Things are looking good for Sheng Siong (SGX: OV8).
The supermarket operator recently released its 2023 third quarter (3Q 2023) earnings and reported a robust set of financial numbers.
The group is also increasing its store count across Singapore with a total of 69 outlets across the island.
Its share price, however, is languishing near a 52-week low of S$1.46 and is down more than 10% year-to-date.
Here are five highlights from the retailer’s latest results.
1. A strong set of results
For 3Q 2023, Sheng Siong saw revenue rise 3.7% year on year to S$345.8 million.
Of the 3.7% increase, 2.2% was contributed by six new stores in Singapore with the remaining 63 stores reporting a 1.8% year-on-year revenue increase from better comparable store sales.
Sheng Siong’s five stores in China and the closure of its Yishuan Central store shaved off 0.3 percentage points for the year-on-year revenue increase.
With the cost of goods sold increasing just 2.3% year-on-year, gross profit improved by 6.9% year on year to S$105 million.
Operating profit inched up by 2.7% year on year to S$39.4 million while net profit increased by 5.7% year on year to S$34.8 million, boosted by a more than doubling of finance income to S$2.8 million.
For the first nine months of 2023 (9M 2023), the retailer reported a mixed set of earnings.
Revenue edged up 2.6% year on year to S$1.04 billion but net profit slipped 0.1% year on year to S$100.3 million.
The supermarket operator’s free cash flow for 9M 2023 jumped 20.1% year on year to S$125.1 million.
2. Gross margin crosses 30%
Management has done an admirable job in steadily raising the group’s gross margin over time.
For 3Q 2023, Sheng Siong’s gross margin crossed the 30% threshold to end at 30.3% and was higher than the prior year’s 29.4%.
The reason given was continual improvements to the sales mix, with its house brands yielding higher gross margins than external brands.
For 9M 2023, the gross margin stood at 29.9%, an improvement of 0.5 percentage points over 9M 2022’s 29.4%.
For more context, Sheng Siong has steadily increased its gross margin over the years from 27.4% in 2020 to 29.4% last year.
2023 may see another new high in gross margins for the group if it can carry on this momentum.
3. Steadily increasing its store count
Source: Sheng Siong’s 3Q 2023 Presentation Slides
The supermarket retailer continues to increase its presence in Singapore.
As of 30 September 2023, the group had 69 stores in Singapore and five in China.
One new store was opened in 3Q 2023 as the group reported 68 Singapore stores in the previous quarter.
A total of two new stores were opened in 9M 2023 and management’s expansion plan is to open at least three new stores per year.
Meanwhile, a new lease agreement was signed in September to open a sixth China store which is expected to be operational before the end of 2Q 2024.
4. Macroeconomic challenges
Despite the better results, Sheng Siong warns of macroeconomic headwinds that may dent its growth.
The recent Israel-Hamas war that broke out in early October could further disrupt the world economy and may cause a recession.
Climate change and the onset of the El Nino weather pattern may adversely affect agricultural yields and push inflation up.
Higher inflation will then increase food prices which will crimp consumer demand, thus affecting the group’s sales.
Elsewhere, competition in the supermarket industry is expected to remain fierce with more promotions being pushed by competitors.
Along with higher staff and utility costs, these factors will exert downward pressure on margins.
5. Encouraging bidding prospects
The retailer is not sitting still, though.
Management is seeking continuous growth of its network of stores, especially in areas where it does not have a presence.
HDB has released five shops for tender and Sheng Siong put in a bid for all of them.
The group was awarded one tender while three others are pending outcome.
Hence, investors can expect Sheng Siong to open one more store before 2023 ends, bringing its total new store openings for the year to three stores.
There could be more to come.
Five more shop spaces are expected to be tendered in the next six months, offering ample opportunities for the supermarket operator to further increase its local presence.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.