Sheng Siong Group

(23-05-2015, 01:18 AM)amperex Wrote: 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.

If I'm not wrong, the statement "its better to be approximately right than to be precisely wrong" came from Kaplan and Cooper's book one "Cause and Effect". Good read. May be memory failed me that Buffet said too many things.

If one is holding long term, its good to also take into consideration the longer term upside due to population growth. So, once when I heard Dr Liew (during the DBS insights conference) talked about the 10m population being "achievable", I think many responded with a very glum look. Taking this in positive light, this also means plenty of upside... should the 10m be an eventuality, though no one knows when.

PS: I didnt do much work. It was a 1 hour sort of desktop analysis. Ok.... may be I cheated cos I do this very often. > Anyone could have done the same. But, what made a greater diff is the sharing on the forum. Only sharing the knowledge I learned from smart and not-so-smart businessman. Knowledge is power when applied. There is a difference between "knowing and not doing" and "knowing and doing". In Peter Lynch's words, the common folk also has the same ability to pick good stocks. Fact is because we come across various businesses in our daily lives, which we are far more familiar with than the analysts and "professionals".

Quote:If I'm not wrong, the statement "its better to be approximately right than to be precisely wrong" came from Kaplan and Cooper's book one "Cause and Effect". Good read. May be memory failed me that Buffet said too many things.

There are 3 versions actually. I quoted from WB.
"It is better to be vaguely right than exactly wrong" Carveth Read, British philosopher.
"It is better to be roughly right than precisely wrong" John Maynard Keynes, economist.
"It is better to be approximately right than precisely wrong" Warren Buffett.

Ok, important thing here is I think I can roughly guess the earnings and dividends of Sheng Siong. It is very unlikely that I will be very far off ( unlike a Osim or Sarine ).

(23-05-2015, 11:34 AM)vesfreq Wrote: 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.

The admin expense is the largest expense, after cost of sales. The major part of the admin expense, is staff salaries, both basic pays and bonuses.

The bonus of both employees and top management, are tight with a fixed ratio with the profit, since IPOed. IIRC, 10% of the PBT has been allocated to top management, while employee's bonuses are also a fixed ratio to sales/profit. That explained some top SS staffs have 6 months bonus

(23-05-2015, 01:18 AM)amperex Wrote: 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.

Let me share a view on SS valuation.

There is always a doubt on PE of SS. Is the current PE overly demanding, in general?

Grocery retailer biz model, has a few merits which demands a higher PE, comparing with other biz model. I will start with two of the merits here for discussion.

1) First of all, the concept of quality of earning, defined as OCF/Earning. Grocery retailers are having higher quality of earning, typically around 1.3-1.5, which means the retailers are able to produce higher cash flow, than the accounting earning.

2) Next, the concept of PEG, defined as PE/earning growth rate. Retailers are highly scale-able, with negative working capital in general. Retailers are also having low maintenance capex. There also have low capex for expansion in general.

FYI, SS has a quality of earning of 1.5 in FY2014, comparing with DairyFarm of 1.3. One of VB best stocks, VICOM, is 1.2 in the same financial year

PEG for SS was 0.9, comparing with DairyFarm of 16 and Vicom of 3 in FY2014.

(Source: Shareinvestor.com)

Base on above, is the PE 27-28 of SS now, very demanding? I will let you decide.

(vested, thus might be biased)

(23-05-2015, 10:10 PM)CityFarmer Wrote:

(23-05-2015, 11:34 AM)vesfreq Wrote: 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.

The admin expense is the largest expense, after cost of sales. The major part of the admin expense, is staff salaries, both basic pays and bonuses. The salary expense is close to 80% of the admin expense, IIRC.

The bonus of both employees and top management, are tight with a fixed ratio with the profit, since IPOed. IIRC, 10% of the PBT has been allocated to top management, while employee's bonuses are also a fixed ratio to sales/profit. That explained some top SS staffs have 6 months bonus

Very good answer. Is the 10% of pbt an assumed or observed figure? Just to satisfy my curiousity. Hahaha.

6 mths sounds ok given the good growth story. At least they dont fall into the category of net loss and still paying bonus and increments to management staff. That would be a bad reflection of managerial prudence in payroll.

(24-05-2015, 08:49 AM)vesfreq Wrote: Very good answer. Is the 10% of pbt an assumed or observed figure? Just to satisfy my curiousity. Hahaha.

6 mths sounds ok given the good growth story. At least they dont fall into the category of net loss and still paying bonus and increments to management staff. That would be a bad reflection of managerial prudence in payroll.

The 10% of PBT for top management, has been stated in the service agreement since IPO. It was stated in the IPO prospectus, and remains valid till to-date.

Referring to IPO prospectus page 121-122,

"In addition, Mr. Lim Hock Chee, Mr. Lim Hock Eng, Mr. Lim Hock Leng and Mr. Tan Ling San shall each
be entitled to receive a fixed bonus of two (2) months salary per annum (the “Fixed Bonus”), payable at
the end of each FY and an annual incentive bonus (the “Incentive Bonus”) of a sum calculated based on
the audited consolidated profit before income tax (“PBT”) of our Group inclusive of CPF payable by the
Group, if any. If their respective employment with our Company is for less than a full FY, the Fixed Bonus
and the Incentive Bonus for that FY shall be apportioned in respect of the actual number of days of their
respective employment on the basis of a 365-day FY."

(24-04-2015, 04:19 PM)CityFarmer Wrote:

(24-04-2015, 01:07 PM)vesfreq Wrote: Cf,

The part which worries me is china expansion. If tesco went into china and came out bleeding, then what would make ssg different from them? Also, tesco laid foot in china years earlier n for a very long time. Bearing in mind that buffet was also vested in tesco.

Singapore retail mkt is quite different from china. Correct me if i m wrong. Was reading tesco did the loyalty cards in china mkt and that didnt close the deal with the retail consumers in china. There were other thgs they did too but apparently they still bled.

Ssg has cost advantage in singapore cos of its size and centralised warehousing. China is a massive market with massive players. China issues aside, the cost of foreign labour is likely to hit ssg in 2016 with the higher foreign worker levies. For r2 foreign worker alone, its a jump from 550 to 650. Though revenue upside still avail in singapore market, considering the eventual govt target 6.9m population (from the press). Informal sources hinted 10m. If 10m, ssg revenues will fly (almost).

Your views? Just my thoughts. Correct me if i m wrong.

Vested in tiny numbers. Wanted to attend their agm but another list co also same time n date. Hope ssg had some vision on their china plans.

I do have a view on the China venture. Let me share and comments are welcomed.

Let's start a bit on "Sheng Siong way". In Singapore, Sheng Siong (SS) is the smallest among the top 3 players. Size enables SS to capture market share from smaller players and partly from DairyFarm Shop N Save, but not the key reason to remain competitive in Singapore, IMO. The warehouse helps in cost saving, but it is not due to hardware, but the "software". FYI, NTUC has a warehouse too. SS stands out among the top 3 players, in margins, and market share.

In short, the key merit of SS way, is the processes, or "software". I attended the recent AGM. I agreed with CEO statement, SS remains transparent to outsiders, without worrying the copycat, because the more valuable part is the "heart", or the "software" i.e the company processes and the corporate culture. That is hard to copy.

Let's move back to the main topic, China venture. I don't pretend I am sure the company will success. There is not so even within SS management. What I saw is the ingredients of success i.e. a good China partner, who appreciates SS way. Tesco is big, walmart is also big, both fail in one way or the other in China. They went in without suitable partner. DairyFarm went in with good partner recently. I believe both DairyFarm, and SS will success in China eventually.

(vested)

Hi CF,

I gave your statement more thought and also thought back about Wong FF's success at Boustead. Anyone could own boustead and turn it around. But, it is the "software" which you rightly pointed out. There is indeed a difference between "fortunate because able" and "fortunate and able".

Recently, I walked past one of these old names. This local biz used to have a chain of outlets dotting round the island. It did incredibly well with margins close to 50% and was blessed with various powerful competitive advantages. But, it depended so much on legal advantages and exclusive distribution rights to the point where the company's financial viability was immediately threatened when amazon/ebay/taobao/etc arose and provided an easy avenue for consumers to reach cheaper substitutes. Like many competitors, this biz faced pressure and eventually downsized and cut down on headcount. But, SS wouldn't worry over amazon/ ebay and cheaper substitutes. To quote Peter Lynch when he was vested in Dunkin Donuts, he "didn't have to worry about cheap korean imports" (from one of those youtube videos).

The rather amazing thing about SS is exactly what you cited. They didn't have to worry about copycats. The "software" is something very difficult to replicate. On that basis, China expansion is not a sure fail. Getting clearer to me now.

Perseverance makes a difference. Thinking about what my neighbour said about Mr Lim Hock Chee being a "gan zhuo gan wei" man, I am seeing more "light" and find that SS can go anywhere even, because of the right "software". During times of recession, its still going to be business as usual. My mum's favourite shopping spot was still sheng siong for the pears and apples.

I think the problem with mr market is the lack of conviction in ss. Due to which, he is obviously unconvinced and allowed the share price to retreat from the 90 cent region.

Back to Peter Lynch's important principle, we have to invest in companies which we understand. This is still one of the easiest to understand business, since the days I ventured into UE and Boustead.

Vested today in significantly larger numbers today + vote of confidence for SS.

(04-06-2015, 08:31 PM)vesfreq Wrote: Hi CF,

I gave your statement more thought and also thought back about Wong FF's success at Boustead. Anyone could own boustead and turn it around. But, it is the "software" which you rightly pointed out. There is indeed a difference between "fortunate because able" and "fortunate and able".

Recently, I walked past one of these old names. This local biz used to have a chain of outlets dotting round the island. It did incredibly well with margins close to 50% and was blessed with various powerful competitive advantages. But, it depended so much on legal advantages and exclusive distribution rights to the point where the company's financial viability was immediately threatened when amazon/ebay/taobao/etc arose and provided an easy avenue for consumers to reach cheaper substitutes. Like many competitors, this biz faced pressure and eventually downsized and cut down on headcount. But, SS wouldn't worry over amazon/ ebay and cheaper substitutes. To quote Peter Lynch when he was vested in Dunkin Donuts, he "didn't have to worry about cheap korean imports" (from one of those youtube videos).

The rather amazing thing about SS is exactly what you cited. They didn't have to worry about copycats. The "software" is something very difficult to replicate. On that basis, China expansion is not a sure fail. Getting clearer to me now.

Perseverance makes a difference. Thinking about what my neighbour said about Mr Lim Hock Chee being a "gan zhuo gan wei" man, I am seeing more "light" and find that SS can go anywhere even, because of the right "software". During times of recession, its still going to be business as usual. My mum's favourite shopping spot was still sheng siong for the pears and apples.

I think the problem with mr market is the lack of conviction in ss. Due to which, he is obviously unconvinced and allowed the share price to retreat from the 90 cent region.

Back to Peter Lynch's important principle, we have to invest in companies which we understand. This is still one of the easiest to understand business, since the days I ventured into UE and Boustead.

Vested today in significantly larger numbers today + vote of confidence for SS.

Welcome on board, fellow shareholder.

Breaking up ROE of Sheng Siong:

http://www.fool.sg/2015/06/15/can-sheng-...ing-stock/

<not vested, missed the boat>

(19-06-2015, 09:01 PM)Bubbachuck Wrote: Breaking up ROE of Sheng Siong:

http://www.fool.sg/2015/06/15/can-sheng-...ing-stock/

<not vested, missed the boat>

I have no dispute on the conclusion, but I would like to add few points

The ROE has gone lower in FY2014, due to the new strategy of properties acquisitions, beside shop rentals. The required fixed asset was increased. One important point, is, 40% of total asset is cash reserve. The asset turn-over has been distorted, thus the ROE. The "real" ROE should be higher.

Having the acquired properties as pre-paid rental, the OCF will be improved. In short, the cash return is improved. In FY2014, net profit improved by 22%, while OCF improved by 70%. The diluted OCF per share also improved by 46%, due to the share placement.

(vested, and sharing few points in my record)