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Stockwatch- CK Tang, an article on Business Times 6 Jul 2006 $0.485

CK Tang back on expansion path

Group says it's mindful of painful lessons from past expansion failures, writes WONG WEI KONG

Key highlights:

1. SHAREHOLDERS who kept faith with CK Tang, one of Singapore's oldest retailers, were finally rewarded when the company paid its first dividend after 12 long years. And if things go well, they can look forward to more dividends, and perhaps, an improvement in the stock price.

2. Mr Foo: Previously the chief operating officer, the seven-year CK Tang veteran took over from Tang Wee Sung, the second son of the group's founder Tang Choon Keng, as chief executive officer last month After more than a decade of losses, CK Tang has not only turned around but is expanding again. Net profit for the full year ended March 31, 2006 more than tripled to $3.82 million from $1.14 million the year before, while operating profit rose 84 per cent to $7.4 million. Revenue increased 5.9 per cent to $179.7 million. On the back of that performance, CK Tang proposed to pay a final dividend of 0.3 of a cent a share.

3. 'Our existing business, the flagship store, has continued to produce decent operating profits. We have gone into a major re-configuration of our Orchard Road store. All that was a result of a lot of detailed planning and understanding the lifestyle wants of our customers,' Mr Foo told BT in an interview.

4. The revamp saw CK Tang move from being a department store to a 'manager of brands' aimed at a customer segment that is slightly above mass market. The reconfiguration and improved merchandising mix has led to better performance, said Mr Foo. For the past two years, sales productivity - that is, sales per sq ft - at the Orchard Road store have averaged an increase of about 5 per cent per annum, while gross margin dollars psf have averaged increases of 8 per cent.

5. While less eye-catching than the opening of new stores, the company has been strengthening its management to support its growth strategy. Last month, Mr Tang, the second son of the group's founder Tang Choon Keng, relinquished his role as CEO to Mr Foo, previously the company's chief operating officer and a seven-year veteran of the company. New talent at management levels has also been brought in.

6. 'We see retailing just like any other business. You need good structures and good policies. We see this as a time to re-energise so that we can go forward with a better framework. We see the need for us to be fully innovative,' Mr Foo said. 'We are prepared to bring in people from other industries.'

7. With the company resuming dividend payments and ready to expand again, things appear to be looking better than they have for a long time for CK Tang shareholders, who have largely been a resilient lot. In response to suggestions by some groups of investors, Mr Tang offered to privatise the company at 42 cents per share in 2003. The proposal was turned down in 2004 when it was time for shareholders to vote.

8. Asked if the market is still undervaluing CK Tang shares, Mr Foo noted that net tangible assets (NTA) per share is over 50 cents. 'If you look at that in terms of market rating, it's not even up to NTA.'

posted by gsg @ 11:54 AM