Sheng Siong Group Ltd’s Latest Earnings: Solid Profit Growth But China Opening Is Delayed

Sheng Siong Group Ltd  (SGX: OV8) reported its third-quarter earnings report yesterday. The reporting period was for 1 July 2016 to 30 September 2016.

For a quick background, Sheng Siong is one of the largest supermarket chains in Singapore. The company’s network of 42 stores are primarily located at the heartlands of the Lion City. You can learn more about the company in here or catch up with the results from the second-quarter here.

Financial highlights

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

  1. For 2016’s third-quarter, Sheng Siong’s revenue grew by 1.2% year-on-year to$202.4 million.
  2. Profit for the period did better, climbing by 8.2% year-on-year to $15.7 million in the reporting quarter.
  3. Earnings per share (EPS) also rose in tandem. It climbed 8.3% higher from 0.96 cents in the third-quarter of 2015 to 1.04 cents in the reporting quarter.
  4. Cash flow from operations was $24.5 million for 2016’s third-quarter with capital expenditure coming it at $3.5 million. With that, Sheng Siong generated $21 million in free cash flow, up 3.4% from the S$20.3 million (S$25.4 million in cash flow from operations and S$5.04 million in capex) seen a year ago.
  5. As of 30 September 2016, Sheng Siong has $46.4 million in cash and equivalents and no debt. This is a decline from the $126 million in cash and equivalents and no debt that Sheng Siong had at the end of September 2015.

In all, Sheng Siong put in a quarter of tepid revenue growth but steady profit growth. The retailer still maintains a debt-free balance sheet, but its cash position has declined significantly. Sheng Siong recorded positive free cash flow which is a welcome development.

Operational highlights and a future outlook

Sales increased 1.2% as mentioned, driven by the addition of new stores which contributed a 5.3% increase. This was offset by the closure of the Loyang Point store and a contraction in comparable same store sales of 1.15%. Sheng Siong noted that sales would have been up 4.15% if the Loyang Point store was excluded.

Sheng Siong’s chief Executive Officer, Lim Hock Chee, shared his views on the company’s outlook in the earnings release. He said:

“Our new store of 15,500 sq feet in Yishun Junction 9 had completed its renovation works in August and officially commenced operations in September. The addition of the new store expanded our total retail square footage by another 4.4% to 450,000 sq feet, compared with a total retail area of 431,000 sq feet as at December 31, 2015, widening our presence in Singapore.

Looking ahead, expanding our retail network in Singapore particularly in areas where our potential customers are residing, remains as one of the top priorities of the Group. Besides focusing on nurturing the growth of our new stores, we remain committed to drive cost efficiencies to lower input costs and operating overheads as well as changing the sales mix to a higher proportion of fresh produce.”

The management team also said that competition is expected to remain keen while local customers are even more cost conscious.

Back in May this year, Sheng Siong received regulatory approval to open a supermarket in China. The initial opening was expected to be near the end of this year. But in the earnings release, the company said that “the completion of the construction of the mall in Kunming where [it] has leased retail space to operate a supermarket has been delayed.”

There is no firm handover date at the moment, and Sheng Siong now expects the opening to be delayed to the second quarter of 2017.

At its closing share price of $1.07 yesterday, Sheng Siong trades at 26 times trailing earnings with a trailing dividend yield of 3.4%.

For more stock analyses and investing tips, sign up here for your FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock SingaporeIt will teach you how you can grow your wealth in the years ahead.

Like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

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.