Sheng Siong Group

SINGAPORE - Homegrown supermarket operator Sheng Siong - well known for its fresh produce and low prices - is going public.

It lodged yesterday its preliminary initial public offering prospectus with the Monetary Authority of Singapore (MAS) for a listing on the Singapore Exchange. No pricing or the amount to be raised was provided but Sheng Siong said it intended to distribute up to 90 per cent of its net profit after tax to shareholders for the financial years ending on Dec 31 this year and Dec 31 next year.

Sheng Siong intends to use the proceeds mainly to repay debt and for the development and expansion of its grocery business and operations in Singapore and overseas, as well as for working capital. As at May 31, Sheng Siong's borrowings include a term loan of up to S$30 million issued by DBS Bank to partially finance the construction of its Mandai Link Distribution Centre.

OCBC Bank is the issue manager, underwriter and the placement agent. According to the draft prospectus, unaudited pro-forma net earnings per share of Sheng Siong for its 2011 financial year based on the pre-invitation share capital of 1,140 million shares is 3.74 cents.

SIAS Research analyst Liu Jinshu said: "Local investors will be able to identify with the company given its retail presence but should not attach too high a value to the company's brand. Investors must understand that the retail industry is relatively competitive and organic growth may be relatively slow."

Sheng Siong operates 23 stores and is one of Singapore's largest retailers with more than S$628.4 million in revenue in its 2010 financial year, or about 2.6 per cent of the local pie. Singapore's supermarkets and hypermarkets are expected to experience approximately 4 per cent to 5 per cent growth in revenues between this year and next year.

PRELIMINARY PROSPECTUS
http://masnet.mas.gov.sg/opera/sdrprosp....F0031E8D1/$File/Clean%20Shengsiong-IPO_V1%20300611%20v3.pdf

Did my MBA thesis on supermarkets in Singapore. The usual M.Porter stuff on competitive analysis and five forces 6 years ago.

They compete on cost, and among the supermarkets, they are one of the cheapest when compared product to product as well as turnover per square feet.

But the market here very competitive and there had been a first wave of consolidation in the late 90s to early 2000s. Also, growth here is limited and unless they move overseas (increasing risk), they will probably plateau (due to Fairprice) if Carrefour does leave Singapore.

PSC is the only other listed counted in the grocery business which should give a good indication on the pricing.

I note the words of the SIAS Research analyst, QUOTE Local investors will be able to identify with the company given its retail presence but should not attach too high a value to the company's brand. Investors must understand that the retail industry is relatively competitive and organic growth may be relatively slow UNQUOTE.

I'll await details of the pricing but I'm very mindfull that of Singapore's last 10 Company IPO's, the share price of 7 of these are down as compared to the subscription price, with a couple showing really marked losses (e.g. HPH Trust, even with its +ve run last week, and Harry's Holdings). I do not see any competitive differentiators or moat for Sheng Siong.

I'm therefore sceptical about the offering - one of those where I'll may be take a look six months after the placement.

---

Unless I am mistaken, they intend to pay out 90% of their earnings as dividends to shareholders for the next 2 years. This might be a yield play. They are in a net cash position of $43 mil.

http://masnet.mas.gov.sg/opera/sdrprosp....F0031E8D1/$File/Clean%20Shengsiong-IPO_V1%20300611%20v3.pdf [Draft Prospectus]

once IPO, means no more cheap grocery.

the company must answer to its shareholders, can't sell at the lowest price. must raise the price for more profit.

for the sake of the living of ordinary people, I hope they do not go for IPO.

(02-07-2011, 01:13 PM)Nick Wrote: Unless I am mistaken, they intend to pay out 90% of their earnings as dividends to shareholders for the next 2 years.

The devil is in the language:

Prospectus Wrote:Although we currently do not have a formal dividend policy, we intend to distribute up to ninety percent.
(90.0%) of our net profit after tax to our Shareholders for the financial years ended 31 December 2011 and 31 December 2012

supermarkets compete on price and convenience. if SS increase their selling price, they will eventually be eaten up by ntuc over a period of time. grocery shoppers (esp. housewives) are price sensitive. i don't forsee big changes in selling prices due to listing.

of all the big listing in recent months, i am most interested in this. i like retail business for their cashflow predictability and stability. more simple business model, less-complicated-to-value-assets. i look forward to the ipo prospectus for more information to valuate the business.

(02-07-2011, 03:13 PM)karlmarx Wrote: supermarkets compete on price and convenience. if SS increase their selling price, they will eventually be eaten up by ntuc over a period of time. grocery shoppers (esp. housewives) are price sensitive. i don't forsee big changes in selling prices due to listing.

of all the big listing in recent months, i am most interested in this. i like retail business for their cashflow predictability and stability. more simple business model, less-complicated-to-value-assets. i look forward to the ipo prospectus for more information to valuate the business.

don't think they will increase their selling prices. this is a margin and turnover business and it favours high turnover and short inventory cycles and right now, they still have the advantage.

as for whether they will be eaten up by ntuc, i don't think so. ntuc is the biggest player here and they occupy a key part of the market. they are only interested in m & a as a growth strategy if the price is right. hence QAF sold Shop N Save to Dairy Farm (Cold Storage folks).

it will be interesting to see how SS price their IPO. if the price is right, i'll be interested.

(02-07-2011, 01:23 PM)freedom Wrote: once IPO, means no more cheap grocery.

the company must answer to its shareholders, can't sell at the lowest price. must raise the price for more profit.

for the sake of the living of ordinary people, I hope they do not go for IPO.

Exactly my sentiment as well. Also , anther reason I go to Sheng Siong is because of faster queue, as compared to say NTUC/Shop-and-Save/Giant. Notice they have 2 cashiers in one counter, as compared to NTUC's 1. That's why they are faster. After going public I doubt they can "absorb" the higher cost (even though they mostly use Malaysians).

increasing prices depends on the price elascity of the goods and services provided. with such competition, it is natural that the good is mostly price elastic as there are plenty of subsitutes around