My Portfolio Review: Sheng Siong’s Earnings Report 4Q17

A few days ago, on 22 Feb 2018, Sheng Siong announced a 10.9% year-on-year rise in net profit to about S$70 million for the finanical year 2017. This is largely attributed to an increase in sales, gross profit and better gross margins and tax refunds which is somewhat mitigated by a rise in operating expenditures. With the omission of tax rebates, the percentage increase in net profits for 2017 is about 8%.

Sales improved by 4.2% in 2017. Out of this, 4.5% is attributed to new stores while 2.1% is by comparable same store sales, mitigated by a fall of 2.4% resulting from the temporary closure of the Loyang Point store and the permanent closure of The Verge and Woodlands Block 6A stores. The reason for the better comparable same store sales while consumers sentiments improved probably because of Singapore’s “better economic performance and an increase in retail space”.

Gross margin improved to 26.2% in 2017 compared with 25.7% in 2016, mainly contributed by lower input prices. This is due to better buying prices and higher rebates from suppliers in 2017. The rebates were given for special promotions and volume discounts.

Administrative expenditures rose by about S$5 million in 2017 compared with 2016, mainly due to a rise in staff costs as more manpower is needed to operate the new outlets, in spite of the re-deployment of employees from the closed Verge and Woodlands Block 6A stores. Another reason for the increase in expenses is also because of a higher bonus provision as a result of better financial performance in 2017.

Cash produced from operating activities before working capital changes and tax payment amounted to about $97 million in 2017 respectively, which was as expected with the better operating results. Free cash flow of about $61 million was generated in 2017, after paying for capital expenses of about $18 million consisting mainly of fitting out new stores, renovating old stores, upgrading of equipment at the supermarkets and the warehouse, construction of the warehouse extension and set up of Kunming store in China.

The press release page for Sheng Siong’s performance for FY 2017 can be found at their website here.

What I think of this results announcement for Sheng Siong’s FY 2017

So far, so good. The company has been steadily increasing its store presence in Singapore and next, in China. Mr Lim, the company’s CEO, mentioned that they had opened 3 new stores in “Fajar Road, Edgedale Plains and Woodlands Street 12” in FY 2017. They also had plans to open a further 3 new stores in “Fernvale Street, Anchorvale Crescent and Canberra Street” in the early months of 2018 and another new store in ITE Ang Mo Kio in early April 2018.

The company also plans to focus on better cost efficiency by “increasing direct and bulk purchasing” and “reducing overheads as a percentage of revenue”.

In addition, the group declared a final dividend of 1.75 cents per share and that could probably be the reason for the share price rise in the past few days. At this time of writing, the share price is traded at $0.940 per share. Its 52-week high and low is $1.005 and $0.9005, meaning that the current price is now about half way its 1 year high and low.

In my opinion, the fundamentals of this business is at least satisfactory to good. But price wise, if I had the money and risk appetite, I would wait for the dividend to be ex-dividend before getting the shares as prices tend to fall after a dividend is given to the shareholders. Do read the disclaimer page of my blog before deciding to purchase any shares or stock mentioned in this blog.

Thanks and good luck making passive income!

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