Sheng Siong Group's 2024 Earnings: EPS Misses Expectations

Sheng Siong Group Ltd, a prominent player in Singapore's retail sector, recently released its full-year 2024 earnings report. While the company demonstrated commendable revenue growth and robust store expansion, its earnings per share (EPS) fell short of market expectations. This analysis delves into the factors contributing to the EPS miss and evaluates the company's financial performance and strategic initiatives.

Revenue Growth and Store Expansion

Sheng Siong's revenue for 2024 increased by 4.5% year-on-year (YoY) to S$1.43 billion, driven primarily by the opening of six new stores. These new stores contributed significantly to the revenue growth, accounting for 2.1 percentage points of the 4% YoY increase in the first nine months of 2024. The company's aggressive store expansion strategy, which saw it double its annual target of opening three new stores, played a pivotal role in driving top-line growth.

Financial Performance

Despite the strong revenue growth, Sheng Siong's net profit increased by only 2.9% YoY to S$137.52 million. This discrepancy can be attributed to several factors, including rising operating expenses and margin compression. Administrative expenses surged by 17.9% YoY to S$58.5 million, outpacing revenue growth and squeezing profitability. Additionally, selling and distribution expenses rose by 6.8% YoY to S$236.5 million, further impacting the company's bottom line.

Margin Compression and Cost Management

Sheng Siong's gross margin improved to 30.5% in 9M 2024, up from 29.9% in the same period the previous year. However, the company's operating margin remained under pressure due to higher costs associated with store expansions and increased labor expenses. The net profit margin dipped slightly to 9.63%, reflecting the challenges of translating top-line gains into bottom-line results.

Dividend and Cash Flow

Sheng Siong maintained its dividend payout ratio at 70.0%, proposing a final dividend of 3.20 cents per share for 2024. The total annual dividend of 6.40 cents per share represents a 2.4% YoY increase, matching the net profit growth rate. The company's free cash flow surged by 13% YoY to S$200.8 million, underpinned by higher operating cash flow from expanded store operations.

Future Outlook and Strategic Initiatives

Looking ahead, Sheng Siong is well-positioned to capitalize on the HDB's supply of 19,600 built-to-order flats in 2025, which will create opportunities for more store bids. The company's proven track record of leveraging new stores to drive performance, combined with its strong pipeline of HDB tenders, ensures continued store growth and financial resilience.

Conclusion

Sheng Siong Group's 2024 earnings report highlights the challenges of balancing aggressive store expansion with cost management. While the company's revenue growth and store expansion strategy were commendable, rising operating expenses and margin compression limited net profit expansion. However, with a strong pipeline of HDB tenders and a proven track record of leveraging new stores to drive performance, Sheng Siong is well-positioned to sustain growth in 2025 and beyond. Investors should closely monitor the company's cost management initiatives and store expansion strategy as key drivers of future financial performance.