1 Simple Number To Understand 3 Important Areas Of Sheng Siong Group Ltd

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)

### Recommended & Related Posts

Shopping For Growing Dividends In Supermarkets

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.
\$COST \$WMT \$DairyFarm USD(D01.SI) \$Sheng Siong(OV8.SI)

Sheng Siong Group Ltd’s Latest Earnings: What Investors Should Know

Sheng Siong Group Ltd (SGX: OV8) is a homegrown supermarket chain with 50 outlets located all over Singapore. Its outlets are primarily located in the heartlands of our country, providing customers with both “wet and dry” shopping options. This includes a wide assortment of live, fresh and chilled produce to general merchandise such as essential household products. The company recently expanded into China.
Yesterday, Sheng Siong released its financial results for the second quarter ended 30 June 2018 (2Q2018).
Revenue for the reporting period grew by 5.7% year-on-year to S\$213.0 million, mainly due to contribution from new stores and comparable same-store sales. The following shows the breakdown of revenue growth in 2Q2018, as compared to 1Q2018 and 2Q2017:Source: Sheng Siong Group Ltd’s 2Q2018 earnings presentation
It is encouraging to see comparable same-store sales holding up well despite competition from online supermarkets.
Gross profit rose 8.7% to S\$58.1 million in 2Q2018, resulting in gross profit margin improving to 27.3% from 26.8% a year ago. The rise in gross profit margin was mostly due to lower input cost and better sales mix of higher-gross-margin fresh versus non-fresh produce. The input cost was lower because of higher suppliers’ rebates.
Net profit increased from S\$16.1 million to S\$17.1 million, a growth of 6.4% year-on-year. The growth was primarly due to “higher gross profit arising from growth in revenue and improved gross margin, which was partially offset by a lower other income and higher operating expenses”. Net profit margin was flat at 8%.
On a half-year basis, sales increased by 5.4% to S\$441.3 million while net profit grew 6.5% to S\$35.4 million.
Sheng Siong’s balance sheet strengthened over the quarter. As of 30 June 2018, the supermarket chain had S\$75.7 million in cash and cash equivalents with no debt. In comparison, its cash position stood at S\$73.4 million at the end of last year.
Cash flow from operations for 2Q2018 declined by 3.2% year-on-year to S\$29.2 million. With a capital expenditure of S\$5.9 million, free cash flow for the reporting period came in at S\$23.2 million, down from S\$28.9 million one year ago. On a half-year basis, free cash flow tumbled 16.7% to S\$28.2 million. S\$15.2 million was spent on capital expenditure for the six-month period, with S\$5.3 million used for the extension of Sheng Siong’s warehouse and S\$1.7 million for the China supermarket.
Dividend per share for 2Q2018 increased by 6.5% to 1.65 Singapore cents, from 1.55 Singapore cents last year.
As for its outlook, Sheng Siong said:
“Competition in the supermarket industry is expected to remain keen. The recovery in demand could become uncertain or may remain subdued if the local economic conditions deteriorate.”
“The Group is still looking for suitable retail space in areas where it does not have a presence. However, competition for new HDB shops is still keen and looking for suitable retail space or successfully bidding for new HDB shops may be challenging.”
\$Sheng Siong(OV8.SI) \$Sheng Siong(OV8.SI)

3 Small-Cap Consumer Stocks with the Highest Dividend Yields

Recently, the Singapore Exchange released a report highlighting the best-performing small-cap consumer stocks. These companies have a market capitalisation of between S\$100 million and slightly above S\$2 billion.
Year-to-date, the top five performers among the 50 small-cap consumer stocks were Japfa Ltd (SGX: UD2), BreadTalk Group Limited (SGX: CTN), JB Foods Ltd (SGX: BEW), Sheng Siong Group Ltd (SGX: OV8), and Cortina Holdings Limited (SGX: C41). Their total returns (includes capital gains and dividends) were 33.7%, 31.4%, 27.8%, 19.9% and 18.6%, respectively.
What also caught my eye was that the top 10 best-performing small-cap consumer stocks have an average dividend yield of 3.6%. The yield is better than the stock market’s in general. With that, let’s look at the top three stocks that have a higher-than-average dividend yield (all data as of 20 July 2018).
Clinching the top spot is Overseas Education Ltd (SGX: RQ1), with a dividend yield of 7.6%. Overseas Education is the holding company of Overseas Family School Limited, which operates Overseas Family School (OFS). OFS is a leading private foreign system school here.
For the first quarter ended 31 March 2018, Overseas Education saw its total revenue dip 4.4% year-on-year to S\$21.2 million on the back of “lower student enrolments compared to the same period last year”. However, its net profit grew 25% to S\$1.9 million, mainly due to a 9.2% decrease in operating expenses.
On a longer term, the firm’s total revenue had fallen from S\$103.1 million for the financial year ended 31 December 2013 (FY2013) to S\$86.6 million in FY2017. Its bottom line had also taken a hit, tumbling from S\$22.6 million in FY2013 to S\$6 million in FY2017.
The following shows the revenue and net profit trend from FY2013 to FY2017:Source: Overseas Education Ltd 2017 annual report
Challenger Technologies Limited (SGX: 573), an operator of IT retail stores and an online IT marketplace, comes in second. Challenger has a dividend yield of 6.9%, and its dividend is sustainable, in my opinion.
From 2013 to 2017 (the company has a 31 December year-end), Challenger’s revenue and net profit had declined by 4.4% and 1.3% on an annualised basis, respectively.
However, on a closer look, its 2017 net profit had improved by 35% year-on-year to S\$16.3 million. Together with the higher bottom line, Challenger’s net profit margin had also gone up from 3.6% in 2016 to 5% in 2017. In its 2017 earnings release, the company’s chief executive, Loo Leong Thye, explained the reasons behind the better profitability:
“We used 2017 to spring-clean our operations, close non-performing outlets, as well as review and manage our costs of operations. These have yielded a positive outcome, driving higher profit in 2017.”
Investors would be hoping that the momentum continues and that the company’s earnings go back to the heyday.
Last but not the least, taking the final spot is Tan Chong International Ltd (SGX: T15), with a dividend yield of 4%. Tan Chong is involved in the distribution of motor vehicles, heavy commercial vehicle and industrial equipment. It is also engaged in property rental.
For the full year ended 31 December 2017, revenue dipped 5.3% to HK\$15.9 billion mainly due to a decline in sales volume for its motor vehicle distribution and retail division. However, net profit more than doubled from HK\$191.1 million to HK\$501.9 million, largely on the back of higher gross profit and share of profits from associates.
\$Challenger(573.SI) \$Cortina(C41.SI) \$Sheng Siong(OV8.SI) \$Overseas Edu(RQ1.SI) \$Japfa(UD2.SI)

Grocery Shopping at Dairy Farm International Holdings Ltd and Sheng Siong Group Ltd

Almost weekly, many of us make a trip to the nearby supermarket to get our necessities for the week or the week after. During those trips, we most likely would be thinking about the things we need to stock up on. How often, though, do we stop and think if the supermarket we visit is a viable business that we might want to own stocks in?
In Singapore, there are two supermarket companies listed on our stock exchange. Let’s take a quick dive into them to learn more about their businesses, their latest financial performances and what the future holds in store for them.
Dairy Farm International Holdings Ltd (SGX: D01)
Dairy Farm is a pan-Asian retail group with more than 7,000 outlets (including associates and joint ventures) across 11 Asian countries and territories. It operates supermarkets, hypermarkets, convenience stores, health and beauty stores, and home furnishings stores under various brands.
In Singapore, it runs supermarkets and hypermarkets such as Cold Storage, Giant, MarketPlace, and Jasons.
For the financial year ended 31 December 2017, supermarkets and hypermarkets sales came in at US\$6.0 billion, falling 3% year-on-year in constant currency terms. Meanwhile, operating profit tumbled 30% to US\$135 million. Dairy Farm commented that the Southeast Asian businesses suffered from “intensifying competition and changes in consumer behaviour with lower sales and significantly reduced profits”.
On a group level, total sales rose 7% to US\$21.8 billion while underlying profit attributable to shareholders declined by 13% to S\$403 million.
In Dairy Farm’s 2017 annual report, chairman Ben Keswick said the following regarding the group’s prospects:
“After a disappointing year in 2017 for our Food businesses in Southeast Asia, actions are being taken to improve their long-term performance. All of the Group’s other formats and markets are trading well and growth opportunities are being pursued, in mainland China and elsewhere. With our established market positions in a range of retail formats, our strong balance sheet and our determination to adapt to meet our customers’ needs, we are well placed to benefit from the growth prospects in the region.”
Sheng Siong Group Ltd (SGX: OV8)
Sheng Siong is a homegrown supermarket chain with 47 outlets located all over Singapore. Its outlets are primarily located in the heartlands of our city-state, providing customers with both “wet and dry” shopping options. This includes a wide assortment of live, fresh and chilled produce to general merchandise such as essential household products.
In 2017 (the firm has a 31 December year-end as well), Sheng Siong had a better financial performance than Dairy Farm did.
Revenue climbed from S\$796.7 million to S\$829.9 million, up 4.2% year-on-year. Revenue growth was due to contributions from new stores and higher same-store sales, partially offset by the temporary closure of the Loyang Point store and permanent shuttering of The Verge and Woodlands Block 6A stores.
Net profit grew 10%, from S\$62.7 million a year ago to S\$69.5 million in 2017.
Looking ahead, Sheng Siong said that competition in the supermarket industry in Singapore is “expected to remain keen among the traditional brick and mortar as well as the new and existing e-commerce players”. It added that “grocery retailing in physical stores will still be relevant, but could be complemented by online offerings”, and that it “will continue to source or bid to lease new stores”.
Sheng Siong’s warehouse expansion is on track and should be completed before the end of this year, adding another estimated 97,000 square feet of storage area.
In China, a new supermarket opened in November 2017 but not entirely as a number of the shops in the new shopping mall where the supermarket is located in have yet to open.
\$Sheng Siong(OV8.SI) \$DairyFarm USD(D01.SI) \$Sheng Siong(OV8.SI)

Sheng Siong Group Ltd’s Commendable Track Record Of Growth

Sheng Siong Group Ltd (SGX: OV8) is one of the largest supermarket chains in Singapore. The company’s network of 48 stores are primarily located in the heartlands of our island nation. The company was established in 1985 and listed in 2011.
One of the things that I like to do when analysing a company is to study its track record. The past is no guarantee of the future. But historical information is the most reliable thing that we can use as our basis to forecast what lies ahead.
And this brings me to the main purpose of this article, which is to have a quick overview of Sheng Siong’s historical business growth.
The table below is a snapshot of Sheng Siong’s important financial metrics from 2012 to 2017:

Source: Sheng Siong’s annual reports
Here are a few points worth noting:
1. Firstly, the company’s revenue increased from S\$637.3 million in 2012 to S\$829.9 million in 2017. This translates to a CAGR (compound average growth rate) of a respectable 5.4%.
2. Secondly, the CAGR of its gross profit for the same period has been stronger, at 9.1%, with the increase from S\$140.9 million to S\$217.4 million.
3. Thirdly, Sheng Siong’s gross profit increased at a faster pace compared to revenue as a result of the expansion of the company’s gross profit margin from 22.1% in 2012 to 26.2% in 2017. This indicates that Sheng Siong has improved its cost management over the years.
4. Lastly, the company’s EPS (earnings per share) has increased at 9.0% annually during the period under observation, climbing from 3.01 cents to 4.64 cents.
A Foolish conclusion
In sum, I think Sheng Siong has delivered a commendable track record of business growth over the past few years. The company has managed to grow its revenue, gross profit, and earnings per share at decent rates.
\$Sheng Siong(OV8.SI) \$Sheng Siong(OV8.SI)