Sheng Siong Group (SSG SP): 2024 Impacted By Rising Costs; More Stores To Drive Growth In 2025

UOB Kay Hian | 18 March 2025

2024: Impacted By Rising Costs

[[1]] Sheng Siong Group’s (SSG) 2024 earnings came in at 95%/97% of UOB Kay Hian’s/consensus expectations respectively. The earnings miss was due to higher-than-expected staff costs, which rose 10% year-on-year (YoY) or S\$20m to make up 15.4% of revenue vs 14.6% in 2023. This is a result of both higher staff bonuses and increased headcount from new stores. Gross margin improved marginally to 30.5% on a more favorable sales mix, partially offset by higher operating costs.

Revenue Exceeded Forecast

[[1]] Top-line grew 5% YoY in 2024, driven by new store sales (Stable Dividend Payout

[[1]] Management has maintained a final dividend of 3.2 S cents/share (2023: 3.2 S cents/share), bringing the total dividend for 2024 to 6.4 S cents/share (2023: 6.25 S cents/share), driven by earnings growth. This translates to a 70% payout ratio, which is expected to remain stable given the company’s strong net cash position of S\$353m. This is despite S\$49m outflow following the acquisition of DFI Retail Group Holdings’ (DFI) Jelita properties.

Outlook: More Stores To Drive Growth In 2025

[[2]] SSG opened six new stores in 2024 (4Q24: two new stores), bringing total retail area across 75 stores in Singapore to 661,534sf (+7% YoY). The group has also opened two new stores this year, and awaits the outcome of eight HDB tenders. UOB Kay Hian notes that four of these tenders were given up by peers, meaning that SSG has increased opportunities to secure new stores. Hence, the brokerage has raised its 2025 store openings forecast from three to five.

Staff Costs To Remain High In 2025

[[2]] Management highlighted that staff costs are likely to remain elevated, as the government’s subsidies under the Progressive Wage Credit Scheme (PWCS) are progressively lower each year. For the retail sector, 2025 is the final year of the three-year Progressive Wage Model increase. Additionally, SSG foresees increased headcount to support new store openings, with challenges in hiring local Singaporeans while being limited by the foreign labour quota restrictions.

Earnings Revision and Valuation

[[2]] UOB Kay Hian trims 2025/26 earnings by around 2% to reflect higher staff costs on increased store openings. However, this is partially offset by an increase in the brokerage’s store opening projection of five in 2025 (up from three) and three in 2026. Furthermore, with four of SSG’s eight tenders being given up by competitors, SSG has increased chances of securing new stores.
2 The brokerage maintains a BUY recommendation on SSG with a slightly lower PE-based target price of S$1.92 (S$1.93 previously), due to the lowered earnings forecasts. This is pegged to an unchanged 2025F PE of 20x or its five-year average mean PE. UOB Kay Hian remains positive on SSG as its store count continues to drive its top-line growth and it outpaces industry growth.