The Good And Bad That Investors Should Know About Sheng Siong Group Ltd’s 2017 Third Quarter Earnings

Sheng Siong Group Ltd (SGX: OV8) is one of the largest supermarket chains in Singapore. The company’s network of 43 stores are primarily located in the heartlands of the island.

Last week, Sheng Siong reported its 2017 third quarter earnings. There are both positive and negative takeaways that investors may want to learn about. But first, let’s run through the company’s numbers.

The results

Here’s a condensed income statement for Sheng Siong from its reporting quarter:

Source: Sheng Siong 2017 second quarter earnings announcement

As you can see, Sheng Siong delivered growth in the third quarter of 2017. In particular, the supermarket operator’s 25.3% jump in net profit was impressive.

The positives

Firstly, there’s Sheng Siong’s revenue growth of 4.2%, which was driven by two forces. The first is the opening of new stores, which contributed 3.9 percentage points of revenue growth; the second is higher comparable same store sales, which contributed 1.7 percentage points.

These more than offset negative contributions (of 1.4 percentage points) from the company’s stores in Loyang Point and The Verge; Sheng Siong closed The Verge store in June 2017, and closed the Loyang Point store in April 2016 before reopening in February 2017.

Secondly, Sheng Siong’s operating profit grew faster than revenue (growth rate of 10.3% versus 4.2%) due to lower distribution and administrative expenses.

Thirdly, the company’s balance sheet remains strong with zero debt and S$64.5 million in cash as of 30 September 2017. This puts Sheng Siong in a good position for growing its store count.

The negatives

Firstly, a 41,500 square feet store in Woodlands will be permanently closed in November 2017 as the area will be redeveloped by the Housing Development Board. The store accounted for 4.5% of Sheng Siong’s total revenue in the first nine months of 2017. Fortunately, the company’s other stores have fared well; Sheng Siong’s overall comparable store sales growth would have been 2.7% (instead of the reported 1.7%) if the Woodlands store was excluded.

Secondly, Sheng Siong expects competition in the supermarket industry to remain keen, mainly because of an influx of large online retailers. In addition, competition for retail space, particularly for new HDB shops is expected to remain high; this could result in higher expansion costs for Sheng Siong in the future.

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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.