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Sheng Siong Group Ltd’s Latest Earnings: What Investors Should Know

Sheng Siong Group Ltd (SGX: OV8) is a homegrown supermarket chain with 50 outlets located all over Singapore. Its outlets are primarily located in the heartlands of our country, providing customers with both “wet and dry” shopping options. This includes a wide assortment of live, fresh and chilled produce to general merchandise such as essential household products. The company recently expanded into China.

Yesterday, Sheng Siong released its financial results for the second quarter ended 30 June 2018 (2Q2018).

Revenue for the reporting period grew by 5.7% year-on-year to S$213.0 million, mainly due to contribution from new stores and comparable same-store sales. The following shows the breakdown of revenue growth in 2Q2018, as compared to 1Q2018 and 2Q2017:Source: Sheng Siong Group Ltd’s 2Q2018 earnings presentation

It is encouraging to see comparable same-store sales holding up well despite competition from online supermarkets.

Gross profit rose 8.7% to S$58.1 million in 2Q2018, resulting in gross profit margin improving to 27.3% from 26.8% a year ago. The rise in gross profit margin was mostly due to lower input cost and better sales mix of higher-gross-margin fresh versus non-fresh produce. The input cost was lower because of higher suppliers’ rebates.

Net profit increased from S$16.1 million to S$17.1 million, a growth of 6.4% year-on-year. The growth was primarly due to “higher gross profit arising from growth in revenue and improved gross margin, which was partially offset by a lower other income and higher operating expenses”. Net profit margin was flat at 8%.

On a half-year basis, sales increased by 5.4% to S$441.3 million while net profit grew 6.5% to S$35.4 million.

Sheng Siong’s balance sheet strengthened over the quarter. As of 30 June 2018, the supermarket chain had S$75.7 million in cash and cash equivalents with no debt. In comparison, its cash position stood at S$73.4 million at the end of last year.

Cash flow from operations for 2Q2018 declined by 3.2% year-on-year to S$29.2 million. With a capital expenditure of S$5.9 million, free cash flow for the reporting period came in at S$23.2 million, down from S$28.9 million one year ago. On a half-year basis, free cash flow tumbled 16.7% to S$28.2 million. S$15.2 million was spent on capital expenditure for the six-month period, with S$5.3 million used for the extension of Sheng Siong’s warehouse and S$1.7 million for the China supermarket.

Dividend per share for 2Q2018 increased by 6.5% to 1.65 Singapore cents, from 1.55 Singapore cents last year.

As for its outlook, Sheng Siong said:

“Competition in the supermarket industry is expected to remain keen. The recovery in demand could become uncertain or may remain subdued if the local economic conditions deteriorate.”

It added:

“The Group is still looking for suitable retail space in areas where it does not have a presence. However, competition for new HDB shops is still keen and looking for suitable retail space or successfully bidding for new HDB shops may be challenging.”

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Sheng Siong Group Ltd. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.