Old Chang Kee Limited (SGX: 5ML) reported a net loss of $2.1 million in 4Q17, which may be surprising to many investors as OCK has been consistently reporting profits for the past quarters, with 4Q16 bringing in a $1.1 million net profit.

Should the losses in 4Q17 be of a major concern to investors? Should we be calling our brokers and selling our stocks now?

Well, hold your horses and investigate their financial statements.

One look and you will see that the net profit for FY17 is still positive at $1.75 million. Although it is a significant dip from last year (64.9 percent to be exact), OCK is still making profits.

Next, take a closer look at the numbers for 4Q17.

Revenue actually grew by 8.7 percent compared to 4Q16, and gross profit margin even inched up slightly from 63.1 percent to 63.3 percent in FY17. OCK has explained in its financial report that the increase in revenue is due to higher revenue from retail outlets and other services such as delivery and catering services. Also, it has improved factory efficiency slightly to decrease the cost and improve profit margins.

Expenses like selling & distribution expenses and administrative expenses both increased by 10.4 percent and 11.5 percent respectively compared to 4Q16, but the increase only amounts to slightly more than $1.1 million, and does not explain the decrease of $3.2 million from the previous net profit of $1.1million in 4Q16.

So what caused the losses?

Well, the biggest increase for expenses came under “Other expenses”. It stands at $3.46million which is significant enough to account for the losses made. Increasing from $0.17m in 4Q16, it is a 1968.9 percent increase!!!

Now that we have narrowed down our “culprit” for the net loss to “other expenses”, further reading of the financial statements will show this:

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The increase in expenses was due to a non-cash expense of $3 million on revaluation deficit for factory building, that is the revaluation found that the value is lower than previously recorded. Thus, we need not be overly concerned since this does not signal that OCK is making losses because no one is eating their curry puffs anymore.

According to OCK, “Excluding revaluation deficit of approximately S$3.0 million for the Group’s Singapore and Malaysia factory facilities, the Group’s profit before tax decreased by approximately S$668,000 or 11.0 percent”, which is not too shabby. Though it’s lower than the previous year, at least it’s not making losses.

The decrease in net profit (other than the revaluation deficit) mostly came from a decrease of $0.5 million in other income, with $0.228 million (43.3 percent) of the decrease coming from the absence of a one-off insurance proceeds received in FY16 for damaged equipment.

Obviously, OCK will not be damaging their equipments and claiming from their insurer every year, so the reduction is understandable.

Also, operating expenses such as selling & distribution (S&D) expenses and administrative expenses increased by 6.9 percent and 7.6 percent respectively for FY17.

However, presented as a percentage of revenue and we will see that S&D expenses only inched up slightly by 0.4 percent to form 41.3 percent of revenue. Admin expenses is 14.8 percent of revenue, as compared to a previous 14.6 percent. These increases can therefore be seen as minimal and expected given the rise in revenue.

Therefore, our verdict for the latest 4Q17 financial report that OCK just published?

keep calm and eat currypok

Keep calm and eat curry puffs.

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