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Sheng Siong Group Ltd’s 2018 Third-Quarter Earnings: Revenue Rises But Net Profit Tumbles

Sheng Siong Group Ltd (SGX: OV8) is a homegrown supermarket chain with 54 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. Sheng Siong recently expanded into China as well.

Yesterday, Sheng Siong announced its financial results for the third quarter ended 30 September 2018.

Financial highlights

Here are some of the key financials from the supermarket chain for the latest quarter:

1) Revenue increased by 8% year-on-year to S$227.9 million, mainly due to new store openings. Of the 8% increase, 10.6% was contributed by new stores, 0.2% was due to comparable same-store sales growth, 1.2% was attributed to the store in China and a negative 4.0% was due to the permanent closure of stores at The Verge and Woodlands Block 6A. The former was closed in June 2017 while the latter shuttered in November 2017. For context, in the second quarter of 2018, comparable same-store sales grew by 4.2% while that in the third quarter of 2017 rose by 1.7%.

2) Gross profit improved 10.7% to S$60.3 million while gross profit margin rose from 26.1% to 26.5%.

3) Net profit fell 9.9% to S$17.7 million, with the store in China recording a loss of S$0.4 million. Excluding the tax refund of S$2.2 million in the third quarter of 2017, net profit would have grown by 1.5% in the latest quarter.

4) Consequently, earnings per share tumbled 9.2%, from 1.31 cents to 1.19 cents.

5) As of 30 September 2018, Sheng Siong had S$67.2 million in cash and cash equivalents, and no debt. In comparison, the company had a higher net cash position of S$73.4 million at the end of last year.

6) Free cash flow for the reporting quarter went south by 11.8% to S$16.2 million.

Looking ahead

As for its plans in the coming years, Lim Hock Chee, chief executive of Sheng Siong, commented:

“We are pleased that subsequent to 3Q2018, we have opened two more new stores at Junction 10, 1 Woodlands Road and Block 573 Woodlands with retail areas of 20,370 sq ft and 10,370 sq ft respectively. Another store at Block 451 Bukit Batok with an area of 6,880 sq ft will open in November 2018, bringing our total store count to 54, excluding the store in China.

Going ahead, we remain committed to our store expansion plans in Singapore, especially in areas where we do not have a presence. In addition, we will be nurturing the growth of our new stores in Singapore and China. We will focus on improving the gross margin and cost efficiency, thereby lowering operating expenses as a percentage revenue.”

The Foolish takeaway

Despite competition from both the online and offline space, Sheng Siong managed to deliver higher revenue and adjusted net profit for the quarter. Revenue from the store in China has been growing steadily since operating in November 2017. The store is EBITDA (earnings before interest, tax, depreciation and amortisation) positive, even though it saw a loss during the quarter. Going forward, I would be keeping an eye on the comparable same-store sales, which only grew by 0.2% in the reporting quarter.

As of the time of writing, Sheng Siong shares are changing hands at S$1.06 each, giving a trailing price-to-earnings ratio of 22.7 and a dividend yield of 3.2%.

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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.