Case Proposal

TABLE OF CONTENT (1)

Part I. Executive Summary                                           P.1

• Report aim
• Compare the proposed strategy with the ones identified by the Investment Strategy Group

Part II. Company Profile                                             P.2

• Company background
• SEL & Industry Peers Comparison (sales growth, operating income margin)
• SEL Y-o-Y Profitability Ratios (operating margin, net income margin, ROE, ROA)

• Operating margin (operating profit margin, operating income margin): is a margin ratio used to measure a company's pricing strategy and operating efficiency, is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as wages, raw materials, etc.

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• Net income margin (net profit margin): show how much of each dollar collected by a company as revenue translates into profit.

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• Return on equity (ROE): is the amount of net income returned as a percentage of shareholders' equity, measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

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• Return on assets (ROA): is an indicator of how profitable a company is relative to its total assets, shows how efficient management is at using its assets to generate earnings.

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• EBITDA margin: is a measurement of a company's operating profitability as a percentage of its total revenue, is equal to earnings before interest, tax, depreciation and amortization (EBITDA) divided by total revenue. Because EBITDA excludes interest, depreciation, amortization and taxes, EBITDA margin can provide an investor, business owner or financial professional with a clear view of a company's operating profitability and cash flow.

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Part III. Evaluation of Existing Strategies                           P.2 – P.7

1. Investing in “Cha Chaan Teng” Business                            P.3 – P.4

• Weaknesses in strategy

• Increasing costs for both labor and retail renting in China’s major cities（China Average Annual Wage, G/F Retail Store Rental in Beijing and Shanghai ）
• Increasing number of food scandals have put tighter restrictions on China’s licensing and regulatory requirements in the food and beverage industry (List of Major Food Scandals)
• Expansion into diversified geographical regions in China will amplify risks of poor quality control over supply chain of raw materials

• Financial Implications of Scenario

• Discounted cash flow (DCF) analysis over a 5-year horizon for both scenarios with a WACC of 11.3%: one under SEL’s current operations as a fast-food chain operator, and the other if SEL decides to expand its operations to include HK style Cha Chaan Tengs
• Weighted average cost of capital (WACC): is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All sources of capital, including common stock, preferred stock, bonds and any other long-term debt, are included in a WACC calculation. A firm’s WACC increases as the beta and rate of return on equity increase, as an increase in WACC denotes a decrease in valuation and an increase in risk.

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Where:

Re = cost of equity

Rd = cost of debt

E = market value of the firm's equity

D = market value of the firm's debt

V = E + D = total market value of the firm’s financing (equity and debt)