I decided to write about this stock even though it might be delistedl, since the store is still a household name which many of us are familair with. The reasons management cited for de-listing was due to weak revenue growth and disruption in the industry. With a strong cash position, there was also no need to raise money through the stock market.
TL;DR Challenger has grown quickly over the years with the opening of many new stores. However, e-commerce threatens the business, while a saturated market may stunt growth in Singapore.
Challengerās Business Profile
Founded in 1982, Challenger is a Singapore-based IT retailer serving over half a million members across 38 stores island-wide and an online store. Challenger has been awarded Best Consumer Electronic Chain Store for 6 years running since 2013 by HardwareZone Tech Awards voters.
What have they done well?
I believe Challenger has been quite successful because of the 4Ps of marketing. Price: Challengerās products are quite affordable, allowing it to draw customers from other consumer electronics stores such as Courts and Harvey Norman. Product: There are a wide range of products of high quality, serving a variety of consumers. Place: The location of Challengerās stores are quite convenient since they are located strategically across the island. Promotion: Challenger has been growing their marketing strategy, coming up bundles and deals which attract consumers.
How might the company fair in the future?
Fighting E-Commerce
I believe that Challenger probably has to double-up on its battle against the e-commerce giants by better improving their own online shop, as well as improving customer experience. It will be hard for Challenger to fight e-commerce competitors just by price and product diversity alone, since most e-commerce sites have those.
Rather, Challenger should seek to improve customer experience by training their staff to be more knowledgeable about products, or by allowing customers to try their products out. In store customer experience is probably crucial as a differentiating factor between e-commerce.
Saturated Singapore Market
As mentioned in previous posts, the Singapore market is very small, and growth of companies are quite limited. It will be much tougher for Challenger to grow its revenue in the future. Unlike other consumer products like F&B or entertainment, I feel that it is tougher to keep consuming new electronic products. Challenger should consider expanding into the overseas market, as many companies have done and as the government has advised.
What can their financial statements tell us?
Income Statement
Since 2015, revenue has been a downward trend, from 352m in 2015 to 320m in 2018. This decrease in revenue could be due to loss of consumer interest over electronics over time, and could also be attributed to the rise in e-commerce over the past few years which has made this industry more competitive.
However, operating expenditures and cost of sales have decreased as well, which has allowed operating income to increase over the years. This is reflected with an Earnings Before Interests and Taxes of 23m. This decrease in expense could be due to lesser marketing expense after Challenger has emerged as a market leader. It could also be due to lower distributions costs once the distribution network is ready.
Balance Sheet
With a current ratio of almost 3, this shows that Challengerās short-term liquidity is very strong. This means that Challenger will be able to meet short-term financial obligations well. Challenger does not seem to have much debt at all, as reflected by the fact that debt and interest expense do not appear as a line item on the balance sheet.
Cashflow
Challengerās cashflow from its normal operating activities was actually lower than last year. This is reflected by the fact that how trade receivables days have increased over time, which suggests that customers take longer to pay Challenger after they have received their products. Challengerās inventory turnover days have also increased, which means that Challenger is taking longer to sell its inventory than before.
With capital expenditures being only 6% of operating cashflows, this means that the company generates more than enough cash from its normal operating activities to buy new equipment.
I decided to write about this stock even though it might be delistedl, since the store is still a household name which many of us are familair with. The reasons management cited for de-listing was due to weak revenue growth and disruption in the industry. With a strong cash position, there was also no need to raise money through the stock market.
TL;DR Challenger has grown quickly over the years with the opening of many new stores. However, e-commerce threatens the business, while a saturated market may stunt growth in Singapore.
Challengerās Business Profile
Founded in 1982, Challenger is a Singapore-based IT retailer serving over half a million members across 38 stores island-wide and an online store. Challenger has been awarded Best Consumer Electronic Chain Store for 6 years running since 2013 by HardwareZone Tech Awards voters.
What have they done well?
I believe Challenger has been quite successful because of the 4Ps of marketing. Price: Challengerās products are quite affordable, allowing it to draw customers from other consumer electronics stores such as Courts and Harvey Norman. Product: There are a wide range of products of high quality, serving a variety of consumers. Place: The location of Challengerās stores are quite convenient since they are located strategically across the island. Promotion: Challenger has been growing their marketing strategy, coming up bundles and deals which attract consumers.
How might the company fair in the future?
Fighting E-Commerce
I believe that Challenger probably has to double-up on its battle against the e-commerce giants by better improving their own online shop, as well as improving customer experience. It will be hard for Challenger to fight e-commerce competitors just by price and product diversity alone, since most e-commerce sites have those.
Rather, Challenger should seek to improve customer experience by training their staff to be more knowledgeable about products, or by allowing customers to try their products out. In store customer experience is probably crucial as a differentiating factor between e-commerce.
Saturated Singapore Market
As mentioned in previous posts, the Singapore market is very small, and growth of companies are quite limited. It will be much tougher for Challenger to grow its revenue in the future. Unlike other consumer products like F&B or entertainment, I feel that it is tougher to keep consuming new electronic products. Challenger should consider expanding into the overseas market, as many companies have done and as the government has advised.
What can their financial statements tell us?
Income Statement
Since 2015, revenue has been a downward trend, from 352m in 2015 to 320m in 2018. This decrease in revenue could be due to loss of consumer interest over electronics over time, and could also be attributed to the rise in e-commerce over the past few years which has made this industry more competitive.
However, operating expenditures and cost of sales have decreased as well, which has allowed operating income to increase over the years. This is reflected with an Earnings Before Interests and Taxes of 23m. This decrease in expense could be due to lesser marketing expense after Challenger has emerged as a market leader. It could also be due to lower distributions costs once the distribution network is ready.
Balance Sheet
With a current ratio of almost 3, this shows that Challengerās short-term liquidity is very strong. This means that Challenger will be able to meet short-term financial obligations well. Challenger does not seem to have much debt at all, as reflected by the fact that debt and interest expense do not appear as a line item on the balance sheet.
Cashflow
Challengerās cashflow from its normal operating activities was actually lower than last year. This is reflected by the fact that how trade receivables days have increased over time, which suggests that customers take longer to pay Challenger after they have received their products. Challengerās inventory turnover days have also increased, which means that Challenger is taking longer to sell its inventory than before.
With capital expenditures being only 6% of operating cashflows, this means that the company generates more than enough cash from its normal operating activities to buy new equipment.