Sheng Siong Group Ltd is a Singaporean supermarket chain listed on the Singapore Exchange (SGX). It is one of the biggest supermarket chains in Singapore and has been expanding well over the past few years. This is a stock which I have been eyeing for some time and plan to go in with my money. In this article I will also give information and provide more in-depth analysis that only a local would know and which cannot be obtained from just reading the financial statements or from Googling.

Brief Background

Sheng Siong started its first store in 1985, and as of today they have 70 stores around Singapore. It was listed on the SGX in 2011, and from then on its share price has been generally increasing over the years. Below is the yearly chart of Sheng Siong’s share price.

sheng siong stock chart

Price Is Everything

Sheng Siong caters mainly to the masses who go for cheaper prices. Other supermarket chains like NTUC Fairprice, Giant and Cold Storage have branches in the central areas so that working adults can conveniently buy some groceries after work and before heading home. These supermarkets also have a wider walkway within their stores, making walking and shopping a pleasant experience. Not only that, they have a wider product offering.

Sheng Siong on the other hand, only have stores in the heartlands (a Singaporean term denoting away from the city centre but in areas populated mostly by public housing), close to the homes of the average masses and below. In land scarce Singapore where every square metre of land is money, Sheng Siong cramped their stores to the limit, making its walkway quite squeezy and sometimes an annoyance to shop, especially during peak periods when people are doing their grocery shopping. While it definitely has almost all the products that a common household needs, its offerings is not as comprehensive as the other supermarket chains.

One good example would be ham. NTUC Fairprice for example, would have a delicatessen area selling things like honey baked ham, apple cider glazed ham and hams of different flavours which they cut for you on the spot. However, Sheng Siong only has pre-packed chicken ham. No pork at all as Muslim customers will not be able to buy. In essence, while Sheng Siong do have a small dedicated pork and alcohol section, most of its offerings are geared towards an ‘everybody can buy’ segment, thus optimising cost efficiency and economies of scale. Cost savings are then passed down to customers.

Outlets

While the number of stores opened is not an absolute indicator of market share, it is a strong gauge of relative strength compared to its competitors. We check out the number of stores, big or small, that the major supermarket chains in Singapore have today.

Supermarket Number of Stores
NTUC FairPrice 230
Sheng Siong 70
Giant 66
Cold Storage 50

NTUC FairPrice is the faraway number 1 of the supermarket chains in Singapore, but do take note that NTUC FairPrice is opened by the government for the people. Hence the financial backing and resources it has is simply different. Sheng Siong’s constant opening of new stores is a testament to its popularity and customer base. Some readers may remember that Giant and Cold Storage are under the umbrella of Dairy Farm International (Now known as DFI Retail Group), but do take note that as at 2023 DFI has sold off Giant to Macrovalue. This makes Sheng Siong the largest private capital supermarket chain in Singapore.

Profit Margin

We now look at Sheng Siong’s profit margin over the years.

Year Revenue Gross Profit Margin Net Profit Margin
2023 1367.7m 30.0% 9.80%
2022 1339.5m 29.4% 9.97%
2021 1369.8m 28.7% 9.72%
2020 1394.0m 27.4% 9.98%
2019 991.3m 26.9% 7.65%

We can see that over the years since 2019, the revenue and profit margins has been fairly consistent and relatively high. This also shows the profitability of the supermarket business due to its inelastic demand. I am unable to find comparable data for Giant and Cold Storage, but if we look at the biggest supermarkets in the world such as Walmart and Costco, their net profit margins usually did not exceed 3%, which is far behind Sheng Siong’s profit margin.

Another good thing is, Sheng Siong pays out about 70% of their net income into dividends to its shareholders. While company policy may change in the future, such profit sharing scheme is attractive to investors and encourages the market to invest in it, thereby raising more capital for Sheng Siong to work with. Do take note that the ultimate dividend payout share, the REITS, pay out 90% of their net income as dividends. For a supermarket to share 70% of their net income is something noteworthy.

Dividend Payout

Over the past 3 years the dividend yields of Sheng Siong has been at the 4% level. While 4% is significantly behind dividend stocks such as banks and even further away from REITS, considering that Sheng Siong is still growing and has plans to expand, 4% dividend yield for holding a stock with great potential is considered not bad. When we compare the 3 big banks of Singapore (DBS, UOB and OCBC) and their dividend yields to that of Sheng Siong, we have the following:

Dividend Yield
Year Sheng Siong DBS UOB OCBC
2023 4.03% 6.48% 5.23% 5.63%
2022 4.11% 4.06% 3.92% 3.94%
2021 4.01% 2.87% 3.24% 2.88%
2020 3.49% 2.87% 3.73% 3.09%
2019 2.30% 4.23% 4.09% 3.38%

This leads us to the next segment on why I would choose a supermarket over a bank during this time period.

Economical Climate

The upcoming economical climate is expected to deliver a hit to the banks and boost supermarkets. With the economy doing worse over time, people are gradually losing their jobs (do take a read on ‘How To Prepare For A Recession‘). Food is a very inelastic demand, but dining outside is an elastic one. When people have no money, they will cut down on dining outside, and turn to cooking themselves. While many do not believe that the economy will turn for the worse, my readers will know that I have not been positive on the economic outlook. On this basis, I expect more people to patronise the supermarkets, generating more revenue and profits for Sheng Siong.

As for the banks, when the Fed reduce their interest rates and when the economy turn for the worse, we should expect them to take a big hit. This is another topic which has been analysed by most people, so I will not go into that today.

Overseas Expansion

Sheng Siong has its home base in Singapore, where the priority and bulk of its business is. But Singapore is a small place, and the world out there is big. For any company with ambitions, overseas expansion is a given. Sheng Siong currently has 6 overseas branches, all in China, and specifically in the capital of Yunnan province – Kunming. As to why specifically that city, I do not know, but I can only guess they have done their homework. Their first store opened in 2017, and considering it is 2024 now, they have opened a new store at an average rate of approximately 1 per year.

As at FY 2022, their overseas branches account for 2.6% of total revenue, and year-on-year growth is actually 23.5%. With bigger opportunities in China for growth and market share, I believe that Sheng Siong’s potential is big.

Prudent Management

Sheng Siong has been somewhat expanding aggressively in Singapore in recent years. However, their move overseas have been cautious. This is a sign of good risk management. One thing to note that as at the latest AGM, investors asked what Sheng Siong what they intend to do with the $324m cash they have on hand. $324m is a lot of money, and right now, just like Warren Buffet, they are holding it in cash. Sheng Siong’s response was ‘reserving cash as its war chest for various opportunities’.

Sheng Siong most likely have identified a few opportunities and is waiting for the right time to go in, rather than just eyeing short term gains. If my assessment is correct, when the economic crisis comes next year, they would have more bargaining power in their acquisition of new businesses or the opening of new stores, as other businesses begin to suffer and cost of retail space begins to drop.

Sheng Siong has been expanding, but they do not chew off more than they could swallow. Like I always say in investment and trading, self-preservation is priority. Profits is secondary.

The Sheng Siong Show

The Sheng Show Show debuted in 2007 and has been ongoing till this day. Aired live every Saturday prime time (currently it is on 2100h), The Sheng Siong Show is a variety programme where there are talent show competitions, lucky draws, games etc where cash will be given to the winners. For buying from Sheng Siong, a customer may stand a chance to win 10x, 100x or 1000x of the value of his or her purchase.

The long-standing game show as well as its cash distributing activities is a great marketing campaign which allows itself to build goodwill and long lasting memory about the brand. For example, when we ask kids where they would like to eat for a hamburger, most will reply McDonalds instead of Burger King. The same applies to this case. If buying from Sheng Siong allows one a chance to hit a lucky draw, then why not? It comes at no additional cost, and in fact is cheaper to shop at Sheng Siong.

Conclusion

Sheng Siong is one of the rare Singaporean companies which made it. Being a Singaporean myself, it is quite disappointing to see a lack of Singaporean company making out there by themselves. A few famous Singaporean companies such as Creative and NOL has either faded out or been sold off due to various issues. Sheng Siong, while conservative in overseas expansion, has grown from humble roots. Clearly, something must have been done right internally and in their planning.

Consider Sheng Siong for the long term. Its returns may very well prove worth it.

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