Sheng Siong Group

[GreedandFear]

Great company but their store opening programme has stalled. No new openings in the last two quarters despite the company's stated objective to increase store count. At the same time, same store sales is negative, the Internet roll-out seems to be always in the future and the company seems to have gone silent on potentially expanding into Johor (where it claims its brand is well known through Singapore TV). It is one of those companies where I would love to own the tok again but at these multiples I think the market has just got too far ahead of itself

[weijian]

The 3 Lim brothers and Mr Tan (former PSC founder) are drawing ~1.7mil each based on last full financial year FY12 disclosure, translating to ~7mil of pay. Based on latest reports at FY13, SSG has a market cap of 820mil and 40mil in net profits.

Comparatively:
- DairyFarm: in FY12, whole board+management earned ~18mil USD (23mil SGD), with market cap of 13.5billion and net profit of 620mil
- SGX: in FY12, Magnus Bocker earned 3.9mil and chairman/director fees came to 6mil, with market cap of 8billion and net profit of 290mil.

As per IPO prospectus disclosure, part of the 3 brothers' remumeration is each will be drawing 2.5% of PBIT. With this formula, it seems like they always be drawing ~12-15% of net profit on an annual basis.

With ~69% ownership, wouldn't the Lim brothers be better off by reducing their remumeration to boast profits (with similar P/E) and hence increase their TOTAL wealth via their ownership?

Putting the 100% increase in price since IPO aside, are minority shareholders' interests aligned with Management in the long term?

[felixleong]

thanks for pointing out on this point


sadly the management is milking too much off the business, leaving little for shareholders
they should pay themself in forms of more dividends, would be more fair to all shareholders and their employees who loaded their shares during IPO

great business but greedy management

[NTL]

How about seeing it as an incentive for the management to improve the results? (Hopefully not by creative accounting)

[Big Toe]

The hard truth is that many companies, even though public listed, is run by businessmen.
If the intention is to share all the company's wealth and with shareholders, most companies would not be listed.
They work very hard to grow the company and got it listed. Think about it.

---

Wishing that all/most public companies have their interest aligned completely with the shareholders is naive.
Will happen only in very very few companies or when the majority stake is owned by the board/chairman/CEO.

[weijian]

How about seeing it as an incentive for the management to improve the results? (Hopefully not by creative accounting)

In one of the earlier postings in this thread, d.o.g had already summed it up very nicely - They ALREADY own close to 70% of the company, what other motivation is required?

But one can't deny that this is an incentive for Mgt to improve as remumeration increases with PBIT, although they will always take the first (big) bite of the pie before sharing it with the rest.

[yeokiwi]

With ~69% ownership, wouldn't the Lim brothers be better off by reducing their remumeration to boast profits (with similar P/E) and hence increase their TOTAL wealth via their ownership?

Remuneration is real cashflow.
Total wealth is virtual until you sell your stake.

In this case, each brother will be subjected to 20% income tax and so their take home pay is around $1.36million + whatever declared dividend.
If they decide to give up their pay and receive the remuneration via dividend, it will be 7.0 million x 0.83 x 0.7 / 4 = $1.01 million + whatever additional declared dividend.

So, if you are the owner, is there anyone here willing to cut 26% of your income to make the rest of the shareholders happy?
Or if you are the superior of a few staffs, did you ever give up some of your bonus to reward your hardworking/non hardworking staffs?
As far as I know, most of the times, the superior often gets a higher bonus than their staffs.

[NTL]

When talking about Owners' Renumeration, another company comes to mind. Neo Group.

Looking at their latest AR,

Revenue: $41.7M
Profit before tax: $3.5M
Profit after tax: $3.0M

Neo Kah Kiat : $250,001 - $500,000
Liew Oi Peng (spouse) : $250,001 - $500,000

So in total, the Neo's family ripped a possible of 16-33% of the PAT.

What is Sheng Siong compare with this?

[valuepunter]

It's like that one...they don't make money, you KP. They make money, you KP profit too little. They make more money, you KP their remuneration too high.

Everything give you lah. Make a general offer. Then we see how good you are and how fair you pay yourself.

[cyclone]

It's like that one...they don't make money, you KP. They make money, you KP profit too little. They make more money, you KP their remuneration too high.

Everything give you lah. Make a general offer. Then we see how good you are and how fair you pay yourself.

IMHO, one of the aspect to consider in investing in a company is management remuneration. It's not abot KP that or KP this. Let alone to extend the statement to general offer thingy, it's not appropriate. Thanks.