12 Things To Know Before You Invest In Sheng Siong Group Limited
 
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12 Things To Know Before You Invest In Sheng Siong Group Limited

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Listed in 2011, Sheng Siong Group Limited (SGX: OV8) is the owner and operator of one of the largest supermarket chains in Singapore.

Sheng Siong Logo

As of 7 July 2019, Sheng Siong is worth S$1.65 billion in market capitalisation. In this article, I’ll give a review of its latest results, long-term financial performance, and valuation ratios.

Here are 12 things to know about Sheng Siong before you invest.

Disclaimer: This is not a sponsored post. Opinions expressed in the article should not be taken as investment advice. Please do your own due diligence.


1. Revenue Growth

Group revenue has grown at a compound annual growth rate (CAGR) of 6.4% over the last eight years, from S$578.4 million in 2011 to S$890.9 million in 2018.

Sheng Siong Group Revenue
Source: Sheng Siong Group Annual Reports

Sales growth has come mainly from the opening of new stores, while same-store sales growth has remained positive every year since 2012, except for 2013

Sheng Siong Sales Growth From New Stores
Source: Sheng Siong Group Q4 2018 Results

 

Sheng Siong Growth From Comparable Same Store Sales
Source: Sheng Siong Group Q4 2018 Results

As of 31 December 2018, Sheng Siong has 54 stores in Singapore — an addition of ten brand-new stores from a store count of 44 in 2017. Total retail area increased to 496,200 square feet in 2018 from 404,000 square feet in 2017.

2. Shareholders’ Earnings

Shareholders’ earnings grew at a CAGR of 14.6% over the last eight years, from S$27.3 million in 2011 to S$70.8 million in 2018.

Earnings growth outpaced revenue growth as Sheng Siong incurred a lower cost of goods sold as a result of better buying prices, higher rebates given by suppliers for special promotions and volume discounts, and improvements in its product mix.

Sheng Shiong Group Shareholders' Earnings
Source: Sheng Siong Group Annual Reports

3. Return On Equity

Sheng Siong has an eight-year return on equity average of 23.78%.

Since 2012, Sheng Siong has maintained an ROE of above 20.0%. As of 31 December 2018, Sheng Siong has no borrowings and S$290.2 million in shareholders’ equity. It has a total of S$170.1 million in current assets and S$141.1 million in current liabilities, which gives it a current ratio of 1.21.

Sheng Siong Return On Equity
Source: Sheng Siong Group Annual Reports

4. Cash Flow From Operations

From 2011 to 2018, Sheng Siong generated S$497.8 million in cash flows from operations and raised S$157.1 million in equity from its IPO in 2011 and a private placement in 2014. Out of which, it has spent:

  • S$293.4 million in net capital expenditures
  • S$22.3 million in net repayment of long-term borrowings
  • S$326.2 million in dividend payments to shareholders
Sheng Siong Cash Flow From Operations
Source: Sheng Siong Group Annual Reports

Sheng Siong is a cash-producing business and doesn’t need to continually raise equity or debt to expand its operations and reward shareholders with dividend payments.

5. Shareholders And Direct Shareholdings

As of 15 March 2019, Sheng Siong’s major shareholders and their direct shareholdings are as follows:

ShareholderDirect Shareholding (%)
Sheng Siong Holdings Pte Ltd29.85
Lim Hock Eng9.14
Lim Hock Chee9.14
Lim Hock Leng9.14

The Lim family remains influential as they hold stakes in Sheng Siong directly and indirectly through Sheng Siong Holdings Pte Ltd. They also occupy four out of 10 seats at the board of directors and hold the following key leadership positions:

  • Lim Hock Eng, executive chairman
  • Lim Hock Chee, CEO
  • Lim Hock Leng, managing director
  • Lin RuiWen (daughter of Lim Hock Eng), executive director

6. Modernisation Through Technology

Sheng Siong Hybrid Check Out System
Source: Sheng Siong

In 2015, Sheng Siong rolled out its ‘Hybrid Self-Checkout System.

The system which allows customers to scan, pack and pay for their own items is now in 47 stores and the company is aiming for full implementation by 1H 2019. The system has reduced customer checkout waiting time by more than 30 seconds on average and allowed cashiers to take on roles that enlarge the scope of their responsibilities and skillsets.

Sheng Siong is also planning to launch Nets QR code by 1H 2019 which would provide an additional cashless payment option for customers.

7. Increase In Warehouse Space

Sheng Siong Warehouse
Source: Sheng Siong

In 2016, Sheng Siong leased a piece of land measuring 1,800 square metres at 6 Mandai Link located adjacent to its existing warehouse.

The following year, it commenced the construction of a new extension to the existing warehouse.

Upon completion, it would add another 97,000 square feet of warehouse space for Sheng Siong. The completion was initially scheduled for Q1 2019 but has been delayed to Q4 2019.

8. Expansion In China

In November 2017, Sheng Siong opened its first supermarket in China in the city of Kunming.

Sheng Siong Supermarket
Source: Sheng Siong

The store incurred a loss of S$0.7 million in 2018, of which Sheng Siong’s fair share of loss was S$0.4 million.

The amount is relatively small compared to Sheng Siong’s total earnings of S$70.8 million for the year. Sheng Siong still plans to continue expanding in China and has signed a new lease for a second store in Kunming. The management expects to open the store in Q3 2019.

9. $tm Machines

In 2018, Sheng Siong launched its first ‘$tm machines‘ in Singapore at its ITE College Central and Block 417 Fernvale Link stores.

Sheng Siong $tm Machine
Source: Straits Times

The machines allow customers to withdraw cash from their bank accounts.

The cash in the $tm machines is topped up from supermarket sales and reduces the amount of cash that Sheng Siong needs to physically deposit at the bank daily.

Thus, this helps the company to save on some cash handling charges and improves productivity as the cash will be recycled at its outlets. Sheng Siong plans to install this $tm machine in all of its stores by 1H 2019.

10. P/E Ratio

Sheng Siong made 4.71 cents in earnings per share in 2018.

Based on its share price of $1.10 (as at 7 July 2019), Sheng Siong’s current P/E ratio is 23.35, which is higher than its average of 21.61 from 2011 to 2018.

Sheng Siong PE Ratio
Source: Sheng Siong Group Annual Reports

11. P/B Ratio

As of 31 December 2018, Sheng Siong reported 19.3 cents in net assets per share. Therefore, its current P/B ratio is 5.70 which is higher than its average of 5.23 from 2011 to 2018.

Sheng Siong PB Ratio
Source: Sheng Siong Group Annual Reports

12. Dividend Yield

Sheng Siong has a track record of paying a growing dividend per share (DPS) since its IPO. DPS has increased from 1.77 cents in 2011 to 3.4 cents in 2018.

Sheng Siong Dividend Per Share
Source: Sheng Siong Group Annual Reports

If Sheng Siong maintains its DPS, then its current dividend yield is 3.1% – which is below its long-term average of 3.93%.

Sheng Siong Dividend Yield
Source: Sheng Siong Group Annual Reports

The Fifth Perspective

Overall, Sheng Siong has delivered consistent growth in revenues, earnings, and dividends for shareholders.

The company is conservatively run with no debt and S$87.2 million in cash reserves.

In terms of valuation, however, the stock is currently trading above its long-term valuation averages, while its yield has fallen to a historic low.

An investor may want to wait for a better price before considering Sheng Siong.

Want More In-Depth Analysis And Discussion?

Why not check out Seedly’s QnA and participate in the lively discussion surrounding stocks like Sheng Shiong and many more!

Stock Discussion on Sheng Siong Group Ltd


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