Senheng sees hope as stock hits rock bottom

IT has been a bad journey for Senheng New Retail Bhd since the company debuted on Bursa Malaysia about three years ago.

Nearly RM1.3bil has been wiped out of its market capitalisation since the consumer electronics and appliances retailer’s initial public offering (IPO) in January 2022.

This was a sharp decline from RM1.6bil – Senheng’s market capitalisation upon listing based on its IPO price of RM1.07.

Currently, at 21 sen per share, the stock is valued at less than one-fifth of its IPO price.

To put it into perspective, an investor who bought RM10,000 worth of Senheng shares at its IPO would now be left with just RM1,869 – excluding the dividends received.

Stock performance aside, the company’s net profit has been falling for three straight years amid lower sales, despite the measures introduced to improve its financials.

In the recently announced results for financial year 2024 (FY24), Senheng’s revenue fell further and its net profit more than halved on a year-on-year (y-o-y) basis. Net profit has been falling for three straight years.

The company also ended the fourth quarter of FY24 with a net loss due to lower sales, a write-off of the fixed assets of non-productive stores and a one-off tax adjustment.

Despite the deterioration in earnings delivery, Senheng continues to be supported by healthy cash generation from operating activities.

It has more than enough cash and bank balances of RM75.5mil to meet its borrowings.

It is, therefore, surprising that Senheng announced the sale of its vacant 1.04ha freehold land in Johor for RM11.21mil last month.

In a filing with Bursa Malaysia, Senheng said the sale was to provide “immediate cash flow” for its business operations for working capital purposes.

“(The proceeds) are expected to be utilised within a month upon the receipt of full proceeds.”

However, in a reply to StarBiz 7, Senheng executive chairman Lim Kim Heng says the sale was not driven by a need for immediate working capital.

“It’s about optimising our assets to unlock value from non-core assets, and a proactive capital management to deploy capital more effectively in areas that drive growth and enhance shareholder value.”

Lim co-founded Senheng in 1989, together with his two brothers, in a half-shoplot in Pandan Jaya, Kuala Lumpur.

Today, the company is Malaysia’s leading consumer electrical and electronics retailer, with over 100 physical stores across the country. It also has over four million members under its PlusOne loyalty programme.

In FY24, Senheng recorded sales of RM1.22bil. Revenue, however, fell by 7.4% y-o-y while net profit margin shrunk to below 1%.

Lim says Senheng’s moderation in top-line growth follows “a period of accelerated purchases” during the pandemic and post-pandemic years of 2020-2022, when demand was exceptionally high.

He also adds that economic conditions, including inflation and rising interest rates, are impacting consumer spending power across the retail landscape.

As a result, consumers today are more discerning by prioritising value and experiences.

According to Lim, Senheng’s gross profit in FY24 was impacted by lower sales and changes in its product mix that included a higher proportion of lower-margin items, such as mobile phones, associated with seasonal promotions and specific campaigns.

“While this had a short-term effect on gross profit, our focus on expanding distribution brands, growing online sales driven by intensified digital marketing efforts, and deepening customer engagement, have shown tangible results. We are confident these initiatives will improve gross profit and strengthen our financial health,” he says.

Looking into FY25, Lim believes it will be a pivotal year that sets the pace for sustainable growth.

“While near-term challenges persist, we are observing positive momentum in key areas, including growth in our brand distribution business, online sales, and continued membership expansion, indicating tangible results and progress.

“These positive indicators are mitigating the impact of softer purchasing patterns in certain consumer segments.

“We are refining our strategies and penetrating new consumer segments through multi-channel digital marketing, social media engagement, and integrated campaigns. Overall, we are experiencing improved customer footfall and sales in early 2025, and are focused on sustaining this positive trajectory.”

As part of improving its financials, Senheng is strategically closing under-performing outlets.

According to Lim, the company will relocate stores to prime locations with higher customer traffic and visibility.

Post-closure of under-performing outlets, Lim expects average revenue per store to improve this year and operating expenses to drop further.

“By prioritising prime locations, enhancing the in-store experience, and right-sizing operations, we are creating a more productive and profitable store network.”

He adds that Senheng is focused on enriching its online platforms, executing impactful digital marketing campaigns and enhancing content across media platforms to engage consumers effectively.

“These initiatives have contributed to improved online performance and work synergistically with our premium in-store experiences nationwide,” he says.

In FY24, Senheng’s online sales grew 54% y-o-y, reaching RM128.3mil.

When asked about Senheng’s rising finance costs, Lim explains that a significant portion of these costs is linked to the company’s strategic investments in its Central Distribution Hub or warehouse, with the remainder associated with its expanded and upgraded store network.

“These expanded and upgraded stores are designed to enhance the customer experience, drive long-term sales growth and contribute to the sustainable growth of our business.”

In FY24, Senheng’s finance costs ballooned to nearly RM7mil, up from RM4.07mil a year earlier.

Apart from the higher finance costs, the consumer electronics and appliances retailer’s earnings in FY24 were also dragged down by the write-off associated with the closure of the Senheng Mobile store network.

Lim says that the write-offs represented a decisive action to right-size Senheng’s earlier growth initiative involving smaller-format mobile-and-accessories-focused brand operations located in neighbourhoods.

“This investment was carefully managed, and we are now concentrating on the core strengths of our Senheng and senQ brands.

“These closures enable Senheng to allocate resources more effectively to strategic growth areas.

“While we continuously evaluate our business portfolio, similar write-offs are not anticipated. The focus remains on optimising existing operations and making targeted investments to drive future growth.”

Senheng has no remaining Senheng Mobile stores.

Going forward, Senheng is implementing a multi-faceted strategy, or Flywheel 1.0, to drive sustainable growth.

The strategy is designed to cultivate a cycle of growth across six core dimensions: profitability, revenue growth, customer loyalty, operational efficiency, customer experience and competitive advantage.

“This is a long-term strategy centred on enhancing customer loyalty through initiatives such as the PlusOne programme and S-Coin rewards, and on re-engaging consumers through integrated branding and marketing campaigns to foster long-term brand affinity, thereby establishing a stronger foundation,” says Lim.

Overall, Senheng is working on streamlining operations by leveraging data and artificial intelligence to optimise key operational areas, as well as implementing new retail solutions and platforms to enhance efficiency across the business.