1 Simple Number To Understand 3 Important Areas Of Sheng Siong Group Ltd
- Original Post from The Motley Fool Sg

Sheng Siong Group Ltd (SGX: OV8) is one of the largest supermarket chains in Singapore. The company’s network of 50 stores are primarily located at the heartlands of the island. The company was established in 1985 and listed in 2011.
In this article, I want to dig deep into Sheng Siong’ return on equity, or ROE.
The choice of ROE
Why ROE, some of you might be asking? That’s because this financial metric gives investors important insights on a company’s ability to generate a profit using the shareholders’ capital it has.
A ROE of 20% means that a company generates $0.20 in profit for every dollar of shareholders’ capital invested. In general, the higher the ROE, the more profitable a company is. A high ROE can also be a sign that a company has a high quality business.
That being said, it’s worth noting that the use of high leverage – which increases the financial risk faced by a company – can also increase a company’s ROE. So, that’s something to observe.
Calculating the ROE
The ROE can be calculated using the following formula, which is the way many investors do it:
ROE = Net Profit / Shareholder’s Equity
But, the ROE can also be calculated using a different approach shown below:
ROE = Asset Turnover x Net Profit Margin x Leverage Ratio
Doing so will reveal three important aspects about a company: how well it is managing its assets, how efficient it is at turning revenue into profit, and how much financial risk it could be taking on. For more information about this formula for ROE, you can check out the articlehere.
With that, let’s turn our attention to the ROE of Sheng Siong.
The actual numbers
The asset turnover measures the efficiency of a company in using its assets to generate revenue. It is calculated by dividing a company’s total revenue by its assets.
For Sheng Siong, it had total revenue of S$829.9 million and total assets of S$403.6 million in its fiscal year ended 31 December 2017 (FY2017). This gives an asset turnover of 2.06.
The net profit margin measures the percentage of revenue that is left as a profit after deduction of all expenses.In FY2017, Sheng Siong had a net profit margin of 8.4%, given its net profit of S$69.5 million and revenue of S$829.9 million.
Lastly, we have the leverage ratio, which shows the relationship of a company’s total assets to its equity. It is calculated by dividing total assets by equity.Ahigher ratio means that a company is funding its assets with more liabilities, hence resulting in higher risk.In FY2017, Sheng Siong had total assets and total equity of S$403.6 million and S$273.2 million respectively. This gives a leverage ratio of 1.48.
When we put all the numbers together, we arrive at an ROE of 25.4%.
$Sheng Siong(OV8.SI)

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The Better Supermarket Dividend Share: Dairy Farm International Holdings Ltd or Sheng Siong Group Ltd?
- Original Post from The Motley Fool Sg

Dairy Farm International Holdings Ltd (SGX: D01) and Sheng Siong Group Ltd (SG: OV8) are two players in Singapore’s supermarket space.

Since both Dairy Farm and Sheng Siong pay dividends, which would be a better buy for income investors? Let’s find out by comparing the dividend yields, historical growth rates in dividends, and dividend payout ratios of the two companies.

Dividend yield

Dairy Farm shares closed at US$9.15 each on Friday, giving it a trailing dividend yield of 2.3%. Meanwhile, Sheng Siong shares last exchanged hands at S$1.13 apiece on Friday, translating to a trailing dividend yield of 3.1%.

Looking at dividend yield alone, Sheng Siong appears to be the better dividend share.

Dividend growth rate

The dividend yield tells us what a company has paid in dividends over the last 12 months, but we should also be looking at how the dividends of the supermarket giants have grown over the past five years.

In 2013, Dairy Farm’s total dividend was US$0.23 per share. The dividend then fell to US$0.21 per share in 2017, which you can see in the following chart:

Source: Dairy Farm 2017 annual report

As for Sheng Siong, its dividend had climbed by 6.1% annually from S$0.026 per share in 2013 to S$0.033 per share in 2017. You can see the growth of the company’s dividend in the table below:

Source: Sheng Siong annual reports

In terms of their track record in paying a dividend, Sheng Siong has the upper hand over Dairy Farm.

Dividend payout ratio

Beyond the trailing dividend yield, we should also assess whether a company can pay the same dividend – or pay more – in the future. To do that, we can compare a company’s free cash flow to the amount in dividends that it has paid.

I prefer a company with a dividend payout ratio of less than 100%, because it leaves some room for the company to maintain its dividend even in the face of business slowdowns in the future.

In 2017, Dairy Farm’s free cash flow stood at US$392.0 million and it paid US$284.0 million in dividend for the year. This translates to a dividend/free cash flow payout ratio of 72%.

In comparison, Sheng Siong’s dividend of S$49.6 million in 2017 was 82% of its free cash flow of S$60.8 million for the year.

A Foolish takeaway

Generally, large companies could be better dividend shares than smaller peers as there may not be much growth left for the big company and thus, it can pay out most of its earnings and cash to shareholders as dividends.

Dairy Farm is seven times larger than Sheng Siong in terms of market capitalisation and is also part of the Straits Times Index (SGX: ^STI). But despite Dairy Farm’s larger size, Sheng Siong looks like the better dividend share due to its higher dividend yield and superior dividend track record.

$Sheng Siong(OV8.SI) $STI(^STI.IN) $DairyFarm USD(D01.SI) $Sheng Siong(OV8.SI)

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2 Defensive Stocks For a Market Engulfed in Trade Wars
- Original Post from The Motley Fool Sg

The 10th anniversary of the Lehman Brothers collapse is just around the corner, and some investors may be feeling pessimistic.

The US-China trade war has dominated headlines in 2018, and the Lion City has not been spared. TheStraits Times Index (SGX: ^STI) has sunk over 14% from its April 2018 peak of 3,641 points to less than 3,120 today. As stocks in Singapore and Asia continue a broad sell-off, some sectors have become a beacon of resilience. The consumer staples sector is often cited as a defensive sector.

Today,I would like to look at two Singapore companies, in particular, from the sector.

1. Old Chang Kee Ltd (SGX: 5ML)

Old Chang Kee’s curry puffs, also known as Curry’O, needs no introduction to Singaporeans.

Despite the wider market sell-off, the company’s share price has stayed remarkably consistent around an average of S$0.75 since the start of the year. Old Chang Kee’s business has held up well despite all the talk about trade wars. In its latest quarterly earnings report,the curry puff maker’s gross profit margin increased from 60.9% to 64.7%, due to improved manpower efficiency and better food cost management. Old Chang Kee’s operating cash flow more than doubled, enabling it to bring in over S$3 million in free cash flow, a sharp turnaround from the negative free cash flow that the company recorded a year ago.

Notably, Old Chang Kee reported a 55% revenue increase from its fledging catering and events business, which could represent a new area of growth. If Old Chang Kee is able to keep its manpower and food costs in check, it could be a recipe for a steady business performance .

Today, shares trade at a price-to-earnings (PE) ratioof 20, and offer a near-4% dividend yield.

2. Sheng Siong Group Ltd (SGX: OV8)

As the STI sinks to an 18-month low, Sheng Siong’s share price has rose by an impressive 23% from $0.93 at the start of the year to $1.14 today. As our fellow Fool, Jeremy, highlighted in his article, there could be good reasons to be bullish.

Sheng Siong has expanded from 44 stores in 2017 to 48 stores in the first half of 2018; A even as other retailers falter under the threat of online shipping. The supermarket chain operatorkept its gross profit margin at 27% for the first half of 2018, up from the 26% it recorded in the first half of 2017. For the first six months of the year, Sheng Siong’s operating cash flow grew 15% to $43 million, up from $38 million a year ago. The company’s balance sheet also boasts S$75 million in cash and cash equivalents with no debt.

The company has plans to increase its store count to 50 in the near term. Meanwhile, investors may want to keep tabs on the developments behind Sheng Siong’s joint-venture with Kunming Luchen Group in China. Much like to its strategy in Singapore, Sheng Siong’s first Chinese store is in a residential enclave in Kunming’s suburbs, avoiding a head-to-head clash with bigger foreign players such as Carrefour and Tesco in Kunming’s financial district.

Sheng Siong shares sport a PE ratio of 24 today, and a dividend yield of 3%.

$Old Chang Kee(5ML.SI) $Sheng Siong(OV8.SI)

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Sheng Siong Group Ltd Shares Have Gained 25% This Year, Here Are 5 Reasons Why You Should Be Bullish
- Original Post from The Motley Fool Sg

Sheng Siong Group Ltd (SG:OV8) shares has risen 25% year-to-date, scoring an impressive gain for investors.

The stock’s performance is pleasing, considering that the Straits Times Index (SGX: ^STI) is down around 6% this year.Despite the run-up in Sheng Siong’s shares, here are five reasons why I believe that the stock still has room to run.

For the first three reasons, please click here.

4. Growth in China

The group currently has one supermarket in China. Sales in that outlet have improved in the latest quarter and Sheng Siong is hoping that it can continue to grow its brand in China. Although there might be a unique set of challenges in the China market, there are certainly huge growth opportunities that if Sheng Siong can tap into, might result in the next chapter of growth for the company.

5. Robust balance sheet

Sheng Siong’s free cash flow generation was a commendable S$60.8 million, while its balance sheets remains robust flushed with S$75.7 million in cash and zero debt. The group generated S$43.3 million from operations in the first half of 2018 and spent just S$15.2 million on new investments, giving it a free cash flow of S$28.1 million in the first half of the year. The strong cash generation gives it the financial muscle to support new growth opportunities.

The Foolish bottom line

Sheng Siong’s share price has reflected the positive results from the company.

Although its share price has risen considerably over the past eight months, I believe there is upside for investors. At its current price of S$1.16, Sheng Siong shares sport a price-to-earnings multiple of around 24 and a price-to-book ratio of 6.2. At first glance, the valuation may seem expensive. But considering the company’s track record, management nous, growth prospects and financial strength, Sheng Siong shares might not really be as expensive as it looks.

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3 Reasons To Be Bullish On Sheng Siong Group Ltd
- Original Post from The Motley Fool Sg

Sheng Siong Group Ltd (SG:OV8) shares has risen 25% year-to-date, making it one of the strong gainers for the year so far.

The stock’s performance is impressive, considering that the Straits Times Index (SGX: ^STI) is down around 6% this year.Despite the run-up in Sheng Siong’s shares, here are three reasons why I believe that the stock still has room to run.

1. Increasing store count

Sheng Siong Group has been consistently expanding its store network since its initial public offering (IPO) in 2010. Sheng Siong Group has increased its store count from 22 to 48 as of June 2018.

The group opened four new stores within the first half of the year and continues to seek opportunities to expand its store count. It has also opened two new stores in July in Bukit Batok and Yishun. These new stores will start contributing to revenue in the next quarter.

2. Comparable same store sales growth

Sheng Siong continues to see positive organic growth from its existing stores. In 2018’s second quarter, comparable same store sales increased 4.2%. Meanwhile, Sheng Siong’s flagship supermarket in China increased its sales by 0.9%. The company delivered organic growth amid competition from online players such as RedMart and HonestBee. While its competitors have struggled – for instance, Cold Storage and Giant operated by Dairy Farm International Holdings Ltd (SGX: D01) – Sheng Siong’s saleshave thrived.

Together with the sales contribution from its new outlets, revenue and net profit for the first half of 2018 increased 5.4% and 6.5% respectively.

3. Management expertise in increasing profitability

Over the long term, Sheng Siong’s management has shown their ability to improve the group’s profitability. The chart below illustrates the gross profit and gross profit margin trends over the last eight quarters.

Source: Sheng Siong Group’s latest earnings presentation

As you can see, gross profit margin has widened from 25.9% to 27.3%, while gross profit has improved from S$52.5 million to S$58.1 million over this period. Management has made it a point to shift its product mix to fresh items, which command higher gross margins as compared to non-fresh products. This has worked wonders for its margins and ensures that more of the company’s sales can be filtered down to its bottom line.

With the group continuing to improving its product mix in the future, we can expect to see profit margin improvement in the next few quarters.

The Foolish bottom line

Sheng Siong’s share price has reflected the positive results from the company.

Although its share price has risen considerably over the past eight months, I believe there is upside for investors. At its current price of S$1.16, Sheng Siong shares sport a price-to-earnings multiple of around 24 and a price-to-book ratio of 6.2. At first glance, the valuation may seem expensive. But considering the company’s long-term growth prospects, clean balance sheet and healthy cash flow generation, it might not really be as expensive as it looks.

$Sheng Siong(OV8.SI)

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Shopping For Growing Dividends In Supermarkets
- Original Post from The Motley Fool Sg

I remember a time when grocery shopping was a burden. Some people might say that it still is. But it’s nothing compared to when I was a child. In those days, we went to a butcher for meats, a greengrocer for fruit and vegetables, and separate trips to different specialists for bread, rice, fish and other provisions.
But supermarkets changed the way we shop. Everything has been brought under one roof. These days, we can even do our regular shop online. Supermarkets are everywhere. They are available on our phones too. We don’t even have to get up from our sofas to fill our pantries and refrigerators, if we can’t be bothered to.
So, it is not surprising that food retailing is big business. Globally, the grocery sector was worth almost US$8 trillion in 2016. And it’s growing. It is estimated that by 2021, it could be worth almost US$11 trillion. That’s a projected growth rate of 6%, annually. It is little wonder that existing players are competing to not only retain but also increase their share of a growing pie – often putting once-loved “mom and pop” stores out of business. Convenience has its price – nice for some but not for the inconvenienced.
In Asia, grocery shopping is expected to grow steadily by about a-third from US$3 trillion in 2016 to US$4 trillion by 2021. So, steady and growing businesses, even in mature industries such as supermarkets, can be interesting investments, especially if sustainable dividends are part of the deal. But it’s important to understand what we are buying. Not all supermarkets are the same, even though many may look alike.
One measure of an efficient supermarket is how quickly it can convert inventory into sales, before it need to pay its suppliers. The shorter the cash conversion cycle, the better because nobody wants to pay for wilted spinach, over-ripe mangoes and mouldy strawberries. It can also be a sign of a grocer’s bargaining power, if it can negotiate favourable credit terms.

On this score, supermarkets fare quite well. The median cash conversion cycle is minus 15 days. Consequently, some supermarkets have sold their inventory nearly a fortnight before they must settle their bills. It also means that they don’t require much external funding because they are, in effect, being financed by their suppliers.
The ability to generate sacks of cash from every dollar of asset employed is another attractive attribute of supermarkets. It is vital that they can do this in a fast-moving consumer goods sector, such as grocery retailing, where profit margins can be wafer-thin. The average net profit margin of supermarkets over the last decade was below 2%. In other words, they make less than $2 for every $100 worth of stuff in our shopping trollies. But supermarkets compensate for the low margin with around $2 of sales on every dollar of asset employed.

That said, asset turnover varies considerably. Costco Wholesale (NASDAQ: COST), which operates a members-only, bulk-purchase, out-of-town retail model generates more than $3.50 annually on every dollar of asset employed. Singapore supermarkets Dairy Farm International (SGX: D01)and Sheng Siong (SGX: OV8)generate around $2 annually on every dollar of asset employed.

The power of a high asset turnover should not be underestimated. It can be an important driver for the returns that supermarket generate for investors. On average, supermarket investors can expect around $13 of net profit on every $100 invested, which is quite high.
On its own, a high return on equity could already be a sign of a good investment. But when the high return is coupled with a high retention ratio, then it could be even better news. After all, the retention ratio measures the proportion of profit that a company puts back into its business. So, if the money retained can generate a high return, then future pay outs could be higher.
Over the last decade, supermarkets have retained nearly 60% of their profits. That together with a return on equity of 13% implies that future dividends could grow at a rate of about 7%. And many supermarkets have. Since 2006, Dairy Farm has grown its pay out 8.7% annually, while Wal-Mart (NYSE: WMT)has increased its dividend around 7% a year. Costco Wholesale has grown its dividend 13% annually, and Japan’s Aeon(TSE: 8267)has grown its dividends 10% a year.
Currently, the median dividend yield for supermarkets is 2.5%. That might seem paltry. But with a dividend growth rate of 9%, that 2.5 cent pay out today could grow to 5 cents in eight years. That would equate to a yield on cost of 5%. And if the dividend yield should still be at 2.5% in eight years, then it could mean that the shares could have doubled in price.
A version of this article first appeared in The Business Times.
$COST $WMT $DairyFarm USD(D01.SI) $Sheng Siong(OV8.SI)

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