Sheng Siong’s (SGX: OV8) share price has been on a tear since April.
The supermarket operator saw its share price hit an all-time high of S$1.86 recently and is up more than 13% year-to-date.
The retailer is one of the largest supermarket operators in Singapore and has plans to open even more stores in the city-state.
We explore Sheng Siong’s plans to determine if the group can continue to do well.
A sparkling set of earnings
Sheng Siong’s share price performance is not surprising in light of its strong earnings for the first quarter of 2025 (1Q 2025).
Revenue rose 7.1% year on year to S$403 million while gross profit climbed 10.2% year on year to S$122 million.
The higher revenue was due to eight new store openings in 2024 and 1Q 2025, along with higher festive sales for Hari Raya.
Other income also grew 18.1% year on year, contributed by increased rental income from the leasing of shop spaces and the receipt of government grants.
Net profit increased by 6.1% year on year to S$38.5 million.
The retailer also generated a positive free cash flow of S$22.9 million, albeit lower than the previous year’s S$34.5 million.
Gross margin continues to climb.
Sheng Siong’s gross margin continues to trend higher as the retailer enhances its sales mix to offset higher operating costs.
Gross margin has been rising steadily over the years, going from 28.7% in 2021 to 30.5% in 2024.
1Q 2025’s gross margin stood at 30.3%, an improvement from the prior year’s 29.4%.
A steady payer of dividends
The supermarket operator’s consistent free cash flow generation enabled it to pay regular, twice-yearly dividends.
For 2024, Sheng Siong declared and paid out a total of S$0.064 per share in dividends, a slight year-on-year increase from S$0.0625 in 2023.
The group’s payout ratio stood at 70%, implying that it retains 30% of its profits to reinvest in the growth of the business.
Regarding growth, this brings us to an interesting point – Sheng Siong’s increase in its store presence in Singapore over the years.
Expanding its presence around Singapore
1Q 2025 saw the continued expansion of Sheng Siong’s business, with its store count hitting 77 at the end of March 2025.
The retailer opened a total of six stores last year and another two in 1Q 2025.
Its total retail area also hit a new record of 672,200 square feet, increasing slightly from 661,500 square feet at the end of 2024.
Sheng Siong’s target is to open at least three new stores per year, but 2024 already saw this number double its target.
2025 may end up being a bumper year for store openings for the group.
Management remarked that Sheng Siong had secured six additional retail locations, which are expected to open by 3Q 2025.
These stores are located in Punggol and Tengah, along with two private retail locations in KINEX Mall and the Cathay Building.
Once these new stores are opened, Sheng Siong will have opened a total of eight stores this year.
What’s more, the retailer is waiting for the results of four more HDB tenders.
If the group can secure more shop spaces, it may conceivably open more stores before the end of this year.
The revenue breakdown for 1Q 2025 showed that new stores and comparable new stores drove 6.3% of the 7.1% year-on-year revenue increase.
Comparable same-store sales, though, contributed just 0.1% to revenue growth.
Hence, it’s clear that Sheng Siong’s strategy for growing its revenue hinges on opening more new stores and letting these stores contribute to its revenue base.
Get Smart: A promising outlook
Management remarked that macroeconomic uncertainties, caused by Trump’s recently announced tariffs, could lead to a reduction in non-essential spending.
Consumers will be driven to value-based supermarkets such as Sheng Siong to increase their spending, thereby adding a tailwind for the business.
However, competition remains intense in the supermarket space and management warned that aggressive promotions and higher operating expenses could crimp margins in the near term.
Sheng Siong’s store expansion strategy is progressing well and the retailer looks set to report better top line numbers in the coming quarters.
However, investors should keep an eye on operating expenses and cash flows to see if the business comes under pressure from higher costs.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
