Sheng Siong Group Ltd. (SSG) – 3Q FY2024 Financial Analysis Report
Date of Report: 29 October 2024
Financial Year: 3Q FY2024 (Ended 30 September 2024)
Business Description
Sheng Siong Group Ltd. (SSG) is one of Singapore’s largest supermarket chains, with 79 outlets spread across Singapore and China. The company offers a broad range of grocery items, including live, fresh, and chilled produce, dry goods, and household essentials. The Group has developed a variety of house brands, giving customers affordable alternatives to national brands.
Geographic Footprint and Segment Operations:
- Singapore: 73 stores across key residential areas, providing accessible grocery options.
- China: Operations expanded with six stores in Kunming, contributing to the company’s revenue, albeit with minor losses due to the recent opening costs in 3Q FY2024.
Industry Position and Competitive Landscape
SSG faces intense competition within Singapore’s grocery and retail market. The company differentiates itself through a large store network, competitive pricing, and strong brand loyalty, supported by house brand products. Rising operating costs, especially for labor and energy, along with competition, place pressure on profit margins.
Revenue Streams and Financial Highlights
- Core Revenue Drivers: New store openings and increased same-store sales, with revenue from new and existing stores supporting growth.
- Customer Base: Primarily Singaporean households focused on value and affordability.
- Supply Chain: SSG maintains diversified suppliers to minimize disruptions, a proactive measure given the challenging global supply chain.
Financial Statement Analysis
1. Income Statement
- Revenue Growth: Increased by 5.0% YoY to S$363.2 million in 3Q FY2024. This growth reflects new store openings and improved same-store sales.
- Gross Profit and Margin: Gross profit rose by 8.4% YoY to S$113.8 million, with the gross profit margin improving by 1.0 percentage point to 31.3%, attributed to a better sales mix.
- Net Profit: Increased by 12.4% to S$39.1 million, driven by higher revenue and operational efficiencies, yielding a net profit margin of 10.8%.
- Earnings per Share (EPS): Rose by 13% to 2.6 Singapore cents, reflecting strong earnings growth for shareholders.
2. Balance Sheet
- Total Assets: Grew to S$836.1 million, primarily supported by increases in cash reserves, reaching S$350.1 million as of September 30, 2024.
- Equity: Stood at S$509.7 million, with retained earnings reflecting accumulated profits over the years.
- Liabilities: Remained stable with manageable lease and tax obligations, indicating prudent financial management.
3. Cash Flow Statement
- Operating Cash Flow: Improved to S$59.1 million in 3Q FY2024, benefiting from increased profit.
- Investing Cash Flow: Minor outflows of S$1.2 million, primarily due to store expansions and equipment upgrades.
- Financing Cash Flow: SSG paid S$48.1 million in dividends and settled lease liabilities, reflecting consistent returns to shareholders.
Dividend
SSG continues its policy of distributing dividends, paying out S$48.1 million in 3Q FY2024. This strong cash payout indicates the Group’s commitment to rewarding shareholders consistently.
Key Insights for Investors
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Strengths:
- Steady Revenue Growth: With a 5% YoY growth in revenue driven by new stores, SSG shows resilience in a competitive market.
- Improved Profit Margins: An increase in gross and net profit margins underscores effective cost control and strategic sales management.
- Strong Cash Reserves and No Borrowings: High liquidity with S$350.1 million in cash provides financial stability and the potential for future investments or expansion.
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Risks:
- High Operational Costs: Rising labor costs and intense competition may limit margin growth.
- China Market Exposure: While China operations remain profitable year-to-date, losses in the latest quarter raise concerns about long-term profitability in this region.
- Macroeconomic Pressures: Inflation and geopolitical instability could influence both supply costs and consumer behavior.
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Special Actions: SSG is acquiring Jelita Property Pte Ltd, enabling further retail expansion. The addition of a new Toa Payoh store and four pending tenders in Singapore will enhance its retail footprint.
Investment Recommendation
- For Current Holders: Hold the stock. SSG’s growth, stable dividend, and cash reserves make it a solid holding in a balanced portfolio, especially in the consumer staples sector.
- For Potential Investors: Consider Buying for exposure to a stable, dividend-paying company with growth prospects from retail expansion.
Disclaimer: This analysis is based solely on the company’s 3Q FY2024 financial report. Investment decisions should consider broader market trends and individual financial circumstances.
