Introduction
In a detailed financial report released on 29 November 2024 by UOB Kay Hian, the Sheng Siong Group, a major player in Singapore’s supermarket industry, is analyzed for its robust financial performance and promising growth prospects. This comprehensive analysis dives deep into the company’s quarterly results, financial metrics, strategic acquisitions, and future growth drivers, offering a rich insight into what makes Sheng Siong a formidable entity in the consumer staples sector.
Company Overview
Sheng Siong Group, the third-largest supermarket operator in Singapore by market share, continues to make significant strides in the consumer staples sector. As of the report date, the company maintains a ‘BUY’ recommendation with a share price of S\$1.62 and a target price of S\$1.93, offering an upside of 19.1% from the previous target price of S\$1.88. Major shareholders include Sheng Siong Holdings with 29.9%, Lim Hock Chee with 8.0%, and Lim Hock Eng with 7.9%.
3Q24 Financial Performance
For the third quarter of 2024, Sheng Siong Group reported stronger-than-expected results. The company achieved a revenue of S\$363 million, marking a 5% year-on-year increase, and earnings of S\$39 million, a 12% increase year-on-year. This performance brought the nine-month 2024 revenue and earnings to 77% and 81% of UOB Kay Hian’s full-year forecasts, respectively. The growth was driven by new store openings and higher comparable same-store sales, with a notable record gross margin of 31.3%, a 1 percentage point year-on-year increase.
Strategic Initiatives and Market Position
Sheng Siong Group’s results surpassed expectations, with its revenue growth outpacing Singapore’s supermarket and hypermarket retail sales growth of 2% in the same period. The company has been steadily gaining market share, outperforming its peers for three consecutive quarters. In China, the company experienced a 14% year-on-year sales increase in the third quarter of 2024, driven by the opening of its sixth store in August 2024, despite facing stiff competition from unregulated markets.
Key Financial Metrics
Key financial metrics for Sheng Siong Group indicate solid growth prospects. For 2024, the company is forecasted to achieve a net turnover of S\$1,422 million, with an EBITDA of S\$186 million and a net profit of S\$144 million. The earnings per share are expected to be 9.6 Singapore cents, with a price-to-earnings ratio of 16.9x. The company maintains a robust net cash position, allowing it to support a 70% payout to shareholders.
Store Expansion and Financial Stability
Sheng Siong Group’s acquisition of two properties from DFI Retail Group Holdings for S\$50.2 million is expected to increase its store count and open new revenue streams. The acquisition was funded internally, showcasing the company’s strong financial health. Sheng Siong plans to open new stores at Bishan and Toa Payoh in the fourth quarter of 2024, contributing to its stable earnings growth. The company’s operating cash flows have grown by 8% year-on-year to S\$59 million, maintaining a strong cash balance of S\$350 million as of 30 September 2024.
Earnings Revision and Valuation
UOB Kay Hian has revised its revenue forecasts for Sheng Siong Group upwards by 2-4% for 2024-2026, based on adjusted store openings and recalibrated revenue per square foot. The company’s gross margin expansion and lower utility costs are expected to boost earnings by 7-9% during this period. The ‘BUY’ recommendation is maintained with a higher price-to-earnings-based target price of S\$1.93, pegged to a 2025 forecasted PE of 20x, highlighting potential upside from new store openings and value offerings amidst Singapore’s elevated cost of living.
Conclusion
Sheng Siong Group’s strategic focus on expanding its store network and optimizing its sales mix positions it well for continued growth. The company’s robust financial performance, coupled with its prudent acquisitions and market share gains, underscores the confidence expressed by UOB Kay Hian in its ‘BUY’ recommendation. As the company navigates the challenges and opportunities in the retail landscape, it remains a key player to watch in Singapore’s consumer staples sector.
