 

Well, the whole exercise is expected to be DPU accretive which is something investors for income want to see. 

DPU is expected to increase from 6.37c to 6.72c.

Using the low of 93c per unit this morning, the TERP is 93c x 20 + 85c x 17 /37 = 89.32c.  

A pro forma DPU of 6.72c means a distribution yield of 7.52%.




Ocean Financial Centre is currently about 80% occupied. 

If the REIT manager is able to bump up the occupancy rate, we could see DPU and yield increase further. 

However, with the current softening office rentals which is likely to get worse, it could be an uphill battle. 

Commitment by the vendor to provide rental support for a period of five years.

Personally, I have a very small position in K-REIT from a long time ago. 

When I was deciding to invest between K-REIT and Suntec REIT more than two years ago, I chose Suntec REIT for its almost equal exposure to office and retail spaces. 

I have pared down my investment in Suntec REIT some time ago since, expecting its exposure to office space to be a drag on future performance. 

In short, I am not feeling sanguine about office space rentals and have not increased exposure to the corresponding REITs.

Having said this, given my very small position in K-REIT, I will most probably subscribe to the rights issue. 

If I were not invested in the first instance, I would not bother buying in now to gain exposure.




Some important numbers:
Gearing: Increases from 39.8% to 41.6%
All in cost of debt: Decreases from 2.48% to 2.23%
Interest cover ratio: 4.6x to 4.3x

See the slides presentation here.

Related post:
Office S-REITs VS Industrial S-REITs (2).