Sheng Siong FY 2024 thoughts and research

 Introduction

Sheng Siong operates a chain of supermarket retail stores selling consumer products. Revenue is recognised when the control of the goods has been transferred, being at the point the customer purchases the goods at the retail store.

The Group’s businesses are not affected significantly by seasonal or cyclical factors during the year (2024).

The Group operates in one segment, which relates to the supermarket operations selling consumer goods. The Group operates in Singapore and China, but does not report China as a separate geographical segment as the China operations are not significant for the years ended 31 December 2024 and 31 December 2023. The subsidiary in Malaysia remained inactive.

 

Investment Property

During the year, the Group purchased Siglap V shop units (Note 13) for long-term capital appreciation and collection of rental income. Accordingly, it was classified as an investment property. Investment property is initially recognised at cost and subsequently carried at fair value, determined annually by an independent valuer. Changes in fair value are recognised in profit or loss.

It also said that the proposed acquisition is in line with its strategy to operate supermarkets in areas where its potential customers reside.

Expansion

Revenue

Revenue increased by S$37.3 million or 5.5% from S$677.2 million in 2H FY2023 to S$714.5 million in 2H FY2024. Eight new stores that were opened in FY2024 and FY2023 in Singapore contributed a total of 3.8% to the increment, and comparable stores contributed another 1.4%, while China stores contributed the remaining 0.3%. Gross profit rose by S$15.0 million or 7.3%, and gross profit margin edged up to 30.9% from 30.3% due to the change in sales mix but also to address rising business costs. Operating expenses, including selling and distribution expenses and administrative expenses, grew by S$16.7 million from S$136.9 million in 2H FY2023 to S$153.6 million in the current period under review. The majority of the increase came from staff costs and depreciation, which accounted for S$9.3 million and S$4.8 million, respectively. Profit after tax was S$67.6 million, down by S$0.9 million or 1.3% from S$68.5 million in the same period the year before. This is mainly because of the depreciation of S$3.5 million from the additional right-ofuse assets recognised for the reinstatement costs provision relating to the supermarket stores.

Balance Sheet

Non-current assets increased by S$77.4 million to S$462.9 million as at 31 December 2024 from S$385.5 million a year ago. The net book value of property, plant and equipment increased by S$20.9 million due to the additions of S$38.4 million offset by the depreciation expenses of S$17.5 million. Right-of-use assets increased by S$26.5 million, resulting from the additional leases of S$60.5 million, and the capitalised provision for reinstatement cost amounting to S$7.0 million, offset by the depreciation of S$41.0 million. The additions include S$14.6 million arising from new store leases and S$45.8 million from the renewal of lease of existing stores. Note 12(a) and 12(b) provide the detailed movements on both classes of non-current assets. 

Current assets increased by S$31.9 million from S$444.7 million to S$476.6 million as at 31 December 2024, mainly due to the increase in cash and cash equivalents of S$29.0 million. Inventories balance increased by S$10.9 million driven by higher accumulated inventories in anticipation of the earlier Chinese Lunar New Year compared to FY2023. These increases were offset by the decrease in trade and other receivables by S$8.0 million from S$28.5 million to S$20.5 million as at 31 December 2024, mainly because of the lower amounts due from banks in relation to the credit and debit cards in the holiday season this year, as well as less accrued grant receivable in relation to the PWCS, and lower prepayments to suppliers

CashFlow

Cash generated from operating activities for FY2024 increased to S$219.0 million from S$177.1 million reported a year ago. This was mainly due to more funds being utilised to pay the vendors in working capital requirements in FY2023. The Group used net cash of S$49.0 million to buy a new subsidiary, Jelita Property Pte Ltd, and S$18.2 million in supermarket renovation and purchasing vehicles. This was offset by an interest income of S$12.7 million from the fixed deposits. As a result, the cash and cash equivalents used in investing activities were S$54.3 million. Cash used in financing activities increased to S$136.9 million from S$129.5 million recorded in FY2023 because of higher dividends paid during the year. As at 31 December 2024, the cash and cash equivalents stood at S$353.4 million, an increase of S$29.0 million as compared to S$324.4 million as at end FY2023.

Inventory turnover

Overall the inventory management is well managed which means they practice FIFO (First in first out) to minimise write-off aging stock and customer purchase from them often.

My thoughts 

Sheng Siong is a household supermarket for families and foreign workers who are concern on price. SG government is issuing CDC vouchers to families and individuals, we can foresee these group of customers will continues to support Sheng Siong. The group paid higher bonus to staff in order to retain them for increasing service competition. Overall I still believe Sheng Siong is more likely to win the local market given neighborhood expansion, good inventory management, investment properties for capital appreciation and good turnover rate.