The Good And The Bad: What Investors Should Know From Sheng Siong Group Ltd’s Latest 2016 Results

Sheng Siong Group Ltd (SGX: OV8) is one of the largest supermarket chains in Singapore. The company’s network of 42 stores in Singapore are primarily located in the heartlands of the island.

In late February, Sheng Siong reported its 2016 full year results. There are both positive and negative takeaways from the company’s latest earnings that investors may want to learn about. Let’s take a look, starting with an overview of the numbers:

1. The overall result

The following table shows some important numbers from Sheng Siong’s income statement for the quarters and years ended 31 December 2015 and 31 December 2016:

Sheng Siong income statement 2016
Source: Sheng Siong 2016 full year earnings release

For a high-level overview, Sheng Siong’s financial performance in 2016 is stronger as compared to 2015. The company’s revenue had grown by 4.2% and its profit is up by 10.4%, driven mainly driven by the higher revenue and an expansion of its gross margin.

2. The positives

Firstly, the company had enjoyed a marginal same store sales growth of 0.2%. If not for the temporary closure of its Loyang store in April 2016, Sheng Siong’s overall revenue growth would have been even higher.

Secondly, the company managed to further improve its efficiency as seen from its higher gross margin. The company enjoyed higher rebates from suppliers for special promotions, volume, display, and bulk handling services.

Lastly, the company continues to have a strong balance sheet – Sheng Siong ended 2016 with zero debt and S$63.5 million in cash. With a strong balance sheet, Sheng Siong is in a good position for a further expansion of its store count if it wishes to.

3. The negatives

Firstly, the company warned in its 2016 full year earnings release that retail sales in Singapore, which had been weak in 2016, is “not expected to improve spectacularly.” Meanwhile, competition in the company’s sector is expected to remain strong as customers are expected to remain cost conscious.

Secondly, Sheng Siong expects continued competition for supermarket space, which means that suitable locations for stores may be difficult to find. This may have an impact on the future growth rate of the company.

Lastly, overall administration expenses rose at a faster pace in 2016 as compared to revenue,  which was partly masked by the aforementioned increase in gross margin for the year.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.