Sheng Siong Group

(22-10-2015, 02:30 PM)Sampling Wrote:

(22-10-2015, 09:36 AM)CityFarmer Wrote: One interest observation on online grocery shopping market. The Redmart is a threat to Sheng Siong, but the Honestbee has supplemented the company biz, by providing the delivery service. Redmart is having a tougher time now, with Honestbee around...

Redmart - needs to hold inventory, manage it, etc. Higher margins but there's inventory risks.

Honestbee - every transaction is a potential profit. They may have a smaller market share but seems like there are more profitable. I think their model is similar to Food Panda.

Hmmm Food Panda delivers from restaurants, Honestbee from grocery stores.

Anyone has any idea how this business model can be applied to other things? Medical supplies? Contact lenses?  furniture?

 
The delivery model is a difficult one to succeed in my opinion. One has to deal with part time delivery men where the turnover rate is high. This may affect operations reliability. Also, it works only because labour cost is low. If labour cost creeps up because of manpower shortage (and we see the foreign labour tap being tightened), how much is the customer willing to pay for convenience? My gut sense is not very much. Taking in fuel costs, labour, overheads, it looks to me like a tight squeeze on profits.

(22-10-2015, 08:44 PM)CityFarmer Wrote: Sheng Siong 9 month result is announced, earlier than I expected. The net profit grew much faster than revenue, showed that the net margin continue to improve. The nine-months gross margin and net margin are 24.6% and 7.3% respectively.

So far so good, both existing biz, as well as the expansion. There are more to come.

Time to revive the report, and update the valuation.

(happily vested)

I have always enjoyed reading your reports. Eagerly awaiting.

Btw, I also notice that the amount of rental that SS receives is rising. Interesting...

(23-10-2015, 11:09 AM)Dividend Knight Wrote:

(22-10-2015, 08:44 PM)CityFarmer Wrote: Sheng Siong 9 month result is announced, earlier than I expected. The net profit grew much faster than revenue, showed that the net margin continue to improve. The nine-months gross margin and net margin are 24.6% and 7.3% respectively.

So far so good, both existing biz, as well as the expansion. There are more to come.

Time to revive the report, and update the valuation.

(happily vested)

I have always enjoyed reading your reports. Eagerly awaiting.

Btw, I also notice that the amount of rental that SS receives is rising. Interesting...

Yeah the Q3 net profit growth is largely driven by increased rental income and 'misc income'. The misc income was due to sponsors from business partners for a 'special event' as stated in the quarterly report. Any idea what that is? 
Stripping out these incomes, net profit growth would be much lower at about 7% YoY.

Revenue growth has been largely supported by new store openings, while same store sales growth is flat at+1%. I think the growth from new stores will still be there for the next 2-3 years, but there's a limit to it.

The updated report on Sheng Siong, after the 9M 2015 result.

All comments are welcomed. Thanks

(vested)

(06-11-2015, 03:49 PM)CityFarmer Wrote: The updated report on Sheng Siong, after the 9M 2015 result.

All comments are welcomed. Thanks

(vested)

Hi CF, thanks for the sharing. Finally 'digested' the report. As always, detailed, straightforward and concise. Very informative indeed.

My thoughts. You mentioned the saturation point for Sheng Siong will be 70-80 stores. Their current strategy for expansion is to buy properties and consider them 'paid advance rental'. However, based on the cash horde on the balance sheet, I do not think they can use this strategy until they achieve 70-80 stores. In other words, along the way, SS still needs to rent retail space which might narrow future profit margins.

(07-11-2015, 07:41 PM)Dividend Knight Wrote:

(06-11-2015, 03:49 PM)CityFarmer Wrote: The updated report on Sheng Siong, after the 9M 2015 result.

All comments are welcomed. Thanks

(vested)

Hi CF, thanks for the sharing. Finally 'digested' the report. As always, detailed, straightforward and concise. Very informative indeed.

My thoughts. You mentioned the saturation point for Sheng Siong will be 70-80 stores. Their current strategy for expansion is to buy properties and consider them 'paid advance rental'. However, based on the cash horde on the balance sheet, I do not think they can use this strategy until they achieve 70-80 stores. In other words, along the way, SS still needs to rent retail space which might narrow future profit margins.

The acquisition of properties for new stores, is only applicable when necessary. For e.g. the newly open 5 stores, only Tampines Central one is acquired, the rest are rented, IIRC. I reckon, if rental is acceptable, renting is always a better option over acquisition, in order not to jeopardize ROA/ROE.

We have seen early sign of rental stabilizing in FY2015, after the peak in FY2014. Based on 9M report, the store GFA increased more than 5%, while rental only increase by 0.6 mil (or +3%).

(Sharing a view)

(25-10-2015, 11:06 AM)spinfire Wrote:

(23-10-2015, 11:09 AM)Dividend Knight Wrote:

(22-10-2015, 08:44 PM)CityFarmer Wrote: Sheng Siong 9 month result is announced, earlier than I expected. The net profit grew much faster than revenue, showed that the net margin continue to improve. The nine-months gross margin and net margin are 24.6% and 7.3% respectively.

So far so good, both existing biz, as well as the expansion. There are more to come.

Time to revive the report, and update the valuation.

(happily vested)

I have always enjoyed reading your reports. Eagerly awaiting.

Btw, I also notice that the amount of rental that SS receives is rising. Interesting...

Yeah the Q3 net profit growth is largely driven by increased rental income and 'misc income'. The misc income was due to sponsors from business partners for a 'special event' as stated in the quarterly report. Any idea what that is? 
Stripping out these incomes, net profit growth would be much lower at about 7% YoY.

Revenue growth has been largely supported by new store openings, while same store sales growth is flat at+1%. I think the growth from new stores will still be there for the next 2-3 years, but there's a limit to it.

In a way, the upside is quite limited by the rate of increase in number of outlets. 

Still, what will change their game play is the success (or failure) of their china expansion plans. Singapore market still small. SSG needs a bigger critical mass (of consumers) to up its earnings. 

As I was talking to a fellow investor friend, he holds blue chips and some mid caps (in property sectors), but he wrote off SSG for a few reasons. It is interesting to understand why he said these and it may be of interest of fellow forum members. 
1. SSG's PE is rather high. About 23.89 times (from yahoo finance). 
2. NTA per share is 15.7 cents (2014 figure, extracted from OCBC research).
3. Retail market under much rental and labour cost pressure. 

As for point 1, that PE of 23.89 is still sustainable provided that SSG continues to expand towards their eventual goal of 50 stores which I read somewhere (can't recall the source). And, continued population growth towards the earlier "White paper" goal of 6.9m will certainly help sustain sales growth. Point 2 is irrelevant, because valuation of the biz cannot be based on NTA. A fairer measure still is future earnings.

What I find worrying is the rental and labour costs. These are on eventual uptrend and its inevitable that these are prone to inflationary pressure. Rentals of good locations will always come at a premium. With fewer locations to expand to, SSG will eventually be pressured to take a foothold in more premium locations, in order to ensure revenue growth. 

Just my view. 

Still vested.

The company PE gives a distorted valuation, with the company's high Quality of Earning (QoE). QoE is the ratio of OCF/Earning(accounting), which mean the cash generation is much higher than the "accounted" earning. The latest QoE was 1.5, and will become higher after more properties TOPed.

The rental and labor issues, can be viewed as raising the bar for existing incumbents and "higher entry barriers" for new comers. DF is suffering from the issues with its mid-to-low end markets, and allowing NTUC and SS to capture more market shares in their respective targeted segments. The same issues were faced by new players e.g. online stores with their logistic labor cost, and warehousing rentals.

(vested in SS)

(22-10-2015, 09:36 AM)CityFarmer Wrote: One interest observation on online grocery shopping market. The Redmart is a threat to Sheng Siong, but the Honestbee has supplemented the company biz, by providing the delivery service. Redmart is having a tougher time now, with Honestbee around...


Grocery delivery startup honestbee gets US$15m funding
22 Oct 2015 09:00
By Jacquelyn Cheok

HONESTBEE, a homegrown on-demand grocery delivery startup, has bagged US$15 million in Series A funding led by Silicon Valley-based tech investment firm Formation 8.

Co-founder Isaac Tay told BT on Tuesday: "(With the money), we intend to expand across Asia. We recently launched in Hong Kong and will be extending our services to Taiwan and other parts of Asia."

Launched here in August, honestbee offers the delivery of over 15,000 products from supermarkets such as NTUC FairPrice and Sheng Siong as well as specialty stores such as Pet Lovers Center, Gastronomia Da Paolo, Mmmm!, The Butcher's Dog, Crystal Wines, GNC and Four Seasons Organic. The company holds no inventory.
...
Source: Business Times

The counter-measure from RedMart, on honestbee's threat... An interesting online grocery shopping market trend...

RedMart rolls out online store to deliver within one hour of purchase

SINGAPORE (Nov 30): Online grocery service provider RedMart has launched an on-demand marketplace, RedMart Relay, which allows customers to order products from participating food and retail partners.

These products, including food, household items, apparel and electronic items, will be delivered by "Runners", or personal shoppers who go to the participating stores, purchase the products, and deliver directly to the customer, within one hour of ordering.
...
http://www.theedgemarkets.com/sg/article...r-purchase

strange, now we need runners to buy our own groceries??