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Sheng Siong Group Ltd’s Latest Earnings: Interim Dividend is Up 8.5% But…

Sheng Siong Group Ltd  (SGX: OV8) reported its second-quarter earnings yesterday. The reporting period was for 1 April 2016 to 30 June 2016.

Sheng Siong is one of the largest supermarket chains in Singapore. The company’s network of 41 stores are primarily located at the heartlands of the island. You can catch its 2015 earnings results here.

Financial highlights

The following’s a quick summary on some of Sheng Siong’s latest financial figures:

  1. For 2016’s second-quarter, Sheng Siong’s revenue grew by 5.3% year-on-year, coming in at $188.8 million.
  2. Profit for the quarter did even better, growing by 11.3% year-on-year to $15.2 million.
  3. Consequently, earnings per share (EPS) rose 11% from 0.91 cents in the second-quarter of 2015 to 1.01 cents in the reporting quarter.
  4. Cash flow from operations was $26.5 million in the second-quarter of 2016 with capital expenditure coming in at $63.7 million. Sheng Siong thus generated negative free cash flow (cash flow from operations minus capital expenditure) to the tune of $37.2 million in the reporting quarter. This is a decline from a year ago when there was positive free cash flow of $14.5 million (cash flow from operations of $16.6 million and capex of $2.1 million).
  5. As of 30 June 2016, Sheng Siong has $50.8 million in cash and equivalents and no debt. This is a decline from where the picture was a year ago, when the company had $131.7 million in cash and equivalents and no debt.

In all, Sheng Siong managed to put in a solid quarter of steady revenue and profit growth. But while the retailer still maintains a debt-free balance sheet, its cash position has declined significantly.

We should also note that Sheng Siong registered negative free cash flow in the quarter. This was due to higher capital expenditure for the purchase of a store in Bedok and progress payments for a store at Yishun Junction 9.

The board of directors had proposed an interim dividend of 1.90 cents per share, an 8.5% increase from the 1.75 cents per share seen in the same period last year. For context, Sheng Siong paid out around $49 million in dividends in 2015.

Operational highlights and a future outlook

Sheng Siong’s revenue growth was driven by the addition of three new stores and same store sales growth of 2.2%.

Sheng Siong’s gross margin improved on supplier rebates and bulk handling and this improvement flowed to the bottom-line, leading to the aforementioned faster net profit growth.

The company’s chief executive, Lim Hock Chee, had some thoughts to share on the quarter’s results in the earnings release:

“We are pleased to open three new stores this quarter, expanding the Group’s total retail area to 434,800 square feet, compared with a retail square footage of 431,000 square feet as at 31 December 2015. With the opening of these three stores, the Group’s total number of stores has increased to 41 stores excluding the store at Loyang Point which was temporarily closed on 15 April 2016.”

Lim also touched on Sheng Siong’s future plans, saying:

“Moving ahead, we remain committed to expand our network across Singapore to reach out to our potential customers in areas where we do not have a presence while nurturing the growth of our new stores and rejuvenating old stores at the same time. We will also continue to lower input cost by increasing direct purchasing, bulk handling and changing the sales mix to a higher proportion of fresh produce.”

Sheng Siong also said that its China subsidiary was working on renovation and staff training. The company’s Chinese supermarket is expected to commence operations in the fourth-quarter this year. The company also warned that tepid retail demand and keen competition are expected to remain in Singapore’s retail scene.

At its closing share price of S$0.96 yesterday, Sheng Siong trades at 24 times trailing earnings and has a trailing dividend yield of 3.8%.

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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.