Sheng Siong Group

[Big Toe]

Looking at Sheng Shiong, it does have its competitive advantages.
Not exactly copy-proof but probably sufficient to fend off new entrants
and differentiate itself from the other chains.(at least for some time.)

1. Location and labor. One of its strategies is to minimize fixed costs, they started out in the most ulu locations and
this holds true for a lot of their locations.

2. Product differentiation, they do offer products that other chains do not. I.e. Live seafood.
Dairy farm's chain probably has a lot more in common with NTUC rather than with Sheng Siong,
though the 3 compete for the same pie.

3. This is an evergreen industry(though somewhat limited growth), there will be this amount of shopping dollars allocated for groceries. This will translate into an X amount of market size. This market will always exist and should be able to weather downturns quite well.

[Ben]

I don't have positive outlook for SS. They used to be a no frill supermarket that offer cheaper prices than others. Not anymore. Just do a check and you can see that many items are priced at the same as its competitors. If prices are not cheaper than others, why would one bother to travel to those ulu places just to buy their groceries?

Also, SS are "throwing" away monies like free water by giving away those huge cash prices in their weekly show. Ultimately, who is going to pay for all these prizes? Yes, the consumers themselves. PSC used to have this show too, but I think they stopped some years back. Other supermarket chains are not doing it either. I estimate that they probably need to pay out more than $100K per show. With margin razor thin in supermarket businesses, how much must they sell additionally just to recover these costs? One thing I am not sure is if these cash prizes are co-sponsor by suppliers, as this is a normal practice in retail business. But since they are no mentioning of co-sponsoring in the shows, I believe SS is paying for everything.

[mrEngineer]

My company does quite extensive marketing in Indonesia and also once had gameshows, exhibition events, gigantic print ads and even rewards card to enhance the branding.The estimated marketing costs was approx 2 million USD annually. Therefore, it may seem extravagant but it is not entirely significant.

Berkshire also have it's fair share of advertising like WB in the insurance advertisement, AGM carnival. When you are dealing with FMCG, branding costs cannot be avoided.

[piggo]

Advertising shouldn't be a necessity when you're selling necessities. The cost of the shows are not kept at the prizes, the hosts, the set up, right down to the air time should be quite costly as well. But will probably have to do some homework to gauge if it's really an extravagance.

I think by keeping prices generally low (like how it used to) would be enough of an "advertisement" (through word of mouth etc) by itself. After all, price is the ultimate decisive factor for their target market. There is no point investing in branding when there can are no brand loyalty to speak of. That said, I do like how they 'innovate' the supermarket place by taking the risk of bringing in live products.

[cif5000]

I estimate that they probably need to pay out more than $100K per show. With margin razor thin in supermarket businesses, how much must they sell additionally just to recover these costs? One thing I am not sure is if these cash prizes are co-sponsor by suppliers, as this is a normal practice in retail business. But since they are no mentioning of co-sponsoring in the shows, I believe SS is paying for everything.

A good businessman is someone who can give to the society. If he can benefit the people, he is in business. Not necessarily will he get "fat margins", "high return on capital employed", "double digit growth", etc, but it is the satisfaction when the customers are happy. When the customers are happy and you don't lose money, you are in business.

Unfortunately, investors have different expectations. Many associate maximizing shareholder's value with maximizing profits. And that's one reason why many private companies chose to remain private. And for those who overcame this obstacle, some experienced regret.

[Big Toe]

Running a small business myself, it is never prudent to maximize profits all the time.
Giving back via a gameshow is one way of branding and rewarding customers.
While some may argue it may not be the best, but at least it's there.

Also there is just too little emphasis on relationship management with the customers in too many industries.
Customers do go back to the businesses with people they are comfortable with. It does make a whole lot of difference.
If a cashier at a supermarket chain is bothered enough to know you and greet you by your name and have a bit of chat,
unknowingly you will go back to the supermarket. This is moat building. Unfortunately most companies do not see the importance and some may view it as an inefficiency.

[Ben]

Giving back via a gameshow is one way of branding and rewarding customers.

Gameshow is indeed brand building, but not necessary rewarding customers. Only the very few lucky customers are rewarded, and the rewards are "funded" by many other customers. I would prefer SS to remain the no frill supermarket that offer prices cheaper than others. Never mind the location, never mind the ambience, as long as it is value for money. This way, I think many more customers will be rewarded.

[Big Toe]

The gameshow does reward the customers, not in a monetary way but it provides entertainment for a significant percentage of their customers.

[steven]

Issue Stats

Offer size:_____________________351.5m shares (201.5m primary shares and 150m secondary shares)
Issue structure:_________________Placement - 336.5m; Public Offer tranche - 15m
Greenshoe:____________________15% of offer size
Enlarged Issued Capital:__________1.342 bn shares
Indicative Price Range:___________S$0.36 – S$0.40 per Share
Indicative Market Cap:____________S$483m – S$537m
Indicative FY10 PE (Fully diluted):___11.3x ~ 12.6x
Indicative PB (latest B/S):__________7.6x ~ 8.4x P/B
Roadshow and Bookbuild__________11 July - 22 July
*Pricing and Allocation: ___________TBA
Registration:____________________TBA
Public Offer:____________________TBA
Listing:________________________17 Aug
Use of proceeds:________________Repayment of term loan, expansion, working capital

Factsheet Below
https://viewer.zoho.com/docs/ibEadb

[steven]

http://business.asiaone.com/Business/New...92961.html

Friday, Aug 05, 2011
AsiaOne

Sheng Siong woos IPO investors with 90% dividend

Local supermarket chain Sheng Siong is offering a juicy incentive to investors who sign up for its initial public offering (IPO), which was launched today.

Singapore's second-largest grocery chain will distribute as dividends up to 90 per cent of net profit after tax in FY2011 and FY2012.

The family-run firm has priced its Singapore initial public offering at $0.33 per share, according to a prospectus filed with the Monetary Authority of Singapore on Thursday.

It will offer 351.5 million shares - 201.5 million new shares and about 150 million vendor shares - and is expected to raise $62.6 million in net proceeds.

Of this, about 15 million will be available to retail investors in the public tranche, while the remaining 336.5 million shares will be sold to larger, institutional investors via share placements.

The Lim brothers from the firm's founding family - Hock Chee, Hock Eng and Hock Leng - will receive about $48.2 million as they pare down their stakes during the listing.

The public offer opened at 9am today and will close at noon on Aug 15.

The chain, which has 24 stores throughout Singapore, reported revenue of $628.4 million last year with net profit of $42.6 million. OCBC Bank is the issue manager, underwriter and the placement agent. It said proceeds from the IPO will go towards repaying debt, the development and expansion of its grocery business both in Singapore and overseas, and for working capital.


ellenja@sph.com.sg