Sheng Siong Group

(20-05-2015, 05:58 PM)vesfreq Wrote: Any comments from fellow vb?

PS: It seems like a strong recession resistant counter. Good times or bad, eat still must eat.

SS is not just a recession resistant counter - it is a recession positive counter.

In bad times, people adjust down their spending - people downgrade from Fairprice Extra to SS; people start cooking at home more than eat out. Additionally rents start collapsing which is a +ve for expansion via renting.

(20-05-2015, 08:46 PM)CityFarmer Wrote: IIRC, the 6.9 mil isn't a target, but an estimation, and to be exact, it is 6.5 mil - 6.9 mil. Next, the estimation is on 2030, 15 years from now. A 25% increment over 15 years, means average less than 2% p.a.

I am not sure the derivation of 5.97 cents EPS? Base on 15% increment on sales, and assuming margins remain the same, the EPS estimation should be 3.84 cents (FY2014 EPS of 3.34 cent * 1.15), right?

IMO, the sales mainly come from capturing bigger market share. I am expecting the company sales grow faster than overall market growth in the next 5 years, and reaching $1.2 billion sales in 2020. Together with the margins improvement, the EPS in 2020 is estimated between 5-6 cents, and share price is estimated as $1.30++

(vested, and sharing a view)

I have some rough workings. Upload that later or something. I made assumptions about lower ringgit rates and relatively constant operating costs. I also assumed that margins stay at 24%.

Thanks for sharing ur view.

(21-05-2015, 09:25 AM)AQ. Wrote:

(20-05-2015, 05:58 PM)vesfreq Wrote: Any comments from fellow vb?

PS: It seems like a strong recession resistant counter. Good times or bad, eat still must eat.

SS is not just a recession resistant counter - it is a recession positive counter.

In bad times, people adjust down their spending - people downgrade from Fairprice Extra to SS; people start cooking at home more than eat out. Additionally rents start collapsing which is a +ve for expansion via renting.

Surprised that many sold out when prices crossed 90 cents. Its a good counter to hold, aside from q&m and rmg which are the better known recession resistant counters. One thing that kept me from rmg is the the high pe, though it has proven quite successful in upsizing itself and lay foot in china.

The strategic locations and the 24 hour operating hours made a big diff, though it will be also interesting to know how they would optimise all the added operating costs. Not cheap to run a store 24 hour with all the electricals running throughout the year.

(21-05-2015, 08:29 PM)vesfreq Wrote:

(20-05-2015, 05:58 PM)vesfreq Wrote:

Surprised that many sold out when prices crossed 90 cents. Its a good counter to hold, aside from q&m and rmg which are the better known recession resistant counters. One thing that kept me from rmg is the the high pe, though it has proven quite successful in upsizing itself and lay foot in china.

The strategic locations and the 24 hour operating hours made a big diff, though it will be also interesting to know how they would optimise all the added operating costs. Not cheap to run a store 24 hour with all the electricals running throughout the year.

One thing strikingly similar about RMG & Sheng Siong is their prudent & conservative business philosophy and that they have kept the companies debt-free.

I vaguely recalled some years back, when quizzed by reporters about RMG's future expansion plan if any, Loo Choon Yong then said he'd consider expanding only if he found something suitable. Otherwise he'd just stay put with the present hospital in Bugis. He wasn't in hurry to take on risk for the sake of rapid expansion. The Lims of Sheng Siong are very similar in this respect, cos some years back, they were under a fair bit of criticism for expanding their outlets far too slowly & the share price languished for quite a while.

Bought RMG at $1.20 a piece many moons ago & regrettably sold at $1.83 thinking that it was overvalued. Told myself I'd buy in again when the price fall to a more "reasonable" level. Yes, I never got that chance. Probably won't take too long for the price to hit $5, given the China joint venture.

So when's a good time to sell? Answer: There is no good time if the growth story & fundamentals are intact. You don't sell it.

  ssg analysis fy2015.xlsx (Size: 16.86 KB / Downloads: 19)

Then the next thing is that big hard to grow bigger. Small can grow faster. Today's buying interest not bad. The near term key catalysts for growth are quite clearly:
1. New outlets including the one at tampines
2. Expected higher population count 6.2 to 6.9 m (suggested by cf n is a reasonable assumption. Afaik, dr liew thai ker (ex hdb planner) suggested that 6.9 m is conservative and 10 m is achievable during a dbs conference sometime back. Iirc. Attendees prob heard his statement loud and clear. )
3. Depreciation of the rm in 2015 vs 2014. Not sure how significant is this. Knowing that sg is dependent on msia imports, this is bound to have some extent of positive profit benefit.
4. Wider range of pte label (as mentioned from a jp morgan report which someone shared.) it is a gd opportunity to widen margins.
5. Rental revenues for tampines likely to be recognised in Fy2016. That should give a good boost to eps.

Longer term catalyst which are uncertain at this point in term:
1. Govt stance on migration policies, which will have a material impact on population trend and has obvious effects on the rate of revenue growth.
2. Possible 10m population being "achievable" and this is very uncertain. But, should this arise, the impact on ssg will be substantial.
3. Foreign labour policy. Higher foreign worker levy is likely to add pressure on net margins, and is a constant risk. Doubt that any levy changes will be so substantial as to make a dent on net margins in long term.
4. Performance of the China JV. A potential game changer, but I think Mr Mkt don't think so given the recent sell down.

Personally, its a "cheaper to enter" defensive stock vs rmg. Rmg is strong but entry cost very high. In times of recession, a safe haven for money. What I like about rmg is that it is quite "impossible" for another competitor to build a hospital next to their hq n start competing. In fact, the regulatory barriers made it a difficult market to enter. Relative market power to set prices is a strong attraction of rmg though base operating costs are astronomical too. Compared to ssg, the power to price is limited, but enhance cost efficiency is likely. But ssg has volume. Both are good counters.

Philip fisher once said that the best time to sell is never. To quote what curious party would say, there is earnings visibility.

PS: My forecast as attached for everyone to critic. Let me know if my forecast is sane.

Let me contribute on vesfreq's FY2015 forecast.

I am less optimistic on the FY2015 sales growth, since the expansion on new stores have just started recently. It takes 2-3 years to achieve similar same-store-sales. I am expecting FY2015 sales of approx $800 mil, both from new store sales, and improving sales from existing stores.

No point debating on forecast, let's work on your forecast of $816 mil, and look at the expenses. Gross margin of >26% in FY2015, is overly optimistic. The GPM in FY2014, was slightly more than 24%. Management has given FY2015 GPM guidance of 25% , IIRC.

Similar admin expense over larger sales, isn't realistic. Admin expense has been kept around 16% of revenue for years. Depreciation expense should be higher, due to more PPE. The same for tax expense.

For me, with a sales of $816 mil, the net profit should be around $57 mil, or EPS of 3.8 cents. It is already +20% growth. An EPS of 5-6 cents is overly optimistic, IMO.

(sharing from an existing shareholder)

(22-05-2015, 04:38 PM)CityFarmer Wrote: Let me contribute on vesfreq's FY2015 forecast.

I am less optimistic on the FY2015 sales growth, since the expansion on new stores have just started recently. It takes 2-3 years to achieve similar same-store-sales. I am expecting FY2015 sales of approx $800 mil, both from new store sales, and improving sales from existing stores.

No point debating on forecast, let's work on your forecast of $816 mil, and look at the expenses. Gross margin of >26% in FY2015, is overly optimistic. The GPM in FY2014, was slightly more than 24%. Management has given FY2015 GPM guidance of 25% , IIRC.

Similar admin expense over larger sales, isn't realistic. Admin expense has been kept around 16% for years. Depreciation expense should be higher, due more PPE. The same for tax expense.

For me, with a sales of $816 mil, the net profit should be around $57 mil, or EPS of 3.8 cents. It is already +20% growth. An EPS of 5-6 cents is overly optimistic, IMO.

(sharing from an existing shareholder)

Thanks for the sharing.

I redid the gp margin. Did three versions of forecast.
1. I added a 1% factor in revenue. Revenue should to some extent correlate with population trend. Singstat data (2005 to 2014) gave an approx population growth rate of 2%. 1% factor should be conservative. Aside from that, loaded a 3% for selling price inflation. My assumption was that the 2 new stores started in Dec 2014 and Jan 2015 should enjoy full year revenue. While, the other 2 starting in May/ June 2015 should be 1/2 yr earnings. Its a simplistic assumption. You are right to say that there some time lag to achieve normalised revenues.
2. I took into account the 25% and I also used fy2014 gp of 24.2% (correct me if i'm wrong). Using the mid point between 24.2 and 25%, I derived a midway forecast.
3. Did an average of prior three year admin expenses and loaded a 15% factor. It seems prudent, aside from using 37/ 33. 37 being the expected number of stores this fy and 33 being the number of stores in 2014 excluding the one opened in dec 2014. 37/33 gives 12%. So, 15% is a more prudent increase in admin. Any views on this?
4. Tax was assumed to 18%, slightly higher than current corporate tax rate of 17%. Effective corporate tax rate is supposed lower. Based on prior yrs' guesstimate, tax as a % of profit appeared to be 18%+-.

I ended with a "midway" eps of 4.13 cts (pe 24 times) and best case eps of 4.3 cts (pe 24 times) . Worst case eps of 3.95 cts (pe 22 times) seems quite close to yours and about 3.5% off yours. Pe of 24 times is derived from dairy farm international (yahoo finance shows 24.55 times) which on the higher end. The pe figures are lower than the sheng pe figure on yahoo finance which is a little high. Is your eps based on conservative case too?

Thanks for sharing. Model makes more sense now.

Further comment on the forecast.

1. I will correlate SS sales with GDP growth, rather than population growth. Base on MTI forecast, the 2015 GDP growth is 2-4%. SS sales will grow faster, but 13% growth in 2015, seems overly optimistic. A projection simply base on store ratio, is incorrect, since not all stores are equal, more so with newly opened stores. IMO, SS growth will accelerate, but unlikely starts with a 13% from 2015.

2. The admin expense is closely correlated with sales/profit. Admin expense of 16-16.5% of revenue, is a pretty accurate ratio to used, IMO.

(sharing view, and no right answer, till the FY2015 result is out)

Thanks to both vesfreq and CityFarmer for detailed numbers and write ups on Sheng Siong. I am impressed with the work put in by both. I supposed this is what you called passion. I gained much from reading both analysis.
I did my own back of the envelope calculations.
First quarter earnings approximately $14 mio.
Full year approximately $56 mio. EPS 3.72 cents. The Chairman mentioned in the latest annual report that they committed to pay 90% of earnings as dividend in 2015 and 2016.
That means dividend of 3.3 cents.
Warren Buffett said that "it is better to be approximately right than precisely wrong".
So I think I am happy with this set of numbers. Of course these rough numbers is being reinforced by reading what CityFarmers have written in his articles and now the numbers from vesfeq.
What about the valuations ? At todays closing of 89 cents dividend yield is 3.7%. Not fantastic but still higher than my discount rate of 3%. I don't add in any equity risk premiums as long as I think that current dividend is predictable and sustainable. I am normally happy with dividend yield above 4%. But I do continue to add if dividend falls below 4% ( due to rising price and not because of a cut in dividends ) if I do own the stock already.

(22-05-2015, 09:31 PM)CityFarmer Wrote: Further comment on the forecast.

1. I will correlate SS sales with GDP growth, rather than population growth. Base on MTI forecast, the 2015 GDP growth is 2-4%. SS sales will grow faster, but 13% growth in 2015, seems overly optimistic. A projection simply base on store ratio, is incorrect, since not all stores are equal, more so with newly opened stores. IMO, SS growth will accelerate, but unlikely starts with a 13% from 2015.

2. The admin expense is closely correlated with sales/profit. Admin expense of 16-16.5% of revenue, is a pretty accurate ratio to used, IMO.

(sharing view, and no right answer, till the FY2015 result is out)

Thanks for the commenting. You are my "blindspot" mirror now.

You have a good point about use store ratio. It was a form of "agarration". I was also leaning towards adding a factor to account for the apparent likelihood that new stores will tend to take sometime to pick up revenues.

I do not disagree with you regarding the sales/ profit ratio to ascertain expenses, though I'm more leaning towards admin expenses being more of a mixed (or semi) variable cost. There should be weaker correlation between revenues and cost. Interesting view on this too.

PS: A colleague was sharing using dcf on forecasting earnings. Not wrong, but given that the forecasts I did was more near term, dcf would be more applicable for longer term forecasting. Not sure if anyone did dcf on this.