Winner of the latest #analystsondemand vote! $Chew’s(5SY)

Winner of the latest #analystsondemand vote! $Chew’s(5SY)

We conducted our previous #analystsondemand vote and the people have chosen the winner to be Chew’s Group Limited, the famous egg production company.

Here’s the in-depth analysis on the Chew’s Group: Egging $Chew’s(5SY) on.

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This article is written by @calvinwee in InvestingNote.

Brief background
Chew’s Group is a leading company that produces and sells fresh eggs in Singapore and China. It supplies about eight percent of Singapore’s egg consumption.
It’s core businesses includes
1. Designer and generic eggs
2. Liquid eggs
3. Spent grains
4. Food Processing
5. Aqua culture
Since its founding in 1975, Chew’s Group has become synonymous with high quality eggs in Singapore and maintains a strong presence in the local food and beverages chain and leading supermarkets.

Recent events and news

-January 24, ‘Chew’s Group makes U-turn on plan to allow dual-class shares’, refer to the news at http://www.asiaone.com/business/chews-grou…

-January 9, Chew’s Group annual report of financial year 2016, refer to the report at: http://infopub.sgx.com/Apps?A=COW_Prospect…

-May 27, 2016, ‘New farm for Chew’s Group to require S$77m in capex’, refer to the news at
http://www.businesstimes.com.sg/companies-…

Performance summary

Chew’s Group continued to deliver stable results amidst the challenging global economic climate. EPS is highly inflated due to the sale of land use rights to the government while dividends remained stable at 0.49 cents/share.

With the acquisition of the new site that will be ready in May 2019, the daily production will increase to 580,000 eggs and possess capacity for expansion to meet future demand. Moreover, with the completion of the chicken soup factory, Chew’s Group has started to sell its chicken soup products via a supermarket chain and is in negotiations with other supermarkets and retail distribution channels.

Financial highlights
1. Operating performance
While revenue dipped 6.88% yoy to $31.6 million due to a fall in the selling price of eggs from FY15 to FY16, the Group’s other income increased by $28.0 million to reach $28.6 million in FY16 from the sale of its land use rights and a substantial part of its PPE situated at Murai Farmway to the government. As a result, the net profits saw an exponential increase, however, stripping the income gained from the sale, net profit for FY16 would be approximately $4.5 million. In reality, FY16 was a lacklustre year for Chew’s group and its top-line were affected significantly.

Ostensibly, their operational efficiency has improved in FY16. Their gross margin has increased from 82.8% to 85.5%, while their normalised net margin has increased from 8.8% to 14.4%. However, this is mostly contributed by the fact that Chews is drawing down on its inventory (decrease of $0.9m) and lower purchase of materials (decrease of $3m).

2. Financial & Cash position

As seen from the chart, Chew’s Group posted positive cash flows positive territory for the first time in FY2016 ever since 2013 with the strong boost from the investing cash flows due to sale of their land. However, it is noted that the overall increase was muted because of the fall in cash inflows from its financing activities by 60% to $1.1million. The decline was jointly contributed by the absence of proceeds from loan and higher repayment of obligations.

3. Segment performance

Geographically, Chew’s Group derive its revenue mainly from their business operations in Singapore, contributing 93.0% of the Group’s revenue in FY16.This has remained largely status quo in FY16. The operations from its Singapore business reported a 6.9% decrease in FY16 due to a fall in both sales volume and sales price.
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