What You Need To Know About Sheng Siong Group’s 19% Jump In Profits

Sheng Siong Group (SGX: OV8), a supermarket chain that has 33 outlets across Singapore, released its first quarter results yesterday.

Revenue for the quarter improved 5.7% year-on-year to S$189.7 million. Out of the 5.7% increase in revenue, 2.7 percentage points was due to the opening of eight new stores in 2012 while the rest were due to same store sales growth that occurred as a result of better marketing and longer operating hours at the majority of the company’s stores. Gross margin was at 23.8%, an increase from 22.5% in the previous year. This led to an 11.5% jump in gross profit to S$45 million. Sheng Siong’s improvement in gross margins was due to higher selling prices and lower input costs derived from its distribution centre; in fact, Sheng Siong’s gross margin in the first quarter is the highest it has been over the past two years.

In any case, the growth in gross profit had trickled down to the bottom-line as net profit at the company rose 19.3% year-on-year to S$12.5 million. The growth in profits could have been greater, but Sheng Siong had rewarded its employees with higher bonuses due to its better financial performance, thus leading to increased operating expenses. Earnings per share (EPS) climbed by 19.7%, in tandem with net profit growth, to 0.91 Singapore cents for the quarter.

Sheng Siong has a robust balance sheet. As of 31 March 2014, it had a cash hoard of S$111.8 million with no debt. For the quarter, it generated S$12.1 million in cash flow from operations and spent just S$195,000 in capital expenditures. This translates to a free cash flow of S$11.9 million. This is a big jump over the previous year’s free cash flow of S$2.5 million in the corresponding period.

Mr Lim Hock Chee, the Chief Executive Officer of Sheng Siong, had this to say about the future plans of the supermarket chain: “We will continue to look for new retail space, especially in areas where we do not have a presence and nurture the growth of both our new and old stores. We are also encouraged by the improvements in efficiency from our ongoing efforts to derive cost savings from our Mandai Distribution Centre. The facilities in our Mandai Distribution Centre have and will continue to facilitate the reduction in input costs as we increase direct purchasing and bulk handling. Costs have been well controlled and this culture of cost consciousness will continue to be embraced within the Group.”

He also added that the firm will continue to work at innovating and streamlining its operations to overcome the challenges in the business environment. It will also leverage on technology to reduce the need for labour, improve productivity and to reduce business costs.

The market seems to like what it’s seen at Sheng Siong as its shares are up 2.5% to S$0.615 as of the time of writing (11:00am, 25 April 2014).  At its current price, Sheng Siong’s trading at around 20.5 times its trailing earnings and has a dividend yield of around 4%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.