Old Chang Kee IPO

The first IPO of the year comes from Singapore local company Old Chang Kee. Key information taken from IPO prospectus.

Competitive strength

• Established household brand name

• Extensive network of retail outlet

• Diversified customer base

• Experience management team with local food industry

• High quality standard

Use of proceed

• Expand the overseas operation

• Increase and refurbish local outlet

• Expansion and working capital.

Key Risk

• Food disease outbreak

• Revoke of Halal cert to factory and outlet

• Increase of rental charge and lease

• Business is labour intensive

• Negative publicity which affect the brand name

• Change of consumer taste

IPO details

Price at 0.20 a share
Pre IPO share : 68,400,000
Post IPO share : 93,400,000
Historical EPS : 4.44 cts
Historical PE : 4.5
PE after dilution : 6.15
Market cap 18.7 million

They do not have fixed dividend policy.

My take

Old Change Kee is quite a well known food company in Singapore. Whenever I walked pass their store, there seems to be a good queue for their food. In recent years, they are selling more than just curry puff. The key draw to consumer is the deep fried food like sotong ball, fish fillet etc. I was never a fan of Old Chang Kee, because I dislike their curry puff skin thickness. It is like eating flour than curry puff. However, the business seems good all the time. So, the competitive strengths are valid.

I think the key risk to the business in coming years would be the rental cost and labour cost. Since most of the mall are already in REIT, they would want to increase the rental aggressively, thereby squeezing the players like the curry puff maker. Labour is also another big headache. However, I recalled that I saw their advertisement that they hire retiree for part time work. So, this risk could be mitigated.

The expansion plan is simple by aiming both local and overseas market. There should be room to grow in the local market, however, the opportunities are limited. When you go to the shopping mall, the snack stall competition is so keen nowadays. Take a look at the basement of Bugis Junction, there are so many small store selling snack. Expanding in overseas market is also a tricky business, as new market might not like the taste of curry puff or deep fried food.

The IPO is priced at PE 6.15 after share dilution. I feel that it is cheap. But I think possible reason could be lack of investor interest. Therefore, they are willing to price at this level. It is your call whether to buy or not, since it is not expensive. Only 1000 lots up for grab for retail investor. Chance of getting it is extremely low. Want to waste the commission?

Beside that, I am not so convinced about the growth story. It won't be a smooth journey. Local F&B players were not doing well these few years. Just look at the share price of Thai Village, Tung Lok, Apex pal, Soup Restaurant. Sure, there is money to be made. But, F&B is not known for delivering strong growth. With the exception of BreakTalk. After going down soon after IPO, Quek is making a decent come back with diverse business and more outlet expansion.