Sheng Siong Group: Comprehensive Financial Analysis

Broker: CGS International

Date: February 28, 2025

Overview of Sheng Siong Group

Sheng Siong Group (SSG) has been a prominent player in the retail sector, specifically in grocery retailing, in Singapore. The company reported a net profit of S\$29 million for the fourth quarter of 2024, reflecting a year-on-year decline of 15%. This decline was primarily attributed to rising selling, general and administrative expenses (SG&A), which increased by 16% year-over-year, despite a slight expansion in gross margin of 10 basis points.

Financial Performance Highlights

In the fourth quarter of 2024, Sheng Siong achieved revenues of S\$351 million, in line with expectations from both CGS International and Bloomberg consensus. The overall fiscal year 2024 net profit totaled S\$138 million, which was slightly below both CGS and consensus forecasts, coming in at 96% and 95%, respectively. The increase in SG&A was largely due to higher staff costs, which have become a critical factor amid a tight labor supply.

Growth and Expansion

As of year-to-date 2025, SSG has successfully opened two new stores, each ranging from 3,600 to 7,000 square feet. The company maintains a robust pipeline for new store tenders, awaiting results for eight tenders, with four being sites previously managed by competitors consolidating their presence in Singapore. This strategy is anticipated to yield quicker revenue growth as these sites will have a shorter activation time compared to completely new stores. The company aims to open a total of five new stores in fiscal year 2025 based on this tender pipeline.

Cost Management and Sales Strategy

In fiscal year 2024, SSG’s total staff costs rose to S\$220 million, reflecting a 10% increase compared to the previous year. The continued pressure from tight labor markets is expected to keep staff costs elevated. Nevertheless, SSG’s management is optimistic about offsetting these costs through a more favorable sales mix. The company has strategically optimized its product offerings towards higher-margin products, maintaining a gross margin target of 30.6% to 30.7% over the next three years (FY25F-27F).

Product Mix and Market Strategy

Management reported that the share of fresh products in sales increased to the high-40% range in fiscal year 2024, with house brands comprising 8% of total sales, up from approximately 7% in fiscal year 2023. This shift in product mix is crucial for enhancing profitability and supporting the company’s growth trajectory.

Investment Recommendation

CGS International reiterates a recommendation of “Add” for Sheng Siong Group, emphasizing the company’s strong operational execution and the potential for net profit growth driven by recent and forthcoming store openings. The target price remains unchanged at S\$1.90, based on a valuation of 19 times price-to-earnings, which is positioned 0.5 standard deviations below the historical mean. The analysis suggests that an increase in the number of new store tenders by the Housing Development Board (HDB) could serve as a catalyst for re-rating.

Risks and Considerations

However, there are notable risks to consider, including potential declines in sales due to soft grocery demand and possible margin erosion resulting from increased competition in the retail sector.

Market Comparison and Key Metrics for Sheng Siong Group

Sheng Siong Group stands out among its peers with a market capitalization of US\$1.839 billion and operates with a forward P/E ratio of 17.2x for fiscal year 2025. Key financial metrics indicate a revenue growth forecast of 5.24% in fiscal year 2025, with operating EBITDA growth projected to be 6.05%. The company’s dividend yield stands at a competitive 4.09%, making it an attractive option for income-focused investors.

Conclusion

In conclusion, Sheng Siong Group’s strategic initiatives in expanding its store network, optimizing product mixes, and maintaining a focus on operational efficiency position it favorably for future growth. Investors are encouraged to consider the company’s resilience and growth potential while being mindful of the competitive landscape.