What Investors Should Know About Sheng Siong’s Latest Earnings

Sheng Siong Group Ltd (SGX: OV8) reported in its third-quarter earnings report yesterday. The reporting period was for 1 July 2014 to 30 September 2014. Sheng Siong is a grocery and fresh food supermarket retailing chain and a household name in sub-urban Singapore. You can read more about the company here.

Financial Highlights

For the third quarter of 2014, Sheng Siong’s revenue rose by 4.8% compared to the same quarter last year. Net profit followed suit with a 15.4% jump on a year on year comparison. The jump in profits can be attributed to lower cost of sales.

Cash flow from operations leapt by 142% from $11 million a year ago to $26.6 million in the past quarter. With capital expenditure of $2.3 million in the third quarter of 2014, Sheng Siong managed to generate free cash flow of $24.3 million for the period.

The balance sheet remains solid, with $178.7 million in cash and equivalents and no debt as of 30 September 2014. At the end of 2013, Sheng Siong had approximately $99 million in cash and equivalents, and no debt on its balance sheet.

While there was an improvement in its cash position, the bulk of increase came from the issuance of 120 million new shares which brought in approximately $79 million in September 2013. In the first nine months of 2014, Sheng Siong has also paid out $40.1 million in dividends.

Operational Highlights

For the quarter, the 4.8% revenue increase came from a 1.4% contribution of eight new stores opened in 2012, while the remaining 3.4% was attributed to comparable same-store sales growth. The same-store sales growth was driven by increased marketing activities. As of 30 September 2014, Sheng Siong has 33 outlets, and a total retail area of around 400,000 square feet. The total retail area is unchanged since 2012.

The lower cost of sales was driven by direct and bulk purchases made during the quarter. Administrative cost as a percentage of revenue was relatively flat at 16.1%. This compares with 15.9% for the same quarter a year ago. We should keep an eye on the administrative cost as it is a significant line item in expenses.

Looking ahead, Sheng Siong has signed a new lease for a 4,000 square feet store in the Penjuru area. The store is expected to be operational by November 2014. Completion of its purchase of Tampines Block 506, though, was delayed.

On 21 August 2014, the supermarket retailer also entered into a non-binding a letter of intent with Kunming LuChen Group to form a joint venture that operates supermarkets in China. For more on this topic, you can catch it here.

Beyond that, it may be interesting to note that Sheng Siong has also launched a pilot project for online ordering in the fourth quarter of 2013. This could be a response to the rising influence of online ordering and the proliferation of smart devices in Singapore.

The company’s Chief Executive Officer, Mr Lim Hock Chee shared this brief snippet on his outlook for the future:

Our Sheng Siong brand is an established household name in Singapore, built upon our long history and reputation for quality products at competitive prices and good service. To capitalise on our distinguished brand name, we will continue to seek new retail space in areas where we do not have a presence. Also, given the uncertain economic environment, we will maintain our focus on cost efficiency and embrace our culture of cost consciousness. In particular, we will continue to drive our input costs down via competitive buying and more direct and bulk purchasing, while maintaining a tight lid on operating costs.”

Foolish Summary

At its closing price yesterday of $0.64, Sheng Siong traded at around 21 times trailing earnings with a dividend yield of 4.5%. The ratios are based on approximately 3 cents in earnings per ordinary share (based on shares in issue), and a 2.9 cents dividend per share on a trailing twelve months basis.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.