Sheng Siong Group has reported earnings of $39.1 million for 3QFY2024 ended September, up 12.4% y-o-y from the same period last year. 

 

Earnings per share stood at 2.6 cents, up from 2.3 cents in 3QFY2023. 

 

For the same period, the group&rsquo s revenue saw a 5% y-o-y increase to $363.2 million. This came on the back of the net increase in total stores to 79, up from 74 in the same period last year. In addition, the group says comparable same store sales rose by 1.5% y-o-y. 

 

Accordingly, gross profit for 3QFY2024 stood at $113.8 million, up 8.4% y-o-y. The group&rsquo s gross profit margin saw a slight increase by 1.0 percentage points (ppt) to 31.3%, due to an improvement in sales mix, which offset elevated business costs.

 

Additionally, other income for the period increased by 96.5%, driven by the receipt of the progressive wage credit scheme grant in 3QFY2024.

 

Administrative expenses rose by 15.9% y-o-y to $15.3 million in 3QFY2024, while selling and distribution expenses increased by 6.4% y-o-y to $59.1 million. 

For 3QFY2024, the group&rsquo s generated cash flow from operating activities rose by 7.6% y-o-y to $59.1 million, due to higher profit reported in this period. As at Sept 30, the group ended the quarter with a cash and cash equivalents balance of $350.1 million. 

 

Moving forward, the group expects competition in Singapore' s supermarket industry to remain high. Additional uncertainties such as rising labour and energy costs and the increasing focus on sustainability, which could contribute to higher operational expenses, are also expected. 

 

In response, the group says it remains focused on &ldquo strengthening its core competencies and diversifying its supply chain to build a more resilient network capable of withstanding external disruptions&rsquo . 

 

Lim Hock Chee, CEO of Sheng Siong Group OV8 , says: &ldquo Looking ahead, we will continue to focus on driving sustainable growth by enhancing our operational efficiency, expanding our product offerings, and strengthening strategic partnerships.&rdquo  

 

He adds that the group has since opened five new stores, which include an addition at   Blk 512 Bishan Street 13, as part of its ongoing efforts to strengthen Sheng Siong&rsquo s presence.   

 

Sheng Siong Group has reported a net profit of $70 million for its 1HFY2024 ended June, a 6.8% increase from the previous corresponding period.

 

Revenue increased 3.4% to $714.2 million, from $690.5 million recorded in 1HFY2023. This was largely driven by a longer sales period prior to the Lunar New Year which fell in February.

 

Gross profit grew 4.8% y-o-y to $215 million, while profit margins recorded a slight 0.4 percentage points growth to 30.1%. 

 

In 1HFY2024, Sheng Siong&rsquo s selling and distribution expenses increased by 3.5% to $113.5 million while administrative expenses increased by 14.1% to $27.9 million. These were largely attributed to higher staff variable bonuses due to stronger financial performance. 

 

Cash flow from operating activities increased to $93 million compared to $77.8 million in the same period last year where more funds were utilised to pay suppliers. 

 

As at June, Sheng Siong&rsquo s cash position stood at $349.6 million, which increased from S$324.4 million as at Dec 31, 2023. 

 

Following the resilient financial performance, Sheng Siong plans an interim dividend of 3.2 cents per share. 

 

Elaborating on its expansion strategy in Singapore, the company notes that it has opened two new stores and expanded the retail area of one store in 1HFY2024, aside from opening another two in July. 

 

&ldquo The group has also tendered for three new stores and is awaiting the results. Meanwhile, the supply pipeline of new stores is promising, with an expected seven stores put up for tender by HDB in 2HFY2024. In China, as planned, we opened one store in June 2024, bringing the total number of stores to six,&rdquo says its CEO Lim Hock Chee.

Earnings were partly supported by a longer sales period before the Chinese New Year festive season

 

SUPERMARKET chain Sheng Siong : OV8 +0.65% on Thursday (Apr 25) posted a 9.3 per cent rise in net profit to S$36.3 million for its first quarter ended Mar 31, from S$33.2 million the year before.

 

Revenue for the quarter rose 5.5 per cent to S$376.2 million from S$356.5 million, mainly driven by higher same store sales, said the group in a bourse filing.

 

The higher revenue was also supported by a longer sales period before the Chinese New Year festive season &ndash which fell in February this year &ndash as compared to January last year, it added.

 

Gross profit margin improved 0.6 percentage point to 29.4 per cent in Q1, from 28.8 per cent. This was primarily due to the group&rsquo s continued efforts in optimising the sales mix and addressing increased staff costs and utility expenses.

 

The group recorded higher operating expenses for the quarter. This was attributed to selling and distribution expenses rising 7.2 per cent to S$58.1 million on the year, as well as administrative expenses rising 15.6 per cent to S$14.5 million &ndash of which were due to higher staff variable bonuses, as a result of better financial performance.

 

The global economy continues to face uncertainty and risks in 2024, noted Sheng Siong, pointing out persistent inflation, supply chain disruptions, geopolitical conflicts and a tight labour market.

 

Competition in the retail market also &ldquo remains intense&rdquo , with active promotions being launched by competitors. Coupled with escalating labour costs driven by manpower shortage and higher energy costs, the group said it could face margin pressures.

 

Lim Hock Chee, chief executive officer of Sheng Siong, said: &ldquo Despite economic uncertainty, the group has demonstrated resilience and maintains its commitment to providing customers with quality products at affordable prices.&rdquo

 

He added that the group will diversify its supply chain and refine its sales mix towards higher-margin products in order to manage risks effectively.

 

The group will also remain &ldquo proactive&rdquo in seeking retail space in new and existing housing estates to open more stores, having opened two new stores in FY2023 and one store in Q1 FY2024. It is currently awaiting the results of four outstanding tenders.

 

The group&rsquo s local store expansion strategy continues to be supported by a &ldquo robust&rdquo supply pipeline of HDB housing, Lim said. Another six stores are expected to be put up for tender in the next six months.

 

He added that the group&rsquo s operations in China are also experiencing &ldquo steady growth&rdquo , with a sixth store set to open there in the second quarter of FY2024.

Sheng Siong shareholders press for details on capital allocation, M& A opportunities

 

SHAREHOLDERS of supermarket chain Sheng Siong : OV8 0% have asked the company for, among other things, more details on its view on mergers and acquisitions (M& A) and its capital allocation priorities, given that it has S$324 million in cash on hand. 

 

These were among the list of queries the company had received from its shareholders ahead of its annual general meeting. Sheng Siong on Friday (Apr 19) posted a list of these questions and its responses in a filing to the Singapore bourse. 

 

A shareholder expressed concern that the company, with S$324 million in cash on hand as at end-December last year, might not be using these finances as efficiently as possible, especially since the company' s working capital requirements appear to be " much less" . 

 

The shareholder asked the company what its " main capital allocation priorities" are, and whether the group is looking at the likes of new geographies or " more aggressive bids for heartland spaces" . 

 

In its response, Sheng Siong said it was " reserving cash as its war chest for various opportunities" , such as the potential acquisition of new stores, warehouse space, and investments in technology to drive operational efficiency. 

 

" By allocating these funds strategically, the group can position itself to take advantage of emerging opportunities and further expand its operations," it added. 

Another shareholder noted that Sheng Siong has kept mum about M& A opportunities, and asked the company why it has not actively pursued the acquisitions of smaller supermarkets. 

 

Sheng Siong said that while it remains open to M& A opportunities to drive growth, the decision to pursue them depends on " careful analysis" of benefits and risks such as growth potential, cultural differences, and acquisition costs.

 

" It takes time to nurture these opportunities, and we think it is more strategic that Sheng Siong focuses more on organic growth &ndash expanding our network of stores, improving customer service, and exploring ways to attract new customers," the company said. 

 

Shareholders also asked about Sheng Siong' s growing profit margin, and whether this could be sustained. 

 

The company said its higher gross profit margin was attained by a combination of its attempts to continually improve the sales mix and drive supply chain efficiency, as well as its efforts to address rising staff costs and utility expenses in a high inflationary environment.

 

" While the group remains committed to driving efficiency gains, we will continue to ensure that our products are competitively priced and affordable," it added. 

 

In response to a query on its core strategy seeming to target heartland malls rather than bigger ones, and how it differentiates itself from its competitors, Sheng Siong said it competes in terms of " service, price and quality" . 

 

The group said that it also works on supply chain diversification, adopting new technologies and streamlining its operations &ndash all of which result in greater efficiency and cost-savings, which are then passed on to customers and shareholders. 

 

The research team at OCBC Investment Research is keeping its &ldquo buy&rdquo recommendation on supermarket operator Sheng Siong Group with a lower target price of $1.88 from $1.92 previously.

 

&ldquo We view Sheng Siong as a defensive play amid rising inflation and slower economic growth. We believe demand for groceries will continue to normalise in 2024, but could be potentially supported by a shift in consumption patterns towards a focus on &ldquo value for money&rdquo due to inflationary pressures and a higher cost of living,&rdquo say the research team.

 

Moreover, grocery sales could be supported by Singapore Budget 2024&rsquo s announcement on inflation offset measures such as the CDC vouchers.

 

However, January 2024 saw supermarket and hypermarket sales decline by 6.5% y-o-y, according to the Singapore Department of Statistic. Overall, sales of supermarkets & hypermarkets have seen a declining y-o-y trend since May 2022, normalising from its elevated sales during the Covid-19 period.

 

Meanwhile, shares in Sheng Siong have declined by about 4% ytd, likely due to concerns over its slower revenue growth and margin expansion in 4QFY2023 ended December 2023. The group has also renewed electricity contract for FY2024 at lower tariffs and continues to roll-out more self-checkout machines at its stores to improve labour productivity.

 

In FY2023, only two new stores were open, due to slower pace of tendering exercise for commercial units by the Housing Development Board (HDB). In early 2024, the group had already won two tenders. Coupled with a robust pipeline of 10 units up for tendering, the research team believes that Sheng Siong&rsquo s store opening will reaccelerate this year, reaching its target of opening at least three new stores in 2024.

Analysts have missed sentiments on supermarket operator Sheng Siong following its latest FY2023 ended Dec 31, 2023 results.

 

To recap, the group&rsquo s earnings for the full-year period came in at $133.7 million, a slight 0.3% higher than $133.3 million last year. Revenue also saw a marginal increase of 2.1% y-o-y to $1.37 billion. The increase was primarily driven by the six new stores, which contributed a 2.5% y-o-y increase to total sales. This was partially offset by a lower revenue contribution from the Yishun store that was closed in FY2022 due to lease expiration.

 

For the 2HFY2023 period, revenue was 2.2% higher y-o-y at $677.2 million, while earnings gained 3.6% y-o-y to $68.3 million.

 

The results, however, did not meet the expectations of Citi Research analyst Luis Hilado. Hence, he has reaffirmed his &ldquo sell&rdquo call on the stock with a target price of $1.43.

Positive sentiments

 

Meanwhile, RHB Bank Singapore is much more bullish as it has kept its &ldquo buy&rdquo recommendation, but with a lower target price of $1.96 from $1.99 previously.

 

Analyst Alfie Yeo says: &ldquo We remain upbeat on Sheng Siong with growth fuelled by new outlet wins and better consumption on higher purchasing power from the Budget 2024 announcement.&rdquo

 

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He expects the group to be a beneficiary of the latest budget announcement, which will help boost consumer purchasing power and consumption, especially from the CDC vouchers.

 

Yeo also expects new store openings to be robust on the Housing & Development Board&rsquo s (HDB) healthy pipeline of new outlets. He elaborates that HDB has a pipeline of five new supermarkets outlets up for tender over the next six months, with eight more lined up beyond the six months till end 2024. Sheng Siong is expected to secure some of these outlets and Yeo assumes three outlets per annum in his forecast assumptions, adding to the 69 stores its currently has.

 

While risks include slower-than-expected store openings, lower sales demand and per sq ft traction and the inability to maintain gross profit margins at current levels, Yeo expects the group&rsquo s performance to remain resilient as it targets the mass market value segment, which will enjoy effects of downtrading in a soft consumption environment.

 

&ldquo Valuation at -1 standard deviation (s.d.) from its historical mean forward P/E (about 19x) is attractive. The stock is also supported by approximately 4% FY2024 yield,&rdquo says Yeo.

 

Neutral view

 

On the other hand, DBS Group Research has reiterated its &ldquo hold&rdquo call and $1.62 target price on Sheng Siong.

 

&ldquo We have adjusted our earnings forecast on the back of higher store count growth and faster gross margin expansion. While we continue to like the company&rsquo s pace of execution, we do not see any material near-term re-rating catalyst,&rdquo say analysts Chee Zheng Feng and Andy Sim.

 

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While they continue to like the company&rsquo s strong pace of execution, in the short term, they believe the higher-for-longer interest rates will continue to put a cap on share price.

 

Chee and Sim also like the stock for its track record of securing products at competitive prices. It has been able to deliver consistent gross margin expansion due to its ability to procure products at competitive prices. &ldquo With its strength in competitive sourcing, Sheng Siong is well-positioned to supply price-competitive offerings while being able to grow its margins consistently over time,&rdquo say the analysts.

 

Moving forward, growth in FY2024 and FY2025 is expected to come from new stores and continued margin expansion.

 

&ldquo With one tender secured and 10 upcoming for the year, we believe the company has more than an even chance of securing at least four stores this year (versus the previous expectation of three). In addition, given the strong gross margin showing in FY2023, we also made an upward revision to our gross margin assumptions for FY2024F/FY2025, from 29.9%/30.0% to 30.2%/30.4%,&rdquo they say.

 

The analysts are also looking out for upcoming HDB tender results. &ldquo Apart from the winning bid, we are also watching the timeline of the tender process. We are seeing early signs pointing at the normalisation of the tender approval process, with the October 2022 tender results announced in January 2024, within the typical three-month timeframe,&rdquo say Chee and Sim, adding that this solidifies their optimism for the tender results that are to be announced this year for the 10 pending stores and thus the growth of Sheng Siong&rsquo s overall store count.

 

SINGAPORE - Supermarket chain Sheng Siong on Feb 27 reported a 3.6 per cent increase in net profit to $68.3 million for the second half of 2023, from $65.9 million in the year-ago period.

 

This comes as the group doubled its finance income in the half year to $5.8 million, from $2.9 million in the corresponding period a year ago.

 

Sheng Siong said it generated higher interest income from placing more cash in fixed deposits at higher interest rates.

 

Staff costs, utilities and other expenses rose $9.1 million on the half year, however.

 

H2 revenue, meanwhile, rose 2.2 per cent to $677.2 million, from $662.7 million in the year before, on the opening of six new stores in FY22 and FY23 in Singapore. The stores&rsquo opening contributed 1.9 per cent to the growth, the company noted.

 

Earnings per share for the half was 4.54 Singapore cents, increasing from 4.38 cents.

 

The board thus proposed a final one-tier cash dividend of 3.2 Singapore cents per share, higher than the 3.07-cent-per-share dividend announced in the previous year.

 

The dividend will be paid on May 17, if approved by shareholders at an annual general meeting to be held on Apr 25, the group declared.

 

With the final dividend, the group&rsquo s total dividend for the year would come up to 6.25 Singapore cents per share, higher than FY22&rsquo s 6.22 Singapore cents, it noted. This takes into account the interim dividend of 3.05 Singapore cents per share, which the company has already paid out.

 

For the full year ended Dec 31, 2023, Sheng Siong&rsquo s net profit was up 0.3 per cent on the year to $133.7 million, while its revenue climbed 2.1 per cent to S$1.4 billion.

 

These were as operating profit after tax came in at $134 million, higher than the previous year&rsquo s operating profit of $133.6 million.

 

Staff costs in FY23, in particular, rose $6.6 million as the company raised salaries in FY22 in response to the tight labour market. Utility expenses for the year grew $13.8 million as the group had to renew its electricity supply agreement at the prevailing market rate at the end of FY22, the group added.

 

Meanwhile, new stores bumped up total sales slightly, by 2.5 per cent, while the closure of the Yishun Central store in July 2022 due to lease expiry caused sales to fall 0.3 per cent.

 

As at Dec 31, 2023, Sheng Siong runs 69 stores in Singapore, and five stores in China, up a total of three stores from a year ago.