Sheng Siong Group Ltd (SGX: OV8)
Sheng Siong Group Ltd (Sheng Siong Share Price – SGX: OV8) is one of the largest supermarket chains in Singapore. The group operates 59 stores across Singapore selling a variety of “wet market” and “dry shopping” options. The wet market segment sells a wide assortment of live, fresh and chilled produce such as seafood and meat, while the dry segment sells general merchandise such as toiletries, sundries and essential household products.
All of Sheng Siong’s stores are located in HDB heartland areas and serve the bulk of the HDB population with affordable pricing. The group also offers a selection of house-brand products at lower prices, and in total, the stores offer an assortment of 1,200 products under 18 house brands. Online ordering and delivery are also possible with Sheng Siong’s “All for You” website[1].
Sheng Siong’s name is now synonymous with good value for money and is popular with heartland shoppers. The group is one of the top 3 retailers in Singapore, the other two being NTUC Fairprice (private) and Dairy Farm International Holdings Ltd (SGX: D01), or DFI.
Growth of the Business
Source: Sheng Siong’s Earnings Releases, Author’s Compilation
From the graph above, it can be seen that Sheng Siong has been steadily growing its store count over the last ten years. At IPO back in 2010, the group only had 22 stores, but this has since more than doubled to 57 stores at the end of 3Q 2019. Most of the growth in store count has come about in the last 4-5 years, with an average of 4-5 new stores opened every year. This increase in store count has helped to drive Sheng Siong’s revenue and net profit steadily upwards over time.
Improving Financial Numbers
Source: Sheng Siong’s Earnings Releases, Author’s Compilation
Sheng Siong’s revenue has risen steadily over the years to a high of S$890.9 million in FY 2018. Aside from a blip in FY 2011, revenue has increased every year without a pause. Gross profit has also increased in line with revenue, while net profit has shown significant improvement over the years, more than doubling from S$33.6 million in FY 2009 to S$70.5 million in FY 2018.
For 9M 2019, Sheng Siong continued to report growth, with revenue up 11.1% year on year to S$743.4 million, gross profit up 11.9% year on year to S$199.5 million and net profit jumping 10% year on year to S$58.4 million. The total retail area has climbed from 335,000 square feet in FY 2010 to 512,000 square feet as at 3Q 2019. Investors should note that most of the growth has been driven by new stores, as same-store sales growth was negative for 3Q 2019 at -0.3%. There was slight growth of 1.3% for Sheng Siong’s China stores (it has opened two in Kunming).
Strengthening Margins
Source: Sheng Siong’s Earnings Releases, Author’s Compilation
Aside from the growth in revenue and number of stores, Sheng Siong has also improved on both its gross margins and net margins over the years. Gross margin started out at 20.5% back in 2009 but has since improved significantly to 26.8% for 9M 2019. In fact, gross margin hit 27.1% for 3Q 2019 alone, and it seems Sheng Siong should be able to continue improving on its gross margin with better sourcing and supply chain management. The group also negotiates for supplier rebates, and this helps to boost overall gross margins as the group increases its bargaining power over time.
Sheng Shiong Dividends
Sheng Siong pays out a twice-yearly dividend to shareholders. Interim dividend for 1H 2019 was 1.75 cents/share, while FY 2018’s final dividend was also 1.75 cents/share. Trailing 12-month dividend stands at 3.5 cents/share. At Sheng Siong’s last traded price of S$1.26, the shares offer a historical dividend yield of around 2.8%.
Risk
The main risk to Sheng Siong’s growth comes from it not being able to bid for suitable HDB locations in which to set up new stores. Growth may also slow in the years to come as the retail market in Singapore becomes increasingly saturated. However, as at the time of writing, management has still managed to identify locations for the opening of new stores in late-2019 and 2020.
There is also the risk of increased competition as the retail market is intensely competitive. DFI is now undergoing a transformation and may come up with strategies to wrest market share away from Sheng Siong, as DFI has lost ground over the last five years. There is also a new player in town called Hao Mart[2] that was set up as recently as 2016 but has since expanded its presence to 46 outlets around Singapore. However, this new player has more of a minimart/convenience store concept, and may not represent direct competition for Sheng Siong.
Growth Initiatives and Plans
Sheng Siong’s growth plan will be to source for more locations in order to open more stores in future. Two new stores (around 8,000 to 9,000 square feet each) were opened on 19 October 2019 at Woodlands Street 13 Block 182 and Tampines Avenue 9 Block 602A, while a new 5,300 square foot store is slated to open at Marsiling Drive Block 202 in 1Q 2020.
The group plans to work on improving same-store-sales growth, as well as enhancing margins further through sales mix (i.e. selling higher-margin products or categories). With two stores open in Kunming, there is potential for further brand-building in China and the group may, in time, open more stores there. But for now, its China business only constitutes a minor portion of the group’s overall business.
