Old Chang Kee IPO.

Closing date of application: 14 January 2008
Commencement of trading: 16 January 2008

Established in the 1986, Old Chang Kee is engaged in the maufacture and sale of affordable food products under their "Old Chang Kee" brand name.

Beginning with just their signature product curry puff, they have now introduced more than 40 other food products sold through their takeaway retail outlets.

They also have dine-in operations at our Old Chang Kee Take 5 retail outlets located at Icon Village, Square 2, Ogilvy Centre, Golden Shoe Car Park, Eastpoint Mall and West Mall, which offer a suite of local delights such as curry chicken or beef stew in loaf/rice, sambal fish rice, curry noodles and nasi lemak as well as our food products.

At present, they have 54 retail outlets in Singapore, 2 retail outlets in KL, and 3 retail outlets in Chengdu. They also have franchise operations in Indonesia and Philippines.

Key Competitive Strength:

1. They have an established household brand with a distinctive Singaporean flavour.
   

Key Growth Plans:

1. To expand their overseas operations.
   
2. To expand through strategic alliances, acquisitions, joint ventures, and franchises.
   

Financial figures

Intended IPO price: $0.20
No. of shares available for public offer: 1m
No. of shares available for placement offer: 24m
Total post invitation share capital: 93.4m

Note: Unaudited 2QFY2007 figures were available in the prospectus.

FY2006
Revenue: $33.8m
Profit: $3m
NAV: 0.117
EPS: 0.0325
EPS % Incr: -8%
PE ratio: 6x
Price: 0.20

2QFY2007
Revenue: $38.1m
Profit: $3.2m
NAV: 0.1174 (incl. IPO proceeds)
EPS: 0.0346
EPS Incr: 8% (Est.)
PE Ratio: 5.7x
Price 0.20

Dividend policy: No fixed policy.

Conclusion:

The equation is very simple: Old Chang Kee needs funding because it wants to expand its business outside of Singapore, especially in PRC, which is why it is initiating its IPO.

In fact, that is probably the right thing to do. Its business has probably reached saturation point in Singapore, and it now needs to expand overseas in order to grow.

Unfortunately, I'm not convinced that the PRC market will welcome Old Chang Kee so readily. The PRC consumer is already spoilt for choices when it comes to affordable street food, so I'm not sure how Old Chang Kee plans to distinguish itself from its competition.

All in all, I'm not convinced that the expansion venture will succeed, and that an investment in this stock will lead to good long term returns.


Probability of getting allotted for the IPO - POOR


I have only included the key points of the prospectus. Certain information have been omitted in order to keep my write-up short, but you can find the entire prospectus here.