Afa Comparision between breadtalk & Old Chang Kee

DETAILS
 Ms Wanna Lui approached our firm with
$100,000
 She wanted to invest in the stock market
 Requirements:
 Timeframe of 5 years
 Medium risk taker
 Investment return of 5% per annum
 Should she buy the shares at this point of
time???

Background of Industry
• The F&B sector contributed 0.7% to
Singapore’s GDP in 2007
• In 2008, it comprised about 5,900
establishments an increase of 12.4% as
compared to 2007.
• It employed 82,600 workers.

Operating receipts in the F&B
 Increased by 8.5 per cent to $5,555 million
Operating expenditure
 Increased by 8.6% to $5,335 million
Operating surplus
 Increased by 8.2% to $393 million
Value added
 Increased by 7.7% to $1,910 million
Profitability ratio
 Remained at 7.1 per cent

• F&B industry is further categorize into
restaurants, fast food outlets, food caterers
and others.
• Old Chang Kee and BreadTalk will be under
others.

Establishments by group

Employment by group

Profitability ratio

Old Chang Kee
Since
1956
Sells signature curry puffs
& 25 other food products
Sales are on a takeaway
basis
Pie Kia Shop retail outlets
offer variety of pies
Take 5 dine-in retail
outlets carry a range of
local delights
Delivery and catering
services are also available
to the central business
districts.
6 Pie Kia Shop outlets 70 outlets in Singapore

 To deliver superior quality hot finger food and ready
meals at a value-for money price positioning; in a
clean, and customer friendly retail environment.
 Listed in the SGX on 16 January 2008
 Limited liability company
 Incorporated in Singapore
 Principal activity of the Company is investment
holding

1. Liquidity (Sales)
2. Product quality
3. Production
4. Distribution
5. Marketing
6. Human Resource
7. R&D
8. Strategic Location

 Collects mostly cash payments
 Popular demand
 The food items are certified halal and hence it
caters to everyone
 HACCP certification for the manufacturing of
Curry puff and implemented a quality
assurance program

 Manufactured in a factory in Woodlands
 Fresh frozen food products are delivered
daily to the outlets
 Always have sufficient stocks in hand
 Freshly fried at the individual outlets

Creative Products
 Innovative names. E.g. Yan K8
 Constantly introduces more products
 Wide range of products
Creative advertising
 E.g. Curry puff said to be ‘pregnant’
Delivery service
 For special occasions and/or bulk orders

 Efficient and enough workers to serve the
high human flow at individual outlets
 Introduces flexi-work hours/ arrangement
for mature homemakers

Production Staff
 Replace manual labor with automation to
reduce physical strain
 Simplify work processes and
improve productivity
Food Retailing Staff
 Train staff in standard work processes
 Training in soft skills such as customer
service and interacting with customers

 Brainstorms and tests the consumer market
 Source for ways to better the taste their
quality ingredients that go into their curry
puffs
 Installed a delivery system software

 The Group has 70 outlets in Singapore
 They are located in shopping malls, petrol
stations and outdoor kiosks
 The outlets are strategic located to enhance
their distribution channel

1. Product quality
2. Risk management committee
3. Production
4. Marketing
5. Foreign currency risk

 Very risky to have only one factory for
the production
 No risk management committee

 Not much offers going on to push sales
 Fried foods may not be appealing to the health
conscious citizens.
 Introduce new but similar types. E.g. onsticks
 Ready made frozen curry puffs

Foreign currency risks
 The Group does not have a formal hedging policy
 About 34% of the Group’s purchases are
denominated in foreign currencies
 Hence they are exposed to foreign currency risk
where if it is not monitor well, it will cause the
company to lose money
 However, it is monitored on an on-going basis to
keep the net exposure to an acceptable level

1. Political and regulatory environment
2. Technology
3. Demographics
4. Sociological
5. Future Development of Singapore

 The corporate income tax rate will be reduced
from 18% to 17% with effect from Year of
Assessment 2010.
 Company pays lesser tax and hence result in
more savings for other investments or have
better cash flow.

 The F&B industry is characterized by continuing
improvements of food quality and services which
result in many new products introduced.
 Old Chang Kee have to constantly introduce new food
items and incorporate technology to improve
customer services and demand.
 In this case, Old chang kee have creative products and
advertising, HR and R&D department to keep up with
the trends and improve customer services to meet the
demand of consumers.
 Therefore the technology is sufficient to meet the
demand.

 The price range is affordable (i.e. from $1
to $2)
 Hence it is an opportunity for Old Chang
Kee to cater to everyone needs.

 In a fast pace society, a 'grab and go' service is
convenient to the consumers
 Popular among all age groups

 A touch of Singapore flavor
 Attracts both tourists and Singaporeans

Integrated Resorts
 The two integrated resorts is going to open in
2009 and 2010
 Hence provides opportunities as this will
boost their sales due to the increase tourists

1. Economic
2. Political and regulatory environment
3. Other competitor factors

 The food items are considered as snacks
and hence, not a necessity.
 In times of financial crisis, consumers may
choose not to purchase these food items.

Foreign currency risks
 Currency risk arises from the change in price of one
currency against another.
 There is uncertainty in the fluctuation in the
exchange rates.
 The group did not have a formal hedging policy
hence they face foreign currency risk which is a
threat.

Job Credit Scheme
 It allows businesses to receive a cash grant based
on the CPF contributions they have made for
their existing employees.
 It provides a significant incentive for businesses
to retain existing workers, and where their
business warrants, to employ new ones.
 The job scheme will only be available till 2010.
Therefore, the Old Chang Kee will have to find
ways to manage their cash flow.

 The F&B industry is a highly competitive
environment.
 Other food chains that provide “grab and go”
service such as “doughnut factory, breadtalk
etc."

• BreadTalk Group Limited is incorporated in
Singapore
• Founded in 2000 and was listed in SGX in 2003
• The principal activity of the Company is
investment holding
• Expanded to 12 countries, with more than 241
bakery outlets, 29 food courts and 8 restaurant.

StrengthsStrengths
 Constantly introduces new products
 Signature breads- eg. Chicken flosss
 Covers different food businesses – Bakery, Food
atrium, and Restaurant
 ‘See-through’ kitchens showcasing the expertise
of
their bakers
 Expended business overseas across 15 countries
 BreadTalk outlets located at strategic locations
which have high customer traffic flow

WeaknessesWeaknesses
 Products are priced higher than products of
other bakeries
 The wide selection of products is only limited
to bread, and cakes- ie. few selection of
pastries
 Food items are not Halal thus Muslim people
are unable to buy them

 These common food chains provide “grab and go”
service and affordable price as well.

Revenue
• Old Chang Kee (‘000) (Taken from F/S)
Revenue (2008) = 212,249
Revenue (2007) = 156,610
• Breadtalk (‘000) (Taken from F/S)
Revenue (2008) = 48,437
Revenue (2007) = 40,548

Old Chang Kee-
Chairman’s Statement

OLD CHANG KEE (‘000) BREADTALK (‘000)
Year Revenue
2008 48,437 212,249
2007 40,548 156,610
Difference 7,889 55,639
• Increase in revenue is due to 13 newly
opened outlets in 2008 and higher revenue
achieved in existing outlets
• Main increase is due to outlet sales which
have shown an increase of 19.67% despite
the decrease in export sales
• Thus increase in sales is mainly due to
outlet sales
Old
Chang
Kee
Analysis

• Increase in revenue of 35.53% is due to good
performance by the 3 sectors of business which
BreadTalk is in, which are the bakery, food atrium
and restaurant business
Bakery business
• Revenue contributor of 44.7%
•New outlets set up across Asia
(27 new owned bakeries, 44 franchised outlets, 8
were in Singapore. )
•Food Atrium
• Contributed 32.6% of revenue
• The Singapore food atrium: contributed 31.8% (21.3
million / 69.2 million) consolidation of revenue from
MWA Pte Ltd, (50% equity stake in)
• Suntec City Singapore had a full year contribution
Bread
Talk
Analysis

The PRC and Hong Kong registered a revenue
of 69.2% for the Food Atrium business sector
(47.9 million / 69.2 million). This was due to
the recently upgraded Shanghai Metro City
food atrium and an additional 3 food atria
opened in Hong Kong.
Restaurant business
• Contributed 15.2% of revenue
• Higher store sales from Ding Tai Fung
restaurants
• Revenue consolidation from Cosmopolitan
Café acquired in December 2007$$$
Bread
Talk
Analysis

Comparison
• Breadtalk has a larger increase in revenue
as compared to OCK because they a larger
expansion of 44 franchise outlets and 27
owned bakeries while OCK has only 13 new
outlets
•Breadtalk is covering a more diversified area
including Bakeries, Food Atrium and
Restaurants in the F&B industry while OCK
place the main focus on ‘grab and go
services’ and a few restaurants
•Furthermore, OCK has a drop in export sales
of $46,000
Bread
Talk

Gross profit margin workings
• Old Chang Kee
GP margin (2008) = (115,446/ 212,249) X100
= 54.39% point
GP margin (2007) = (86,747/ 156,610) X100
= 55.39% point
• Breadtalk
GP margin (2008) = (28,875/ 48,437) X100
= 59.61% point
GP margin (2007) = (23,741/ 40,548) X100
= 58.55% point
Gross Profit/Sales

OLD CHANG KEE BREADTALK
Year Gross Profit Margin
2008 59.61% point 54.39% point
2007 58.55% point 55.39% point
Difference 1.06% point 1.00% point
• Increase in GP margin is due to a large
improvement in product mix
• Increase in price of flour by 131% due to a
shortage of flour in October 2007
• As flour is not the main ingredient, Old Chang
Kee is able to cover the costs
•This could be the reason why the increase in
Gross Profit Margin was not significant
Analysis
Old
Chang
Kee
• Measures the percentage of sales that is converted to profits to
the company.

Bread
Talk
• As Breadtalk is heavily dependent on flour
for the production of breads, the increase
in the price of flour has caused GP margin
to decrease
Analysis

Comparison
• Old Chang Kee has shown a higher GP
margin as compared to Breadtalk
• As Old Chang Kee is not as heavily
dependent on flour as Breadtalk, it is able
to maintain the GP margin and keep cost of
sales down
Old
Chang
Kee

Net Profit Margin workings
• Old Chang Kee
Net profit margin (2008) = (3,588/48,437 ) X 100
= 7.41% point
Net profit margin (2007) = (2,963/40,548) X 100
= 7.31% point
• Breadtalk
Net profit margin (2008) = (8,427/212,249) X100
= 3.97% point
Net profit margin (2007) = (8,438/156,610) X100
= 5.39% point
Net Profit Margin = Net Profits / Sales

Old Chang Kee - Analysis
One Off Expenses
Initial Public Offering
(S$638,000: 2008 ; S$319,000: 2007)
Pre-Opening Expenses
(S$716,000 in 2008)
Incurred only in one particular financial year,
therefore they are added back/ deducted
to/from the Net Profit.

Breadtalk- Analysis
One off expenses:
One-off compensation from landlord:
S$326,000 in 2008
Pre-operating expenses of S$395,000 in 2008
Incurred only in one particular financial year,
therefore they are added back/ deducted
to/from the Net Profit.

Year Net Profit Margin
2008 7.41% point* 3.97% point*
2007 7.31% point* 5.39% point
Difference 0.10% point 1.42% point
* Figure is derived after adding back One Off Expenses.
• Measures how profitable a company is after taxes
Old
Chang
Kee
• Increase of 0.1 percentage point due to less loss
in exchange differences and substantial increase of
income from franchises
• there was an increase in the depreciation
expenses due to acquiring more assets.
• however, the overall increase in revenue after
adding back the one-off expenses offset the
depreciation expenses
Analysis

Bread
Talk
• Decrease of 1.42 percentage point due to
increase in depreciation expense from
acquisition of new plant and equipment
• Increase in distribution and selling
expenses, employee benefits and fix portion
of operating expenses
* Figure is derived after adding back One Off Expenses.
Analysis

Comparison
Old
Chang
Kee
• Though depreciation expenses increase,
franchise income and some expenses had
significantly dropped
• Old Chang Kee saw an increase in their
franchise income, which indicates that more
people are willing to be their franchise
• there was a huge decrease in exchange
differences which shows that Old Chang Kee
has become more efficient in hedging
against forex losses.

Comparison
Bread
Talk
• Expansion plans have caused the overall
gross profit margin to drop
• Expenses have significantly increased,
presumably due to more outlets and thus
more overhead costs
• Decrease in Gross profit margin due to the
flour hike has also impacted their revenue

Adequacy and Sustainability?
Franchise in Indonesia and Philippines
Currently in early stages of development
Able to generate significant income in future when they are
more stable.
New restaurant in Chengdu, October 2008
China is a huge market with a lot of room for expansion.
Able to generate significant income for Old Chang Kee
In times of financial crisis, it can be seen that Old Chang Kee is
still able to generate profits from their operation, thus it
shows that Old Chang Kee's operation is not waivered even by
adverse conditions, it shows great prospect for Old Chang Kee,
as they will be able to perform even better in good times.
ADEQUATE & SUSTAINABLE!

Venturing overseas
Reasonable steps taken to test the market
Not being too anxious
Reduces losses if overseas venture turns out to be
unsuccessful.
If there ever comes a time where Singapore is badly
affected by economy downturn and the group is unable
to generate any operating profit from operations in
Singapore, Old Chang Kee need not fear, as they would
still have operating profits from their overseas outlets
which are not as affected, sustaining the difficult period.
Adequacy and Sustainability?
ADEQUATE & SUSTAINABLE!

Investment & Solvency Ratios
• Fixed Asset Ratio
• Debt-Equity Ratio
• Interest Coverage Ratio

Fixed Asset Turnover Ratio Workings
• Old Chang Kee (‘000)
FA Turnover Ratio 2008 = 48,437/ (11,223+ 1,275)
= 3.88
FA Turnover Ratio 2007 = 40,548 / (9,361 + 820)
= 3.98
• Breadtalk (‘000)
FA Turnover Ratio 2008 = 212,429 / 58,156
= 3.64
FA Turnover Ratio 2007 = 156,610 / 44,893
= 3.48
Sales/Net Fixed Assets

Old Chang Kee
• Insert print screen

Year FA Turnover Ratio
2008 3.88 3.64
2007 3.98 3.48
Difference 0.10 0.16
Old
Chang
Kee
• Indicates amount of sales generated for every dollar
invested in fixed asset.
• This means that for every dollar invested in fixed
assets, $3.88 and $3.98 of sales can be generated
for 2008 and 2007 respectively
• Slight decrease by 0.10
• Increase in investments in fixed assets
• The purchase of new assets can be used to
generate future income
Analysis

• This means that for every dollar invested in
fixed assets, $3.65 and $3.48 of sales can be
generated for 2008 and 2007 respectively
• Slight increase by 0.16
• Mainly due to the huge increase in
revenue
Bread
Talk
Analysis

Old
Chang
Kee
• Old Chang Kee is slightly higher than
Breadtalk by 0.24
• Old Chang Kee is investing enough to
get as much interest as Breadtalk
• Old Chang Kee can expect higher sales
in future periods due to the increase in
investment of fixed assets
Comparison

Are the investments sufficient to safeguard
future profitability?
• Generally high fixed asset turnover ratio that is
above 3 which shows a high degree efficiency in
asset utilization.
• Maintaining operations in newly tapped markets
– China, Philippines & Indonesia.
• Revenue streams are varied: Island wide outlets,
overseas outlets and restaurants.
YES

Debt-Equity Ratio Workings
Debt-equity Ratio 2008 = (6,712 + 2,032)/ 16,010
= 0.55
Debt-equity Ratio 2007 = (6,053+2,266) / 9,468
= 0.88
Debt-equity Ratio 2008 = (82,866+8,158)/ 56,133
= 1.62
Debt-equity Ratio 2007 = (62,996 + 5,428)/ 47,266
= 1.44
Total Liabilities / Total Equity

Breadtalk Ltd The Group
2008 2007
(‘000) (‘000)

Breadtalk (Continued)
2008
(‘000)
2007
(‘000)
The Group

Year Debt-Equity Ratio
2008 0.55 1.62
2007 0.88 1.44
Old
Chang
Kee
Bread
Talk
• Decrease by 0.33
• Uses more equity over debt, increase cost of
borrowing
• Due to the issuance of 25 million shares
• It indicates what proportion of equity and debt the company is
using to finance its assets and determines solvency through its
financial structure.
• Increase by 0.18
• Uses more debt over equity
• May face a certain level of insolvency
Analysis

Comparison
Old
Chang
Kee
• Old Chang Kee adopted a conservative
financing strategy, indicating a lower risk of
insolvency.
• Using BreadTalk as a base line, Old Chang Kee
debt-equity ratio should have maintained at
above 1, since debt financing is a cheaper way
of financing.

Interest Coverage Ratio Workings
Interest Coverage Ratio 2008 =(3,092+638+716+183)/ 183
= 25.30
Interest Coverage Ratio 2007 = (3,487+ 319+ 67)/ 67
= 57.81
Interest Coverage Ratio 2008 = (12,001+326+395+851) / 851
= 15.95
Interest Coverage Ratio 2007 = (11,228+ 908) / 908
= 13.36
(Net profit before tax + Interest+ One off expenses*) / Interest

Old Chang Kee (One Off Expenses)

Old
Chang
Kee
Year Interest Coverage Ratio
2008 25.30 15.95
2007 57.81 13.36
• Steep decrease by 32.51
• Due to increase in interest expense and one off
expenses incurred in both financial years
• In 2008, Old Chang Kee was in the process of getting
listed, opened 13 new outlets and a restaurant in
Chengdu. Hence the company has to borrow money from
the investors. Thus this lead to the increase in interest
expense which in turn decrease the interest coverage
ratio.
• It measures ability to make contractual payments and shows
how many times company can pay interest from current earnings.
Analysis

•Slight increase by 2.59
• Due to increase in earnings before interest
and tax due to the increase in revenue
generated and the add back of one-off
expenses.
• Decrease in interest expenses due to the
decrease of payment of term loans.
Bread
Talk
Analysis

Comparison
Old
Chang
Kee
Despite the decrease, Old Chang Kee’s interest
coverage was still slightly higher than
Breadtalk. Both are still able to meet
contractual interest payments as their interest
coverage ratio is high.

Debt Equity VS Interest Coverage
Debt-Equity Ratio (‘08) Interest Coverage (‘08)
OLD CHANG
KEE
0.55 25.30
BREADTALK 1.62 15.95
• Uses more debt than equity as it is a much
cheaper way to finance the company’s
operation.
• They do not have to worry about insolvency as
they have high interest coverage.
•Able to pay its interests when they are due.
Comparing debt-equity against interest coverage….
Bread
Talk

Debt Equity VS Interest Coverage
•They rely heavily on equity financing which lowers
the risk of insolvency but it is a more expensive
way to finance the company's operation.
• However, the company’s interest coverage is high
and yet they did not use more debt financing,
which is a cheaper way to finance its operation.
Comparing debt-equity against interest coverage….
Old
Chang
Kee
Debt-Equity Ratio (‘08) Interest Coverage (‘08)
OLD CHANG
KEE
0.55 25.30
BREADTALK 1.62 15.95

Are the finances of Old Chang Kee
sensibly and effectively structured?
• Old Chang Kee has portrayed inefficiency in managing
their funds.
• The capital structure adopted for the company’s
operation may be too conservative.
• The cost of borrowing is higher for equity financing as
dividends have to be given out to the shareholders.
• Did not consider using debt financing despite high
interest coverage.
NO

Net working capital workings
NWC 2008 = 12,031 – 6,712
= 5,319
NWC 2007 = 7,351 – 6,053
= 1,298
NWC 2008 = 77,348 – 82,866
= -5,518
NWC 2007 = 59,089 – 62,996
= -3,907
Current assets – Current liabilities

Measure of both a company's efficiency and its short-
term financial health
Year Net Working Capital
2008 5,319 -5,518
2007 1,298 -3,907
Difference 4,021 1,611
Old
Chang
Kee
Bread
Talks
• Able to pay off short term liabilities with its
current assets
• Unable to pay off its creditors in short-term
• The increase in liabilities exceed the increase
in assets in 2008
Analysis

Comparison
Old
Chang
Kee
• Old Chang Kee shows a positive increase
of NWC while Breadtalk shows a negative
decrease of NWC
• Old Chang Kee is more stable as compared
to Breadtalk as net assets is sufficient to
cover current liabilities
• There will be lesser risk of insolvency as
Old Chang Kee is able to pay off its debts.
Breadtalk might face a higher risk of
insolvency.

Current ratio
• Old Chang Kee
Current ratio (2008) = 12,031/ 6,712
= 1.79
Current ratio (2007) = 7,351/ 6,053
= 1.21
• Breadtalk
Current ratio (2008) = 77,348/ 82,866
= 0.93
Current ratio (2007) = 59,089/ 62,996
= 0.94
Current assets /Current liabilities

Quick ratio
• Old Chang Kee
Quick ratio (2008) = (12,031-749-449)/ 6,712
= 1.61
Quick ratio (2007) = (7,351-534-577)/ 6,053
= 1.03
• Breadtalk
Quick ratio (2008) = (77,348-3,925-2,558)/ 82,866
= 0.86
Quick ratio (2007) = (59,089-2,506-1,798)/ 62,996
= 0.87
(Current assets –inventories-prepayments)/Current liabilities

• Current ratio measures a company's ability to pay short-term
obligations
• Quick ratio measures a company's ability to meet its short-term
obligations with its most liquid assets. It is also known as acid
test.
Year Current ratio
2008 1.79 0.93
2007 1.21 0.94
Year Quick ratio
2008 1.61 0.86
2007 1.03 0.87

Old
Chang
Kee
• Current and quick ratio is maintained above 1 and
has shown an increase
• Due to the increase of cash and bank balances by
95.57% [(9,569-4893) / 4893 *100]
• Suggest that OCK is able to pay off its debts when
they fall due
• Current assets readily sufficient and convertible to
cash to pay off current liabilities
• No risk of insolvency in the short period
A current and quick ratio of 1 to 2 means that the company is
in a good financial position and is able to meet short-term
obligations. Similar to current ratio, quick ratio shows a more
accurate of firm’s liquidity by deducting the less liquid assets
such as inventories. Prepayments is also deducted as it is a
payment made in advance.
Analysis

Bread
Talk
Analysis
• Current and quick ratio is below 1 and has
shown an decrease
• Even though both the current assets and current
liabilities increased by 30.90% and 31.54%
respectively, the amount of current assets are not
enough to cover the current liabilities
• Usage of debt financing is more than equity
financing which results in higher liabilities (IFS
PART 2)
• May not be able to pay off its obligations when
they fall due
• Might face insolvency issues

Comparison
Old
Chang
Kee
• Old Chang Kee is in a better financial position
as compared to its industry, Breadtalk
• Old Chang Kee is able to pay off its current
liabilities with the current assets when they fall
due while Breadtalk’s current assets are not
enough to cover the current liabilities
• Old Chang Kee will not face any insolvency
issues in the short-term but Breadtalk is in a
risky position and may face insolvency issues

Accounts receivables turnover
workings
• Old Chang Kee
AR turnover (2008) = 48,437/ [(232+250)/2]
= 200.98
AR turnover (2007) = 40,548/ [(232+250)/2]
= 168.25
• Breadtalk
AR turnover (2008) = 212,249/ [(4,761+3,027)/2]
= 54.51
AR turnover (2007) = 156,610/ [(4,761+3,027)/2]
= 40.22
Sales/Average debtors

Average collection period workings
• Old Chang Kee
ACP (2008) = 366/ 200.98
= 1.82
ACP (2007) = 365/ 168.25
= 2.17
• Breadtalk
ACP (2008) = 366/ 54.51
= 6.71
ACP (2007) = 365/ 40.22
= 9.08
No. of days in a year/AR Turnover

• Accounts receivable turnover measure a firm's effectiveness
in extending credit as well as collecting debts
• Average collection period is the number of days a business
takes to collect its debts
Year Accounts receivable turnover
2008 200.98 54.51
2007 168.25 40.22
Year Average collection period
2008 1.82 6.71
2007 2.17 9.08

Old
Chang
Kee
• The high AR turnover is due to increase in sales by
19.46%
• OCK operates on a cash sales basis rather than
credit sales which leads to high sales and low
accounts receivables
• An increase may imply that Breadtalk’s extension
of credit and collection of AR is efficient
Accounts receivable turnover can be further illustrated by
calculating average collection period. The higher the AR
turnover, the lower the average collection period is.
Analysis
Bread
Talk

Comparison
Old
Chang
Kee
• Both companies are doing well as they have
shown an increase in AR turnover and they
take lesser days to collect their debts
• The gap in ratio is due to the different way
both companies function
• Breadtalk has other subsidiaries such as
restaurants which will result in a higher
accounts receivable turnover as compared to
OCK which only functions on mainly cash sales
basis
Bread
Talk

Inventory turnover workings
• Old Chang Kee
Inventory turnover (2008) = 19,562 /[(749+543)/2]
= 30.49
Inventory turnover (2007) = 16,807 /[(749+543)/2]
= 26.20
• Breadtalk
Inventory turnover (2008) = 96,803 /[(3,925+2,506)/2]
= 30.11
Inventory turnover (2007) = 69,863 /[(3,925+2,506)/2]
= 21.73
Cost Of Goods Sold /Average Inventory

Days to sell inventories workings
• Old Chang Kee
No. of days (2008) = 366/ 30.49
= 12.00
No. of days (2007) = 365/ 26.20
= 13.93
• Breadtalk
No. of days (2008) = 366/ 30.11
= 12.16
No. of days (2007) = 365/ 21.73
= 16.80
No. of days in a year/Inventory Turnover

• Inventory turnover is the number of times a
company's inventory is sold and replaced over a period
Year Inventory turnover
2008 30.49 30.11
2007 26.20 21.73
Year No. of days to sell inventories
2008 12.00 12.16
2007 13.93 16.80

Old
Chang
Kee
• The inventory turnover ratio for OCK is
maintained at almost the similar level as its
industry, Breadtalk
• Both companies has shown efficiency in inventory
management as inventory turnover has increased
and they took lesser days to sell the inventories
• Since both companies shows a relatively high
ratio, stock obsolescence would not be a concern
• However, both companies have to keep sufficient
stocks to ensure that it is enough to keep sales
going
Inventory turnover can be further illustrated by calculating
number of days to sell inventories. The higher the inventory
turnover, the lesser days it takes to sell off the inventories.
Analysis
Bread
Talk

Is Old Chang Kee sustainable?
• Despite the economic downturn in 2008, sales have increased.
• In the future periods, when the economic stabilizes, sales will
continue to increase.
• As mentioned in IFS part 1, OCK has just started business in
other countries such as Cheng Du, Philippines and Indonesia.
These outlets will generate more future income.
• The increase in sales will result in generating more cash and
thus liquidity ratios will also increase.
• This means that OCK will be able to pay off its debts when they
fall due.
YES

Earnings Per Share
• Old Chang Kee (Taken from F/S)
EPS(2008) = 2.42
EPS(2007) = 3.87
• Breadtalk (Taken from F/S)
EPS(2008) = 3.31
EPS(2007) = 3.23
EPS= Net Earnings / Outstanding Shares

Price to earnings ratio
• Old Chang Kee
P/E ratio (2008)= 0.23/0.0242= 9.50
P/E ratio (2007)= 0.23/ 0.0387= 5.94
• Breadtalk
P/E ratio (2008)= 0.69/ 0.0033= 20.84
P/E ratio (2007)= 0.69/ 0.0323= 21.36
P/E ratio= Market value per share/
EPS

OLD CHANG KEE
BREADTALK
2008
2008
2007
2007

Year Earnings per Share
2008 2.42 3.31
2007 3.87 3.23
Difference -1.45 0.08
• Earnings per share measures the number of dollars earned on
each outstanding ordinary share
• Price to earning ratio measures the amount that investors are
willing to pay for each dollar of the firm’s earnings
Year Price to Earning ratio
2008 9.50 20.84
2007 5.94 21.36
Difference 3.56 -0.52

Earnings per share and Price to
Earning ratio
Old
Chang
Kee
• A huge decrease of 1.45 was due to the issuance
of 25 million shares after the IPO. (initial Public
Offering)
• An increase of 3.56 in the P/E ratio indicates
investors confidence of future growth for the
company
• Shows that investors of the market are optimistic
about Old Chang Kee’s business and are buying into
that idea
However, the decrease of 1.45 in Old Chang Kee’s EPS is not
properly justified.
Analysis

Bread
Talk
• A slight increase of 0.08 due to the increase of
net earnings in 2008
• A decrease of 0.52 in the P/E ratio shows
pessimism of investors that it may be risky
• This may probably be due to the flour hike,
which has increased many times in the span of
2008
• This significantly reduces investor’s confidence
and they see this rising food prices to affect
Breadtalk badly
Earnings per share and Price to
Earning ratio Analysis

Why is it not justified?
• There was an actual increase in net income but it is not
reflected as the issuance of 25 million shares diluted
the profit for each shares.
• There is a timing difference between the issuance of
shares after the year end and the profits generated for
the year.
• This capital injection from the issuance of shares was
not used to generate the profits for the year 2008.
• Thus, with the additional capital injection for future
expansion plans, they should be generating more
profits which means more promise of increase in their
EPS in subsequent years.

Comparison
Old
Chang
Kee
• EPS ratio of Breadtalk is higher than Old Chang
Kee
• However, there is an increase of P/E ratio for
Old Chang Kee while a decrease for Breadtalk
• Capital obtained from the IPO can be used for
expansion plans which in turn will generate more
profits for the company

Dividend Yield
• Old Chang Kee
Dividend Yield (2008) = (0+0.0005)/0.23= 2.17%
Dividend Yield (2007) = (1+0)/0.23= 434.8%
• Breadtalk
Dividend Yield (2008) = (0+0.1)/0.69= 1.45%
Dividend Yield (2007) = (0+0.55)/0.69= 79.7%
Dividend Yield= Annual dividends per share/ price per share

Year Dividend Yield
2008 2.17% 1.45%
2007 434.8% 79.7%
Difference -432.63% -78.25%
• Dividend yield is a measure of how much cash flow in return
for every dollar invested in an equity position
Old
Chang
Kee
Bread
Talk
• Huge decrease in the dividend yield of 432.63
percentage point
• Reason due to paying dividends to family shareholders
before getting listed
• Huge decrease in the dividend yield of 78.25 percentage
point
• Reason due to anticipation of cash flow difficulties in the
future period and hence paying a higher dividend now
Analysis

Comparison
Old
Chang
Kee
• Old Chang Kee is financially more stable than
Breadtalk. Payment of
• Old Chang Kee also has a much higher
dividend yield compared to Breadtalk in both
2007 and 2008.
• More attractive since higher dividend yield
would means more return at the year end of
the investment.

Net asset backing per share
• Old Chang Kee
NAT (2008) = 16,010,000/93,400,000=0.1714
NAT (2007) = 9,468,000/68,400,000=0.1384
• Breadtalk
NAT (2008) = 56,133,000/234,911,034=0.2390
NAT (2007) = 47,266,000/234,911,034=0.2012
NAT= Shareholder’s equity/ No. of ordinary shares

Price to Book ratio
• Old Chang Kee
P/B ratio (2008) = 0.23/0.1714=1.3419
P/B ratio (2007) = 0.23/0.1384= 1.6618
• Breadtalk
P/B ratio (2008) = 0.69/0.2390=2.8870
P/B ratio (2007) = 0.69/0.2012=3.4294
P/B ratio= Market value of share/ Net asset backing per share

Year Net Asset backing ratio
2008 0.1714 0.2390
2007 0.1384 0.2012
• Net asset backing ratio is a measure of the value of assets
backing each share
• Price to book ratio measures the stock’s market value to its
book value
Year Price to Book ratio
2008 1.3419 2.8870
2007 1.6618 3.4294
Difference -0.3200 -0.5424

Net asset backing per share and Price
to Book ratio
Old
Chang
Kee
• Increase of net asset backing per share
0.033 due to more capital injection from the
IPO
• Decrease in P/B ratio of 0.32 to 1.3419
• The drop shows that the company is
investing in more assets in order to be ready
for future expansion plans of the company.
Analysis

Bread
Talk
• Increase of net asset backing per share of
0.0378 due to increase of profits in 2008
• Decrease in P/B ratio of 0.54 to 2.8870
• This is probably due to losing confidence of
investors in Breadtalk’s foreseeable future due
to the flour hike.
Comparison: The Net asset backing for Breadtalk is slightly
more due to it having larger operations than Old Chang
Kee. Overall , the ratio shows both companies are backing
its shares with more assets and also fair as both also seen
an increase
to Book ratio Analysis

to Book ratio
Old
Chang
Kee
• Breadtalk has higher coverage of shares by assets.
• This means that Breadtalk is able to pay more back
to its investors compared to Old Chang Kee if they
went into liquidation
• This factor is not very important as the likelihood is
low and more relevant to look at the P/B ratio of
each company.
• P/B ratio of Old Chang Kee is much lower than
Breadtalk.
• Indication that Old Chang Kee may be underrated
and Breadtalk an overrated investment
• Old Chang Kee’s investment is not as overpriced
compared to Breadtalk’s

Is the stock price attractive?
• Although there is a drop in Old Chang Kee’s EPS ratio, there is
future growth expected that will increase the price of EPS
using the money from the IPO
• The dividend yield of Old Chang Kee is significantly higher
than Breadtalk’s which makes it much more attractive
• Net asset backing ratio is roughly the same comparing with
Breadtalk’s
• However, the P/B ratio is significantly lower compared to
Breadtalk
• Thus, Breadtalk may seemed to be overpriced and not value
for money
• This makes it a CHEAP investment to buy the stocks in Old
Chang Kee
YES

Conclusion
Strength
• Reputable household brand and
innovative products (IFS part 1)
• Decline in fixed assets turnover
due to more assets (IFS part 2)
• Potential growth of OCK in
other countries (IFS part 2)
• Positive outlook of liquidity
ratios (IFS part 3)
• Positive P/E ratio indicates
more growth prospects (IFS part
3)
Weakness
• No adoption of foreign
currency hedging (IFS part
1)
• Over dependence on one
factory for food production
(IFS part 2)
• Uses more equity ratio than
debt ratio (IFS part 3)
MORE STRENGTHS THAN WEAKNESS

Old Chang Kee’s dividend payout

Recommendation
Calculation
Expected returned per annum = $5,000
5 years expected return = $25,000
Share price = $0.23
Number of shares Wanna Lui can buy = 434,782 shares
434,782 shares = 434 lots (1 lot = 1,000 shares)
Dividend payout = no. of shares brought x
amount of dividend declared
= 434,000 shares x $0.005
= $2,170

Recommendation
• The low dividend payout is due to the issuance of
25,000,000 shares as the company has just been listed
• Dividend payout out will definitely increase in the
future periods and there is a possibility that $25,000
can be achieved in 5 years
• Ms Wanna Lui might want to grab the opportunity to
sell off the shares in the near future to earn profits
when the share price increase
• Investment in OCK will be much more worthwhile than
investing in the bank which pays a much lower interest
• Therefore, Ms Wanna Lui should invest in OCK!

Disclaimer
Limitations
• No breakdown of credit sales
• Trend analysis is inaccurate
(comparison between 2007
and 2008 but not the previous
years)
• Different characteristics of
competitor (Breadtalk sells
bread but OCK sells fried food)
• Different accounting methods
to account for inventories
(FIFO method for OCK and
weighted average method for
Breadtalk)
Assumptions
• Total sales is used to
compute AR turnover
• Share price is taken from
previous close, not updated
to current date
• Adding back of one-off
expenses

• Recent F&B Trends & Future Developments . (2009). Retrieved
(2010, January 24) from
http://www.business.gov.sg/EN/Industries/FoodNBeverage/Statisti
csNTrends/FactsFiguresNTrends/fnb_overview_trends.htm
• Currency risk. (2009). Retrieved (2010, January 24) from
http://en.wikipedia.org/wiki/Currency_risk
• BreadTalk Group Limited. (2008). Annual Report. Singapore: Author.
• Debt/Equity Ratio. Retrieved (2010, January 28) from
http://www.investopedia.com/terms/d/debtequityratio.asp
• Interest Coverage Ratio. Retrieved (2010, January 28) from
http://www.investopedia.com/terms/i/interestcoverageratio.asp
• Asset turnover ratio. Retrieved (2010, January 28) from
http://www.businessdictionary.com/definition/asset-turnover-
ratio.html
• http://www.wildsingapore.com/news/20070910/071021-1.htm
Citations

Citations
• Investopedia. (2010). Current ratio. Retrieved (2010, January 19) from
http://www.investopedia.com/terms/c/currentratio.asp
• Investopedia. (2010). Quick ratio. Retrieved (2010, January 19) from
http://www.investopedia.com/terms/q/quickratio.asp
• Investopedia. (2010). Working capital. Retrieved (2010, January 19) from
http://www.investopedia.com/terms/w/workingcapital.asp
• Investopedia. (2010). Receivables turnover ratio. Retrieved (2010, January
19) from
http://www.investopedia.com/terms/r/receivableturnoverratio.asp
• Investopedia. (2010). Inventory turnover . Retrieved (2010, January 19)
from
http://www.investopedia.com/university/ratios/inventoryturnover.asp

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