Sheng Siong wins again; CAO and Olam have highest returns and profit growth respectively
Supermarket chain Sheng Siong Group is the overall winner in the commerce sector for the second year running. The company’s return on equity (ROE) of 25.68% made it the leader in this category as well.
Sheng Siong was founded in 1985 by the Lim family. From just one store, it has grown rapidly, thanks to its focus on keeping the prices of its groceries competitive. As at May, Sheng Siong had a total of 57 stores with a combined retail space of 512,000 sq ft.
For 2Q ended June 30, Sheng Siong reported revenue of $238.2 million, up 11.8% y-o-y. The rise in revenue, according to the company, was contributed by 13 new stores. However, sales in its existing supermarkets slipped, which led to lower margins. Earnings for the period rose 7.6% y-o-y to $18.4 million from $17.1 million in the year-ago period. The company attributes the lower growth to consumer behaviour in the face of uncertain economic conditions.
Sheng Siong cautions that competition in the supermarket industry is expected to remain keen, particularly between the traditional brick-and-mortar operators and e-commerce platforms. “Local demand may be affected, as [consumer sentiment] turned bearish because of the unfavourable global and local economic outlook,” notes the company in its 2Q earnings announcement.
Nevertheless, Sheng Siong is focused on adding more outlets. In May, it opened three stores, at Bukit Batok Block 292, Anchorvale Road Block 351 and Sumang Lane Block 231. “Moving ahead, we remain focused on widening our reach by continually looking for suitable retail space, particularly in areas where our customers reside but we do not have a pres
ence,” states group CEO Lim Hock Chee in the company’s earnings announcement.
“Besides nurturing the growth of our new stores in Singapore and China, we strive to enhance our gross margin and improve cost efficiency via a higher sales mix of fresh produce and more efficiency gains in the supply chain,” he adds. Olam International, the winner in the profit growth category, is overall runner-up in the sector. With its active sustainability efforts over the years, Olam was given the highest score of 20.13 points for the environmental, social and governance category. Sheng Siong, on the other hand, had a lower score of 16.48 points in this category. The difference between the overall score achieved by Sheng Shiong and Olam is narrow: 40.37 versus 38.72 points.
Olam supplies food, ingredients, feed and fibre to 19,800 customers worldwide. Over the years, it has built up a value chain that spans 60 countries and includes farming, processing and distribution operations, as well as a sourcing network of about 4.8 million farmers.
From its earnings of $36.1 million in FY2015, Olam’s earnings grew to $580.7 million in FY2017 before easing to $ 347.9 million in FY2018, which translates into a compound an
nual growth rate (CAGR) of 112.7%.
For its 2Q ended June 30, Olam reported revenue of $8.6 billion, up 15.7% y-o-y. However, earnings fell 34.5% y-o-y to $61.5 million. The company says the decline was partly because of changes in accounting standards that were implemented since Jan 1, 2019, which resulted in its having to book higher depreciation costs. Sunny Verghese, co-founder and group CEO, notes that the company has delivered a “steady set of results amid growing political and macroeconomic uncertainties affecting most of our markets”.
“We are investing in several new initiatives to offer differentiated solutions to our existing customers as well as develop new customer segments and channels. We also stay focused on streamlining our portfolio by recycling capital and focusing on high-growth businesses,” he adds.
China Aviation Oil (Singapore) Corp is another regular winner at the BDC. This year, the jet-fuel supplier and trader won in the shareholders’ returns category. From its home base in China, CAO has grown to be the largest physical jet fuel trader in Asia-Pacific and the key supplier of imported jet fuel to the civil aviation industry in China. Its key hub is the Shanghai Pudong International Airport, but it has operations in Europe, North America and the Middle East as well. For the three financial years taken to evaluate this year’s BDC winners, CAO generated a 19.5% CAGR in shareholders’ returns.
For 2Q ended June 30, CAO reported revenue of US$6 billion ($8.28 billion), up 2.85% y-o-y. Earnings fell 2.9% y-o-y to US$28.5 million. Wang Yanjun, CEO of CAO, in the earnings announcement, says market conditions are challenging. He also notes that uncertainties continue to weigh down the macroeconomic environment and adds that he is “pleased” that CAO has managed to deliver a resilient set of earnings.
Over the years, the company has put in place a well-managed global supply and trading network, from which CAO will reap more dividends. “We remain focused on pursuing our long-term strategy to leverage growth opportunities in the aviation sector in China and globally to deliver sustainable profits to our shareholders,” says Wang.