Sheng Siong caught my attention recently as it has had good growth, and has not really rallied. SBS Transit has always been on my radar, but its rally has been too sharp to follow.

Not the case of Sheng Siong, where it still has multiple analyst calls to buy. It gives a good current dividend yield of 3.12%. Dividends has largely held up in the past 5 years too.

See these Target Prices:

Each easily gives a 10% capital gain.

Why not lets check out Sheng Siong together?

1. Revenue & Net income has been rising consistently for past 6 years

Revenue ($m)
2013 - 687.4
2014 - 726.0
2015 - 764.4
2016 - 796.7
2017 - 829.8
2018 - 890.3 (unaudited)

Net income ($m)
2013 - 38.9
2014 - 47.6
2015 - 56.8
2016 - 62.7
2017 - 69.5
2018 - 70.5 (unaudited)

2. Financial analysis

Sharp rise in Rental Expenses of $4.4m in FY 2018 as compared to FY 2017. Staff costs rose 6.7m in the same period too.

Cause of this was due to the opening of 3 new stores.

Government Grants has fallen sharply from $4.4m in FY 2017 to $1.6m in FY 2018. This is a one-off event and has no long term impact to the bottomline.

Healthy Cash Balance of $87m

You can see below table which presents financial ratios most important to Value investors!


Given the recent run-up, P/E ratio seems to be lower than Dairy Farm too. It has a healthier Price to Book ratio too.

P/B ratio is a little high compared to Average. Its comparable to ST Engineering's 5.13, however, still well below Dairy Farm's 6.20. See this table for Average Price to book ratios, where Consumer Staples gives an Average Price to book ratio of 4.59:

Source: http://siblisresearch.com/data/price-to-book-sector/
Debt-Equity ratio is extremely healthy, as we can see that Sheng Siong has no borrowings. Its funds come mainly from equity, and default risk is quite low.
(**Interestingly, NTUC Fairprice has an extremely low Debt Equity Ratio too!)

However, having a PEG ratio of 15.09 shows that you could be over-paying for its promised growth.

Enterprise value is on the high side at 15.34. We can see that Singtel's EV is around 9.35 after its recent decline.

Price to Sales ratio is reasonable, given that it has been growing well, and making good profits for past 5 years. Singtel's Price to Sales ratio is about 2.73, much higher compared to Sheng Siong.

3. Business analysis

I believe we are all familiar with Sheng siong's business. It operates mainly in the Supermarket sector, and main competitors include Giant and NTUC.

It does not compete in the Hypermarket area, but instead, focuses on serving the people at neighborhood areas.

After its Kunming store opens in 2Q2019, Sheng Siong Group’s total store count will be 56, 54 Locally and 2 in China.

In 2018, Sheng Siong also opened a multiple new stores.

Source: Latest Financial Report 2018 Dec


Not just me, other people love this company too! See this Married deal that happened around May 2018.


As Sheng Siong is highly dependent on the HDB development in Singapore. The trend of HDB building less and less flats every year is a bad trend for Sheng Siong.

However, HDB does have future plans to develop new towns in this land scarce Singapore. Sheng Siong can look to grab opportunities at the new Tengah new town, or Paya Lebar new town (Paya Lebar Air Space) in the distant future.

China is still a risk to Sheng Siong. It has affected the bottomline of Sheng Siong, however, not yet materially. It was reported that Sheng Siong has previously limited loss of China ventures to S$6m.

Given that they are going ahead to open a second store, this could present as an opportunity as they fight to promote the Sheng Siong Brand in China.

Sheng Siong operates in China via a Joint venture, where it owns 60% of the JV, Kunming Lǜchén Group owns 30% and SGX listed Xpress Holdings owns 10% (now known as A-Smart).

Conclusion

I will still wish to invest in Sheng Siong. If the price could dip a little to  $1.03-1.06, I would price in $3,000 as an addition to Llama Unit Trust Portfolio.
**Current price: $1.09

I am confident that Sheng Siong will not be adversely affected by rising interest rate climate, as it has an extremely low Debt to Equity Ratio. It does not have any substantial borrowings too.

Being in the consumer staples sector, it is a defensive play.

It is a well-known Singapore brand, with focus on wet/dry supermarket sector. I believe it carries less concentration risk as compared to Dairy Farm, as we can see Giant stores closing and shrinking its footprint. Read here

We should also consider how Sheng Siong can compete in this Technological Era, where RedMart, HonestBee are coming up with their own supply chains that allow customers to get groceries within a few clicks.

Being Singaporeans, we all know Sheng Siong's strength lies in being able to offer cheap and fresh groceries. From this article, it seems Sheng Siong is able to leverage on its Brand for budget conscious customers (its main target customers).

It has financial tie-ups with Bank of China to offer Credit card rebates too.

All in all, Sheng Siong is still generally well-managed, with strategic store locations all around Singapore. As long it maintains its own brand well, I do not see any reason its business cannot sustain well.

Its all for you - https://allforyou.sg/.

Image result for sheng siong store

3 Comments

  1. It's a well managed company with a decent dividend. It's one to hold for the long term.

    ReplyDelete
    Replies
    1. Yes, definitely holding it for long-term :)

      Are you holding it?

      Delete
  2. Thanks for sharing your valuable information on this article. This post is helpful to many people.stocks4all is a stock related website which provides all stocks related information like new stocks and shares available in the stock market.
    share market
    tax in India

    ReplyDelete