1. SKE's Revenue increased by 42.5% yoy to S$7.8m in 1H13
. This was
driven by a 76.5% increase in equipment sales following the
expansion of its sales team from 6 to 9 employees. We see this
slightly above our FY13 forecast as SKE experiences seasonal
sales. First half revenues usually contribute about 33% of full
2. Gross profit increased by 5.8% yoy to S$2.5m in 1H13. This was
driven by an increase in sales revenue rather than improvement
in gross profit margins.
3. An interim dividend of 0.25 Scts has been declared for 1H13.
1. Gross margins declined 12 % pts to 32% in 1H13 due to the
absence of a bulk purchase discount that it enjoyed from its
principal suppliers last year. Nonetheless, gross margin of 32% is
within the company’s normalized margin range.
2. Administrative expenses increased by 52.8% yoy (+S$0.6m) to
S$1.7m. About 52% of this increase of S$0.6m is due to the pre-
IPO expense (S$0.08m) and director’s fees (S$0.2m). Going into
2H13, only the increase in headcount expense of S$0.2m will be
However, we expect IPO expenses of S$0.78m to be
recognised in 2H13 and the balance of S$0.47m to be
recognised in 1H14.
3. Net profit declined by 72% in 1H13, weighed down by the one off
pre-IPO expense and director’s fee highlighted above.
■ Management plans to engage in JVs to move into new markets such as
Myanmar and Cambodia by 2014. Meanwhile, SKE will continue to
derive about 90% of its revenue from Singapore.
■ Management has guided it will purchase a laser cutting machine for its
fabrication plant by 1Q14. We believe this will help reduce material
wastage and improve gross profit margin by around 2-5%.
■ SKE has launch a “Value Plus” brand to target the low end market of
hawker and food court vendors. We believe this will help broaden its
customer base without compromising the SKE brand.
■ SKE is looking to capitalise on the recent trend of bigger F&B players
moving into central kitchen. SKE enjoys higher profit margins from the
sale of its proprietary fabricated kitchen equipment (60% of revenue) and
provision of servicing/maintenance for such equipment.
■ SKE has plans to launch a new business segment selling refurbished
kitchen equipment to smaller F&B players. We believe this segment will
enjoy relatively good margins as used kitchen equipment can be
obtained and refurbished locally at low cost.
Unchanged at Hold
■ We maintain our hold recommendation with a new target price of
. (using closest peer Fujimak Corporation’s historical average
forward P/E of 10.1x on our CY14 EPS of 1.45 Scts) (Read Report)
Source : CIMB Research
Labels: Consumer Sector, Singapore Kitchen Equipment Ltd