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Old Chang Kee 1H 2026 Profit Gets Crushed · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:07
  Okay, let's get into it. Today, we're doing a deep dive into the financial heart
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  of a real Singaporean icon.
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  Old Chang'e, or OCHK. We've got their statements for the first half of fiscal year 2026.
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  So that's the six months ending September 30th, 2025.
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  And our mission today is pretty specific. We want to really get into these numbers,
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  understand the core financial performance, and figure out the exact reasons
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  why their profit got squeezed so hard. Right.
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  And then see if their plan for the future actually holds up. Exactly.
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  Because as soon as you open the report, you see it. It's the immediate shock statistic.
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  Yeah, it really hits you. Revenue looks okay, pretty steady,
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  but the bottom line, it tells a completely different story.
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  A story of, well, significant distress.
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  It's a classic case study. It shows you how just keeping sales up doesn't mean you're stable.
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  OCHK kept that top line number looking all right, but their profit took a steep, really painful hit.
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  So let's start there with that top line. Let's do it. The total revenue for
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  the half year was $51.931 million.
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  Last year, it was $51.828 million. I mean, that's a 0.2% increase.
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  It's functionally flat.
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  It is. They're treading water. And you have to remember, they're working much,
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  much harder just to sell the same amount of curry puffs.
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  And that tiny bit of growth, it actually hides a deeper story, doesn't it?
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  It really does. If you break it down, the core business, their retail outlets, only grew by 0.1%.
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  That's wild because the report says that growth from new and existing outlets
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  was almost completely wiped out by shops that were closed for refurbishment
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  or, you know, shut down for good.
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  Precisely. They're constantly churning that retail fleet.
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  Upgrading, moving, just to stay in the same place. So where did that little
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  bump in revenue come from?
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  It came from their non-outlet streams. Things like delivery,
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  corporate catering, events.
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  That side of the business was up by 1.0%. It's not huge, but it's a hint at
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  the pivot we'll get into later.
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  Okay, but all that work, the new stores, the catering push it was just completely
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  undermined when you look at the profit.
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  This is where the story gets pretty dark. Oh, absolutely.
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  The profit before tax just plummeted. We're talking 19.3%. Nearly a fifth of their operating profit.
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  Is aberrated. It fell from $7.5 million down to $6.1 million.
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  I mean, that is not a small dip. That's an operational crisis.
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  And for the shareholder, that hits home immediately.
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  Basic earnings per share, it just followed that line right down from $0.512 to $0.414.
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  Which tells you that whatever they're gaining on the sales front is being completely
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  eaten alive by costs on the back end.
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  It's a severe margin problem. A very severe one. And it's worth noting,
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  this is a Singapore problem.
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  Over 51 million of their revenue comes from Singapore.
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  Australia and Malaysia are tiny in comparison. So the success or failure of
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  OCHK is all about what's happening right here in the Singapore market.
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  100%. So let's peel back those layers, that 19.3% plunge. Where did the cost crisis actually begin?
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  It starts right at the source with the gross profit margin.
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  It declined by 0.2% down to 69.3%. And 0.2% might not sound like a lot,
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  but in a high-volume business like this. It's huge.
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  It's immense when you apply it across tens of millions in sales.
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  And what's really insightful here is what drove that erosion.
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  It wasn't just one thing. Right. It was a combination punch.
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  It was a one-two punch, exactly.
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  You had higher food costs, so that's raw material inflation,
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  and you had increased expenses for production staff.
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  So inflation is hitting both the ingredients and the people making the food.
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  Is there any good news in there? A tiny bit.
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  They had a slight reduction in production utility expenses, but,
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  you know, they couldn't even begin to offset the damage from labor and food costs.
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  And that leads us to the biggest headache in the whole report,
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  selling and distribution expenses, S&D.
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  Yeah, they spiked by 4.0%. As a percentage of revenue, that went from 39.0%
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  up to 40.4%. That is a huge chunk of every dollar they make just disappearing
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  into operations. So what's behind that?
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  This is where we get into structural costs. Costs, you can't really negotiate away.
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  The main driver was staff costs. Specifically, annual wage adjustments and higher
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  starting salaries because of the government's ongoing progressive wage model policy.
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  The PWM. Right. And for anyone listening who isn't following Singapore policy
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  that closely, the PWM is absolutely critical to understanding OCHK's pain,
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  isn't it? It is everything.
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  It's not a one-time minimum wage hike. It's a policy designed to create sustained
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  wage growth for local workers in sectors like retail.
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  For a business like OCHK, which needs a lot of people on the front lines,
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  this isn't a temporary issue.
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  It's a permanent increase in their cost of doing business.
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  Exactly. It's baked into their model now. And it explains so much about why
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  they're trying to pivot away from that traditional retail kiosk model.
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  Suddenly, that 19.3% profit drop feels almost unavoidable.
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  It's not bad management. It's government policy hitting their business model
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  directly. But the pain didn't stop there.
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  Their other income streams also took a hit. What happened there?
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  Well, they lost about $7.2 million in interest income from their deposits, A 32.6% drop.
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  Wow, just from lower interest rates. Just from lower rates on their cash placements.
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  When rates fall, your cash doesn't work as hard for you. Simple as that.
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  And what about government grants? Did that help? Less than before.
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  Other income was down 8.2% overall.
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  They did get higher employment grants, but that was outweighed by lower gains
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  from selling old vehicles and just a general reduction in other grants.
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  Every little stream of income seems to be running a bit low.
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  And then you have the administrative costs on top of that. Yep. Up 3.0 percent.
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  Driven by things you'd expect like higher staff welfare insurance and also higher
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  bank fees for more and more people using digital payments. Well,
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  we also can't forget depreciation expenses, which climbed by $7.3 million.
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  And this brings up a key bit of financial jargon, higher depreciation of right-of-use assets.
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  Right. So in plain English, that's basically their rent, isn't it?
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  The costs tied to their long-term leases, which went up because they signed
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  new ones and renewed old ones.
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  That's a perfect way to put it. It's the cost of having a physical footprint.
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  And that cost is rising. So it's a cycle. They have to invest to stay relevant,
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  but that investment immediately shows up as a higher fixed cost,
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  which squeezes the profit even more.
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  That's the trap. And just to round it out, other expenses also jumped,
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  mainly because they had to account for the possibility that some of their business-to-business
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  clients might not pay their bills.
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  OK, so it's clear they're fighting this inflation fire by just pouring money back into the business.
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  But despite the profit getting crushed, how is the foundation?
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  Is the balance sheet still stable? The short answer is yes.
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  Structurally, they're still very healthy. Their positive networking capital
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  actually increased from S$32.5 million to S$35.6 million.
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  Net assets are up too. They have cash. They're stable. But their investment
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  strategy, that's a real paradox, isn't it, given how much labor and leases cost?
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  They spent a $1.7 million on capital expenditures, CapEx. That's almost double
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  what they spent last year. And that raises a really important question.
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  If the retail environment is so tough with mandated wage hikes and rising rents,
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  why would you almost double your cap?
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  Are they investing for growth or is this just really, really expensive mean?
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  It feels like an aggressive defensive move.
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  They're locking themselves into higher fixed costs in a high cost market.
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  So what's the bet they're making?
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  The bet is that this S1.7 million dollars will pay off in the long run,
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  maybe through more efficient equipment that needs less staff.
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  Or by securing killer locations in transport hubs where you're guaranteed to get foot traffic.
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  So let's follow the money. How did all this affect their cash flow?
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  Well, cash from operating activities went down, which you'd expect with lower profits.
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  It dropped from $11.6 million to $10.2 million.
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  And that cash went straight into funding all these investments. Absolutely.
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  Net cash used in investing activities went up to $8.7 million because of that
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  big CapEx number. But even more telling, net cash used in financing was S8.2
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  million dollars. And where did that go?
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  The majority of it, 6.1 million dollars, went to paying off bank loans and,
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  crucially, those lease obligations we were talking about.
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  They're using their cash to service their debt and pay their rent.
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  And yet, through all this turbulence, one thing stayed consistent,
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  and it's a big signal of confidence. The dividend.
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  Yes. They declared an interim dividend of 1.0 Singapore cent per share, same as last year.
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  That tells you management believes these pressures, while bad, are manageable.
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  They don't think it threatens their long-term ability to return value to shareholders.
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  Okay, so that's the picture now. What does management see on the road ahead?
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  Are these headwinds going to get any softer? No.
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  In fact, they're bracing for more of the same. Their own commentary says they
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  expect sustained cost pressures, raw materials, wages, rent.
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  They don't see that getting better anytime soon. And they specifically called
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  out the manpower deficit, right?
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  They did. That plus what they call moderated retail consumer demand.
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  That is the classic squeeze.
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  Your costs are going up relentlessly, but your customer is getting more careful
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  with their money. How does any retailer survive that kind of environment?
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  And this is what's so fascinating. They have a two-part response.
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  First, they're looking inward, focusing on operational resilience,
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  cost management, trying to squeeze every last cent of efficiency out of the current model.
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  But the real game changer, the bigger strategy, seems to be that pivot away
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  from pure retail. Precisely.
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  They are actively trying to accelerate their business-to-business, or B2B, sales.
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  This is their escape hatch. An escape
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  hatch from high retail rents and the progressive wage model. That's it.
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  If you're selling in bulk to corporations or schools, you can bypass a lot of
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  that expensive infrastructure.
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  You need fewer frontline staff and fewer prime retail spots.
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  And all that investment in logistics we talked about must be to support this B2B push.
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  Absolutely. They need to enhance their manufacturing and logistics to scale
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  up B2B volume efficiently.
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  And for the few new physical spots they do open, they're being very strategic,
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  focusing on high-value places like transport hubs, where the foot traffic is a sure thing.
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  So really, they're admitting that the old model of a curry puff stand on every
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  corner is broken, at least in Singapore's high-cost environment.
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  I think that's the perfect summary. Their survival now hinges on leveraging
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  their manufacturing strength to sell through cheaper, high-volume B2B channels.
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  The S1.7 million dollars in CapEx is essential maintenance, But the B2B acceleration,
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  that's their only real path back to growing their margins.
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  All right. To wrap up this deep dive, Old Chain Key held its revenue steady,
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  but profitability got crushed by nearly 20 percent.
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  The main culprits were structural cost increases, food inflation and most importantly,
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  the policy driven wage hikes from the progressive wage model.
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  And that was compounded by lower interest income.
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  Yet despite that fire, their balance sheet is solid, which is allowing them
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  to invest heavily in a strategic pivot.
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  So the big question for you, the listener, to think about is the one OCHK's
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  management is wrestling with right now. Right.
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  And it's this. Can their diversification into B2B sales and logistics happen
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  fast enough to outrun the permanent policy-driven cost increases in their core retail business?
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  The entire future of the Singapore staple rests on the answer to that question.
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  That's the knowledge nugget to really watch going forward. A tough battle ahead, for sure.
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  But now you're fully informed on why that battle is being fought.
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  We'll catch you on the next Deep Dive.