Sheng Siong Group

[CityFarmer]

First of all, I don't know much about Parkson. I will do a preliminary comparison with basic fundamentals of Parkson.

Let's start with margin. In retail business, margin isn't the only indicator for profitability. The asset turnover is also one of the key indicator.

Parkson asset turnover is approx 1, but SS is close to 3. SS's margin is about 5%, while Parkson is 9%, but the profitability of SS is higher than Parkson by ROA/ROE. SS's ROA/ROE is 16%/26%, while Parkson is 9%/16%.

Next is the marketing cost on Sheng Siong Show. In fact, it is a good use of the marketing money, IMO. The expense is not isolated in the AR, so I assume it is not significant, comparing with the sale volume of SS.

(vested)

With a mere 5% profit margin and 4% dividend payout, how can we still categorise it as a "fast growth" company with only 1% left? With PE of 21 and PB of nearly 6, i think somehow it has been overpriced, moreover it operates in a very competitive business where currently being dominated by FairPrice and Giant. I would prefer a lower PB and PE before considering to invest.

The concern seems on there are too little earning retained for organic growth. You are right, but not entirely.

You are right that little earning was retained for growth so far, and very likely the same in the future.

But you are wrong that most of the retained earning is needed for growth. SS business model has negative working capital, in other words, they don't need extra fund for working capital to grow. The requirement for capital expense (PPE) is also pretty low, and should be sufficiently covered by the 1% left

(vested)

[valuebuddies]

I don't foresee any problem on SS's funding, they are debt free anyway. But question here is that how fast have they expanded their outlets (obviously I don't know as I never check) and whether are there any more rooms for them to place their outlets? We have plenty of supermarkets everywhere around the island, so IMO the growth that we can anticipate from SS will be a take over.

[CityFarmer]

I don't foresee any problem on SS's funding, they are debt free anyway. But question here is that how fast have they expanded their outlets (obviously I don't know as I never check) and whether are there any more rooms for them to place their outlets? We have plenty of supermarkets everywhere around the island, so IMO the growth that we can anticipate from SS will be a take over.

Well, this was one of the questions asked to myself. Is there room for SS to expanse in Singapore? Not for a meagre growth, but substantial growth for a multi-bagger?

SS expansion targets on highly dense estates. Have SS covered all of them? I referred to Singapore Statistic, and listed down the top 10 towns by population

Woodland, Jurong West, Tampine, Bedok, Hougang, Yishun, AMK, SengKang, Choa Chu Kang and Bukit Merah.

Base on rough scan via SS shop addresses, SS seemed has no present in Tampine, Hougang, Sengkang, Choa Chu Kang, Bukit Merah. So it is 50% room, by taking equal weightage approach. More if we consider excess room on existing present towns.

That excludes the potential of online store, Malaysia market, and the same store sales growth of existing stores.

(vested)

[CityFarmer]

The Sheng Siong story remains intact. The same store sales will continue to grow, together with sales from e-store, and new store, if any. Will 20% earning growth sustainable? Well, I am cautiously optimistic on that...

(vested)

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Sheng Siong Group’s net profit grew 19.3% yoy to S$12.5 million for 1Q2014
 Revenue increased 5.7% yoy to S$189.7 million in 1Q2014 largely due to higher new stores sales and comparable same store sales growth
 Gross profit margin increased from 23.2% in 1Q2013 to 23.8% in 1Q2014 mainly due to lower input costs derived from its Mandai Distribution Centre and higher selling prices
 Committed to nurturing and growing new stores, expanding store footprint across Singapore and deriving further cost savings from Mandai Distribution Centre

http://infopub.sgx.com/FileOpen/SSG_1Q20...eID=292985

[CityFarmer]

OCBC Investment Research's analyst report. Nothing new was reported, almost the same as the company announcement.

(vested)

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Sheng Siong Group: Margin improvement drives 1Q14 results
 1Q14 results in-line
 Better GP margin as results’ key driver
 Downside in share price limited

1Q14 results within expectations
Sheng Siong Group’s (SSG) 1Q14 revenue increased by 5.7% YoY to S$190m, forming 26.3% of our FY14 forecast. This is within expectations as 1Q results are typically stronger due to Chinese New Year. 2.7% of the revenue increase was contributed by eight new stores which opened in 2012, with the remaining 3.0% from comparable same store sales growth; the latter due to longer operating hours for most stores and marketing initiatives. As a result of better gross profit (GP) margin, 1Q14 operating profit increased proportionally higher by 20.7% to S$12.5m (vs. 5.7% YoY increase in revenue), forming 29.0% of our FY14 forecast.

Margins as key driver this quarter
GP margin improved by from 22.5% in 1Q13 to 23.8% in 1Q14. Despite the seemingly small percentage increase, we identify this as the key driver for the significant YoY increase in operating profit as COGS made up 82.1% of operating costs in the quarter. The better GP margin is due to lower input costs derived from the distribution centre, higher selling prices and rebates received from suppliers in direct sourcing. On the other hand, administrative expenses were lower than expected, making up 15.8% of revenue in 1Q14 compared with an average of 16.2% for FY13. We had expected it to creep upwards as a percentage of revenue on the back of a tight labour market, but this is more than compensated for by tight cost control this quarter.

Share price’s downside limited; maintain BUY
We see limited downside at the last closing price of S$0.60 for the following reasons: 1) FY14F dividend yield at 4.8% is expected to lend strong support, 2) bottom line will continue to be boosted by margin improvements through better sales mix, higher warehouse utilisation and direct sourcing, and 3) the group has a healthy balance sheet with net cash of S$109m, making up 13% of market capitalisation. Maintain BUY with fair value estimate of S$0.68. (Yap Kim Leng)
http://remisiers.org/cms_images/research..._Pulse.pdf

[mkmk]

UOBKH's analyst report. Similar to what CityFarmer had posted earlier on OCBC
(not vested)

VALUATION
Sheng Siong Group (Sheng Siong) is currently trading at consensus 2014F and 2015F PE of 21.4x and 19.4x respectively. This is in comparison to Dairy Farm International’s PE of 25.8x and 23.4x. The group’s earnings are projected to grow at a 3-year CAGR of 6.5%. 4.3-4.8% dividend yields for 2014-16 based on consensus forecasts. Consensus 12-month target price of S$0.67 implies an upside of 8.1% from the current level.

INVESTMENT HIGHLIGHTS
5.7% yoy revenue growth beat consensus and management expectations.
1Q14 revenue of S$189.7m represents 26.4% of consensus full-year forecast. About 2.7ppt of revenue growth was attributable to eight new stores that opened in 2012 while 3ppt was due to higher sales from existing stores. The latter was also helped by the 24-hour operations in 29 outlets. Top-line growth beat management’s 5% guidance. The eight new stores are expected to continue to ramp up sales for the rest of the year. The group will also be renovating three outlets that have been underperforming (growth of 1% or less), temporarily shutting down operations at two while partially closing one.

Margin improvement despite operating cost pressures due to higher prices and lower cost of goods.
Sheng Siong’s gross margin edged higher from an adjusted 23.4% in 4Q13) to 23.6% in 1Q14) while operating margin improved from
6.6% to 7.9%. Management attributed these to: a) higher selling prices, b) lower input costs due to bulk and direct purchasing, c) better operating leverage, and d) lower distribution expenses on improved efficiency. The group has been able to manage labour cost pressures so far as we estimate that 25-35% of its personnel expense is variable. There is also minimal cost added from its 24-hour operations as operating expenses such as utilities are already fixed (ie freezers always operate 24 hours) while only a lean staff count is needed to cover night shifts. Net profit rose 19.3% yoy to S$12.5m, representing 30.7% of consensus full-year forecast.

Still shopping for new space; industry trend towards premium pricing.
Management continues to be actively scouting for good locations to set up new outlets. While availability is not an issue, negotiating the right terms and suitability of the space are more challenging hurdles. Supermarket players are also seen to be shifting towards high-end pricing as cost pressures are expected to remain. As an indication, Dairy Farm’s upscale supermarket brand (Cold Storage) continued to perform well in 2013 while mid-market brands (Giant, 7-Eleven) were affected by escalating costs, sluggish consumer demand and intense competition.

[CityFarmer]

The company online store has been improved. The area covered improved from only Thomson to 16 areas. The product line-up in the online store also be improved, which includes fresh veg/meat/fruit as well.

Looking forward for the half year report, which should has its maiden online performance.

(vested)

[CityFarmer]

The company is purchasing a suitable location for new stores in Tampine Central, costs $65 mil.

Assuming the deal is completed, There will be at least 910 sqm of new store space in early 2015, and gradually increase till 2017 in Tampine Central. The Yishun one will be TOPed, and ready for new stores around 2017 too.

At the mean time, the growth will be supported by Same-Store revenue growth, and the online store. The outlook of SS story seems promising...

(vested)

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The Board of Directors of Sheng Siong Group Ltd. (the “Company” and together with its subsidiaries, the “Group”) wishes to announce that the Company’s wholly-owned subsidiary, Sheng Siong Supermarket Pte Ltd (the “Purchaser”), has been granted an option by S-11 Wan Jin Investment Pte Ltd (the “Vendor”) dated 30 May 2014 (the “Option”) to purchase a three-storey Housing and Development Board (“HDB”) commercial property (the “Property”) at Block 506 Tampines Central 1 #01-361 Singapore 520506 (the “Proposed Acquisition”) for an aggregate consideration of S$65 million (the “Consideration”). The Option may be exercised within 14 days from the date of the Option, and the Purchaser has exercised the Option on 9 June 2014.
The Property has a gross floor area of approximately 3,876 square metres with a leasehold tenure of 99 years commencing from 1 January 1991. The Property will be acquired subject to existing tenancies which will expire at various dates between 2014 and 2018 (“Existing Tenancies”).

http://infopub.sgx.com/FileOpen/SSS_506_...eID=300703

[grubb]

The company online store has been improved. The area covered improved from only Thomson to 16 areas. The product line-up in the online store also be improved, which includes fresh veg/meat/fruit as well.

Looking forward for the half year report, which should has its maiden online performance.

(vested)

Hi CF,

I am looking forward to see the performance of the online store as well. Historically, online grocery shopping has been extremely tough. Perhaps SS could be different?

extracted from the article:

http://www.forbes.com/sites/investopedia...s-failing/

7. No Cost Advantage
The premise behind internet grocers was that shoppers would pay more money for goods delivered to their door. However, the opposite is true. Most shoppers will only order groceries online when they can be assured of saving money. Amazon and other web retailers cut consumer costs by centralizing their products in out-of-state warehouses. This way, they can use national shipping infrastructures, minimize their locations and save consumers the sales tax.

In contrast, an internet grocer must have a warehouse in every metro area along with their own fleet of specialized delivery vehicles, all while charging the same sales tax as a competing supermarket. Due to these expenses, grocery delivery services could cost more than food purchased at a local supermarket.

[psolhawk]

Location of the Tampines store is good. Even with a mediocre Giant outlet at the premise now, business is brisk on weekends. Sheng Siong should do better. That will be the first Sheng Siong in Tampines.