Sheng Siong net profits jump 54% to $31.8m in Q3

Demand may be hit in coming quarters as government eases COVID-19 measures.

Sheng Siong Group saw its net profits hit $31.8m in Q3, a 54.4% YoY rise compared to Q3 2019, according to a local bourse filing. Revenue increased 28.9% YoY in Q3 2020, in which 19.1 percentage points (ppt) came from comparable same store sales.

The rise in profits came on the back of strong revenue growth thanks to higher gross profit and higher other income offset by a proportional increase in operating expenses.

Meanwhile, revenue was driven by sales from new stores in Singapore and by the stores in China, with demand rising as a result of COVID-19 pandemic.

For the first half of 2020, consumers loaded up their pantries as the circuit breaker restricted movements, compelling working and cooking at home, noted Sheng Siong. This strong demand reportedly carried over to Q3 even though the circuit breaker was lifted as consumers’ behavior were still cautious and working from home continued to be encouraged.

Gross margin was flattish at 27%  as sales promotions in the industry returned gradually to pre-COVID-19 levels during the quarter.

Administrative expenses increased by $9.6m due to higher staff costs, partially offset bylower rental. Staff cost rose as additional headcount was required to cope with the increase in volume of shoppers, to implement safe distancing and tracing measures relating to COVID-19, and to operate new stores.

Rental decreased as leases renewed in 2020 were capitalized as right-of-use assets.

For the first nine months of the year, Sheng Siong recorded a $218.2m increase in cash generated from operating activities mainly due to the increased volume of business, the decrease in trade receivables, and the increase in trade and other payables.

Over the same period, cash used for capital expenditures amounted to $13m. This consist mainly of fitting out new stores and IT equipment for the supermarket operations totalling $6.7m, equipping the new warehouse extension and maintenance CAPEX relating to the distribution center for $6.1m, and $0.2m incurred by the supermarkets in China.

The Group’s balance sheet remained healthy with net cash of $179.8m as at 30 September.

Looking forward, grocery demand may be affected as the government moves to further ease COVID-19 restrictions but at the same time has urged that caution should prevail and for example, working from home should continue, according to Sheng Siong.

Nonetheless, the supermarket giant noted that demand appeared to have stabilized in Q3, albeit higher than pre-COVID-19 levels.

Sheng Siong also expects competition in the supermarket industry is expected to remain keen and challenging amongst the traditional brick and mortar operators and e-commerce platforms, which have gained a larger share since the onset of COVID-19.

Further, risks of supply chain disruption because of COVID-19 and other natural disasters remains, and may lead to higher input prices.