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My Personal Analysis of Challenger Technologies

Challenger Technologies Logo

Challenger Technologies is an IT lifestyle retailer and has 40 stores island-wide. In my teenage days, I have enjoyed shopping at Challenger store at Funan centre for computer games, software and computer accessories.

I have been holding this stock since the year 2011 which has rewarded me with dividends over the years.

Challenger Technologies currently make up only 1% of my portfolio.

Financials Over Last 5 Years

Revenue decreased

Challenger Technologies Revenue 2014

Revenue decrease mainly due to lower contribution from corporate sales in Singapore and closure of retail operations in Malaysia.

Lower Profit after Tax

Challenger Technologies Profit Before Tax 2014

Profit after Tax was lower for FY 2014 as compared to the previous years. This can be attributed to higher rental expenses and other operating expenses to support business operations. There is also higher expenses arising from the closure of Malaysia stores in FY 2014. Consumer market remained soft.

Dividends

On a positive note, Challenger Technologies have been paying dividends consistently over the 5 years period.

Earnings per share have increased consistently from year 2010 to 2013 but dropped in year 2014.

Year 2010 2011 2012 2013 2014
Total dividend (cents)  2.5  2.1  2.2 2.35 2.52
Earnings per share (cents)  3.96  4.53  4.69  4.96  4.28
Dividend payout ratio (%)  63 46 47 47 59

Debt Servicing

I only managed to find net interest expense in the financial reports for year 2011 and 2012. Thus, I assumed there is no debt interest expense to service as of to date.

Year 2010 2011 2012 2013 2014
Net interest expense (SGD dollar in thousands)  –  100  18  –  –
Operating income (SGD dollar in thousands)  15,644  18,172  18,634  43,623  27,020
Debt service ratio (%)  –  0.55  0.1  –  –

 Challenges Ahead

Environment remains challenging for Challenger Technologies ahead. In FY 2014, Challenger Technologies ceased all retail operations in Malaysia. Increased rentals and tight labour market. The continuing soft consumer market dampened buying power.

My Opinion

In my recent post, I mentioned about Challenger Technologies setting up a new subsidiary (Challenger Ventures Pte Ltd). I am unclear of what Challenger Ventures Pte Ltd does.

Personally, I also felt the outlook of Andios Pte Ltd will be challenging as it has to compete with e-commerce websites with established brands like Amazon, Taobao and Qoo10 etc.

The business of Challenger Technologies have became complex as it is no longer simply an IT retailer. Rather than being diversified into different business areas, I will prefer Challenger Technologies to focus on it core business which is IT retailing.

Investment Strategy

I will be looking at selling off this stock as stock price has appreciated since I bought it in year 2011 (Includes bonus issued in year 2011). I am happy with the gains.

With the stock growth and dividends collected over the years, this is what I call a value + income stock!

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