Sheng Siong Supermarket

Sheng Siong Share Price

For the past 6 months, Sheng Siong share price declined by 3.21%. In 2016, I sold off Sheng Siong from my stock portfolio. Back then, there are only 38 Sheng Siong supermarket stores in Singapore island wide. Today, Sheng Siong has 70 stores across Singapore and a current market capitalisation exceeding S$1.8 billion. Sheng Siong is also one of Singapore’s top retailers with over S$1.37 billion in annual sales revenue in FY2023.

Does the decline of Sheng Siong share price present a crisis or opportunity? I remembered Sheng Siong as a growth stock with a strong balance sheet (zero debt). But is this still the same after so many years? Let me share my research below on whether Sheng Siong is still a good stock to add to my stock portfolio.

Revenue

Sheng Siong Historical Revenue

As you can see from the above chart, Sheng Siong’s revenue ballooned in the first year of the COVID-19 pandemic as people scrambled to stock up necessities. As COVID-19 border measures are gradually relaxed over the years, Sheng Siong supermarket sales gradually tapered to more normalised levels as people return to dining out and travelling.

In FY2023, Sheng Siong’s revenue increased by 2.1% year-on-year to S$1.37 billion as compared to S$1.34 billion in FY2022. The increase in revenue was mainly driven by 6 new Sheng Siong supermarket stores, which contributed a 2.5% year-on-year increase to total sales. Two of these Sheng Siong supermarket stores were opened in FY2023 and the other four in FY2022. The subsidiary in China contributed 2.4% to the total revenue in FY2023.

Based on the above, I can relate Sheng Siong’s revenue growth to the number of new stores.

Gross Profit

Gross Profit

The increase in gross profit is in line with the increase in revenue. In FY2023, Sheng Siong saw a 4.3% year-on-year increase in gross profit to S$410.5 million. While gross profit is a good indicator to know, it does not show us Sheng Siong competitiveness.

In the next section, let us take at the Gross Profit Margin which tells us why Sheng Siong stands out among other retailers.

Gross Profit Margin

Sheng Siong Historical Gross Profit Margin

Gross profit margin is the profit remaining after subtracting the cost of goods sold (COGS) from revenue.

Being able to grow the gross profit margin was not an easy feat given the challenging macroeconomic landscape. However, Sheng Siong was able to grow its gross profit margin year-on-year from FY2019 to FY2023. In FY2023, Sheng Siong’s gross profit margin reached an impressive 30.0%, reflecting a positive growth of 0.6 percentage point from 29.4% in FY2022.

Sheng Siong attributed this to their consistent efforts to refine our sales mix towards higher margin products which also proved their strong market competitiveness and efficient cost management ability.

Net Profit

Net Profit

Net profit is the amount of money the business earns after deducting all operating, interest, and tax expenses over a given period of time.

In FY2023, Sheng Siong’s operating costs rose by 8.4% year-on-year contributed by a 10% year-on-year increase in selling and distribution expenses to S$221.4 million. This was because of rising energy prices and labour cost.

The effective tax rate for FY2023 of 17.9% was also higher than the statutory rate of 17.0% mainly due to certain expenses which were not tax deductible.

Despite encountering higher costs (operating, interest and tax expenses), Sheng Siong still managed to report an increase in net profit after tax for FY2023 to S$134.0 million compared to S$133.6 million in FY2022.

How many companies are able to achieve this under the current challenging macroeconomic landscape?

Strong Cash Flow and Zero Debt

As of 31st December 2023, Sheng Siong maintains a robust financial position with a strong cash and cash equivalents’ balance of S$324.4 million. The most important of all, zero debt.

In FY2023, Sheng Siong continued to grow its cash flow from operating activities by S$10.3 million year-on-year to S$177.1 million.

Historical Dividend Yield

Sheng Siong Historical Dividend Payout

As you can see from the above, Sheng Siong has been able to constantly payout dividends year-on-year. In fact, for the last 3 years, Sheng Siong increased its dividend payout every year.

Financial Year: 2023
Dividend Payout: 6.25 cents per share

Financial Year: 2022
Dividend Payout: 6.22 cents per share

Financial Year: 2021
Dividend Payout: 6.20 cents per share

Financial Year: 2020
Dividend Payout: 6.5 cents per share

Financial Year: 2019
Dividend Payout: 3.55 cents per share

Sheng Siong Share Price 14-Jun-24

Currently, Sheng Siong does not have a formal dividend policy. However, the company shared that they endeavour to distribute up to 70% of their net profit after tax to the shareholders.

Based on Sheng Siong share price of S$1.51 and FY2023 dividend payout of 6.25 cents per share, this translated to a current dividend yield of 4.14%.

Looking Forward to Growth in Sheng Siong

Sheng Siong’s operations in China continue to grow. With 5 stores already opened in Kunming China, it plans to open the 6th store in China in 2Q FY2024. Sheng Siong expects sales in China to increase with the reopening of China and the shift away from its zero-COVID-19 policy.

In Singapore, Sheng Siong continued to capitalise on the growing supply pipeline of new stores in residential areas, mainly the HDB estates. It is expected that HDB will be putting up another six stores for tender in the next six months.

Last but not least, increasing costs of living may prompt consumers to adopt cost-cutting measures such as shopping at supermarkets that provide more value-for-money such as Sheng Siong supermarket.

References

8 things I learned from the 2023 Sheng Siong AGM (fifthperson.com)

Investors – Sheng Siong Supermarket

Sheng Siong Reports an Increase in Revenue and Profits: 5 Highlights from the Retailer’s Latest Earnings (yahoo.com)

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