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Sheng Siong Group’s 2019 Second-Quarter Earnings: Higher Dividend

Sheng Siong Group Ltd (SGX: OV8) is a Singapore-grown supermarket chain with 57 outlets mainly located in the heartlands of our country. It has also ventured into China by opening stores in Kunming. Recently, the company posted its financial results for the 2019 second-quarter. Let’s look at some highlights here.

Growth in revenue and net profit

Revenue for the latest quarter grew 11.8% year-on-year to S$238.2 million. Most of the growth (11.3%) was from new stores and the Chinese supermarkets contributed 0.8% of sales. Comparable same-store sales fell 0.3% though. Sheng Siong said that “cautious consumer sentiment, probably caused by the uncertain economic conditions both globally and locally” contributed to the lower same-store sales in the reporting quarter.

Having said that, the latest same-store sales figure is higher than that clocked in the first quarter of 2019 and the fourth quarter of 2018. Here’s a breakdown of Sheng Siong’s sales growth for the 2019 second-quarter:Source: Sheng Siong Q2 2019 earnings presentation

Moving on, gross profit margin inched up by 0.1 percentage points to 27.4% and net profit climbed 7.6% year-on-year to S$18.4 million. With that, earnings per share (EPS) was 1.23 cents, up 7.9% compared to 2018’s second-quarter EPS of 1.14 cents.

Overall, it was a strong set of earnings from Sheng Siong.

Healthy cash balance and generation

As of 30 June 2019, Sheng Siong had S$82.9 million in cash and equivalents and no borrowings. This is an improvement from a year ago where the supermarket retailer had S$75.7 million in cash balance with no debt.

For the reporting quarter, operating cash flow came in at S$33.8 million while capital expenditure was S$6.0 million. Therefore, Sheng Siong generated S$27.8 million in free cash flow, up around 20% from the S$23.2 million in free cash flow it brought in a year ago (operating cash flow of S$29.2 million and capital expenditure of S$5.9 million).

Ka-ching!

Shareholders will be delighted to know that Sheng Siong has increased its interim dividend by 6% from 1.65 Singapore cents per share to 1.75 cents.

The latest dividend translates to a payout ratio of around 70% of Sheng Siong’s 2019 first-half EPS of 2.51 Singapore cents.

Looking ahead

As for its outlook, Sheng Siong said:

“Competition in the supermarket industry is expected to remain keen and challenging among the traditional brick and mortar operators and e-commerce platforms. Local demand may be affected as consumers’ sentiments turned bearish because of the unfavorable global and local economic outlook. …

The Group is still looking for suitable retail spaces in areas where it does not have a presence. However, competition for new HDB shops is still keen but bidding has become more rational. In the past few months it appeared that some of the players in the industry are re-organizating their portfolio of stores as there were some stores closures, which were subsequently released by HDB for re-tendering.”

The supermarket chain has tendered for six out of the seven shops that HDB released for re-tendering. The results are expected to be made known in August 2019.

The Foolish takeaway

Overall, it was a strong quarter from Sheng Siong as it posted higher revenue, net profit, and free cash flow. The supermarket chain’s balance sheet remains robust as well. The only downer for the quarter was the lack of growth from its comparable stores but things seem to be improving since the end of 2018.

At Sheng Siong’s share price (as of the time of writing) of $1.17, it had a trailing price-to-earnings ratio of around 24 and a trailing dividend yield of 3.0%.

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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.