Sheng Siong Group (SGX: OV8) has eked out a small year on year increase in net profit even as revenue moderated as Singapore enters the endemic stage of COVID-19.
This sturdy result speaks volumes of management’s commitment to continually improving its margins and managing its inventory to obtain optimal results.
Here are five highlights from Sheng Siong’s 2022 earnings report.
1. A respectable set of financial numbers
For 2022, Sheng Siong saw its revenue dip by 2.2% year on year to S$1.3 billion as demand normalised on the back of easing mobility restrictions as of 1 April 2022.
Comparable store sales saw a 4.8% year on year decline but were offset by a 2.1% year on year revenue contribution from the opening of five new stores.
Despite the lower revenue, Sheng Siong reported a slightly higher gross profit of S$393.5 million for 2022 compared to S$393.3 million in 2021 as the gross margin improved (more on this in point three below).
Net profit ended up almost flat year on year at S$133.6 million.
The group generated a free cash flow of S$158 million in 2022, 12.1% higher year on year.
A final dividend of S$0.0307 was declared, bringing the full-year dividend to S$0.0622.
The total dividend was slightly higher than 2021’s dividend of S$0.062 and demonstrates management’s commitment to rewarding shareholders.
2. Continued store expansion
Source: Sheng Siong 2022 Presentation Slides
Sheng Siong has managed to continue growing its store count even through 2021 and 2022.
The retailer ended 2022 with a total of 67 stores, three more than it had in 2021.
In addition, the store area also continued to expand, going from 576,600 square feet in 2021 to 607,800 square feet a year later.
The group has grown its store count impressively over the past 10 years, doubling it from just 33 back in 2013 to the current 67.
3. A steady uplift in gross margin
Gross margin is one aspect that Sheng Siong works on improving year after year.
For 2022, the retailer has once again increased its gross margin from 28.7% a year ago to 29.4%.
When compared with 2019, it’s clear that the gross margin has gone through a vast improvement as it was just 26.9% back then.
The group is committed to improving its sales mix to shift towards higher margin products, notably its house brand products, of which it has 23.
Another method is to derive better efficiency from its supply chain, which may involve bulk discounts on large purchases of products.
4. A boost from inflation and Budget 2023
With Singapore’s core inflation running at 4.1% for 2022, more households are expected to cut back on their spending this year.
This cutback is good news for Sheng Siong, though.
More consumers will hold back on dining in expensive restaurants and cafes and, instead, increase their spending on groceries and fresh food.
Moreover, the Singapore government has given the retail sector a shot in the arm by doling out a wide range of payouts and rebates in its recent Budget 2023.
Cash will be given in the form of GST Vouchers as well as a special cost-of-living payment to offset inflation.
The Assurance Package will also give out S$300 in Community Development Council (CDC) vouchers in 2024 to help offset household expenses.
These CDC vouchers can be used at food and beverage outlets and also supermarket operators such as Sheng Siong.
5. HDB ramp-up should benefit new store openings
Management seeks to grow through the expansion of Sheng Siong’s store network in areas where it does not have a presence.
The plan is to open at least three new stores per year, with one new store slated to open in March 2023.
This year looks set to be a promising one for the retailer as HDB ramps up its flat supply.
Around 100,000 private and public homes will be completed between 2023 and 2025, with nearly 40,000 to be ready this year alone.
Of these, around 20,000 HDB flats will be completed across 22 projects, assured National Development Minister Desmond Lee.
This vast increase in the supply of HDB flats opens up enticing opportunities for Sheng Siong to bid for shop spaces to increase its store footprint.
If successful, new store growth along with higher comparable store sales should continue to drive up the retailer’s revenue and net profit.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
