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My 3 Key Takeaways from Sheng Siong Group Ltd’s 2018 Annual Report

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. It also has a store in China.

I recently read through the statements from Sheng Siong’s chairman and CEO in its 2018 annual report to understand more about its business and outlook. Here are three main takeaways from what I read.

Financial performance in 2018

Revenue for 2018 improved 7.4% to S$890.9 million due to contributions from new stores, growth in comparable same-store sales, and contribution from the store in China. However, they were offset by the loss in revenue from the permanent closure of The Verge and Woodlands Block 6A stores in 2017.

Gross profit margin rose to 26.8% in 2018 compared with 26.2% in 2017, largely due to “better buying prices, higher rebates from suppliers for special promotions, volume discounts, improvement in efficiency in the central distribution centre and a higher mix of fresh versus non-fresh offerings.”

Net profit climbed 1.4% to S$70.5 million, mainly on the back of higher revenue, gross profit and gross margin, but this was offset by lower other income and higher operating expenses. Excluding a tax refund of S$2.2 million in 2017, net profit would have increased by 4.6%.

Growth in Singapore and China

In 2018, Sheng Siong opened 10 new stores in Singapore, bringing the total retail area to 496,200 square feet by year-end, which is an all-time high. The supermarket chain is “focused on widening our reach and will be continuously looking for additional retail space, particularly in areas where we do not have a presence.”

Amid the expansion plans, Sheng Siong’s chief executive, Lim Hock Chee, acknowledged the competition in its space. He said:

“Competition for retail space, particularly for new HDB shops, is expected to remain keen but the Group will remain cautious and rational in bidding. Our store sizes are not overly large and we think it is the right size to complement online retailing. We have taken a cautious approach to developing our online platform, which has grown at a reasonable pace since it was introduced in 2015, and as a business unit in itself, is not operating at a loss.”

I feel Sheng Siong’s online store is not as popular as RedMart and other competitors. However, it is worth noting that its online platform is at least profitable.

As for China, Sheng Siong expanded into the country by opening its first store in Kunming in November 2017. Last year (2018) saw the first full year of operation where the store recorded a loss of S$0.7 million. With Sheng Siong’s share at 60%, the company booked a S$0.4 million loss from the store. However, Sheng Siong reported in its 2019 first-quarter earnings that the store had broken even during the quarter, which is commendable. The supermarket chain plans to open a second store in Kunming in the third quarter of 2019.

Dividend payout

Sheng Siong paid out a final dividend of 1.75 Singapore cents per share, bringing the total dividend for the year to 3.40 Singapore cents per share. The dividend represents a payout ratio of around 73% of Sheng Siong’s net profit after tax.

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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 has a recommendation for Sheng Siong Group Ltd. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.