My Personal Analysis of Sheng Siong Group Ltd

Sheng Siong Logo

Established in 1985 and listed on the Singapore Exchange in 2011, we are one of Singapore’s largest retailers with over S$725 million in revenue for FY2014, and we are principally engaged in operating the Sheng Siong Groceries Chain, in 38 locations all across Singapore as at June 2015

Dividends

Sheng Siong pays stable yearly dividends.

Year 2012 2013 2014 2015
Total dividend (cents) 2.8 3.0 3.0 3.3
Earnings per share (cents)  3.01  2.81  3.34  3.4
Dividend payout ratio (%)  93%  107%  90%  97%

Debt

Sheng Siong has no debt over the years.

Year 2012 2013 2014 2015 (30th June)
Net Interest Expense (SGD dollar in thousands) 0 0 0 0
Operating Income (SGD dollar in thousands) 33,833 45,110 71,722 16,623
Debt service ratio (%)  0% 0% 0% 0%

* Figures from Morning Star

Investment Moats

Established Household Brand

Sheng Siong is an established household brand in Singapore known for competitive prices.

Sheng Siong Show

I believe everyone of you have watched “The Sheng Siong Show”. The television variety show, was launched in April 2007 and attracted strong viewership. “The Sheng Siong Show” is now a regular-season (mid-year and year-end) programme on national television, MediaCorp Channel 8.

Wide Distribution Network

If you notice, you cannot find Sheng Shiong supermarket in big shopping malls. This is unlike the strategy for NTUC or Giant. The benefit for Sheng Shiong is lower rental costs and better outreach (convenience) to elderly who seldom go to big shopping malls for daily groceries unless there is one near their neighbourhood. (E.g. NTUC at Tampines Mall).

Mandai Link Distribution Centre

Sheng Siong Distribution Centre

The Mandai Link Distribution Centre will increase Sheng Siong’s operational efficiency and productive capacity by enabling Sheng Siong to warehouse, process and distribute proportionately larger quantities of goods and benefit from economies of scale in terms of manpower, transportation and fuel costs.

Lower Oil Prices in 2015

Savings passed on from suppliers as oil price is cheaper resulting is lower transportation costs.

Future Growth by Venturing into China

Sheng Siong has gone into a joint venture with Kunming Luchen Group Co. Ltd in China.  Sheng Siong – 60%. Kunming Luchen – 30%. Mr Tan Ling San – 10% (Sheng Siong’s Executive Director). China has a huge population of 1.4 billion people. With demand for export slips and real estate sector cooling down, China is shifting its focus into a consumer spending led economy. This is a plus to consumer driven stocks.

Investment Risks

Labour

The Government’s restriction on the supply of foreign labour would continue to put upward pressure on manpower cost and increase operating expenses.

Appreciation of US$

The recent sharp appreciation of the US$, particularly against the S$ could have an impact on input prices if this is not offset by suppliers passing on savings arising from lower oil and commodity prices.

Slowdown of China Gross Domestic Product Growth

China GDP is slowing down which hinders the government’s move to a consumer-driven growth model.

Investment Strategy

Personally, I felt that this is a growth stock with a strong balance sheet (zero debt). There is further room for growth as mentioned above that Sheng Siong is venturing in China and it can be successful if Sheng Siong manages it’s risks well.

I am currently vested in Sheng Siong for long term growth.

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