Curry puff icon Old Chang Kee at inflection, with growth to continue, Phillip says

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Curry puff purveyor Old Chang Kee had a strong finish to its fiscal year, with growth momentum set to continue, Phillip Capital said in a note on Thursday.

“New stores opening and product innovations will continue to drive topline growth,” it said. “The new factory will increase production capacity (in terms of variety and volume) to fuel their expansion strategy, and improve its margins.”

Phillip increased its fiscal 2019 sales growth forecast to 6.0 percent on-year from 4.1 percent. It estimated core net profit would grow by 21.6-22.8 percent in fiscal 2019 and 2020.

Old Chang Kee said on Wednesday that for its full fiscal year, profit attributable to the owners of the company was S$4.669 million, up from S$42,000 a year earlier, while revenue rose 9.1 percent to S$85.49 million.

Phillip said the revenue growth was in line with its expectations, but earnings beat its estimate by 13 percent on higher operating leverage and lower-than-expected start-up costs in its U.K. joint venture.

It kept a Buy call with a S$0.98 target price.

The stock is trading at a 19 percent discount to its peers’ average of 28.1 times price-to-earnings ratio, it said.

Phillip said it liked the stock as it expected the curry puff maker would continue to pay out more than 90 percent of earnings in the current fiscal year amid increasing free cash flows. It forecast the fiscal 2019 dividend would rise by 1.0 Singapore cent to 4.0 Singapore cents. It also pointed to the company’s high return on equity forecast of 18.0 percent in fiscal 2019.

The stock ended Thursday down 0.66 percent at S$0.75.