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)

Read more
1 like

Recommended & Related Posts

1 Lesson We Can Learn from Bitcoin’s Crash
- Original Post from The Motley Fool Sg

One year ago, on 17 December 2017, the price of one bitcoin reached a record high of US$19,783.06, according to Coindesk’s price index. At that price, bitcoin would have been worth many times that of a number of listed companies in Singapore.

Fast forward to today, and the cryptocurrency’s price has plunged by 82%. In comparison, the Straits Times Index (SGX: ^STI) has fallen by just slightly less than 9%. What is the one lesson all of us can learn from the precipitous fall of bitcoin?

Going to the root

“An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”

– Benjamin Graham

When we invest in shares, we are looking at a company’s current and future earnings and dividends, and determining whether it makes sense to pay the current market price for the company. In other words, what we are essentially doing is finding out a company’s current worth given its stream of cash flow.

Let’s take the supermarket chainSheng Siong Group Ltd (SGX: OV8) as an example. The company’s net profit has increased from S$38.9 million in 2013 to S$69.5 million in 2017. Likewise, its cash flow from operations has climbed from S$45.1 million to S$78.5 million over the same period. To determine if Sheng Siong’s share price of S$1.06 right now makesit a great buy, we can discount the sum of its future earnings or cash flows to the present by using a specified rate of return.

Determining value

A stock is able to produce a stream of income, such as earnings or dividends, over its productive life. Using that stream, we are able to analyse the stock’s value and come to a rational decision on whether to invest in the stock.

However, in the case of bitcoin, we are unable to determine its intrinsic value since it doesn’t produce any cash flow.

Warren Buffett said the following about bitcoin in late 2017:

“You can’t value bitcoin because it’s not a value-producing asset… it’s a real bubble in that sort of thing.”

Stephen Roach, a widely-regarded economist, mentioned the following in an interview with CNBC in late 2017 as well:

“Given the lack of intrinsic, underlying economic value to the concept… This is a dangerous speculative bubble by any shadow or stretch of the imagination.”

We can see that that the luminaries made the right decisions some time back, solely based on rationality.

The Foolish takeaway

Bitcoin was the talk of the town in 2017, and many were buying into the craze back then. One year on, the price of bitcoin has come shattering down to Earth. We can learn from this episode that before we make any investment, be it in shares, precious metal, wine or bitcoin, we must determine whether the asset can produce value over its lifetime. If it’s able to produce value and its current price is lower than its value, only then should we invest in it.

$STI(^STI.IN) $Sheng Siong(OV8.SI)

Read more
1 Reason Why I’m Staying Away From Sheng Siong Group Ltd Shares, For Now
- Original Post from The Motley Fool Sg

Sheng Siong Group Ltd (SGX: OV8)is a homegrown supermarket chain with 54 outlets in Singapore. The company’s outlets are primarily located in the heartlands of our country, providing customers with both “wet” and “dry” shopping options. Sheng Siong recently expanded into China as well.

Sheng Siong’s strengths

The company is well-known for selling fresh produce and goods at competitive prices; this trait gives it quick brand-name-recall among local consumers. Furthermore, Sheng Siong has managed to increase its gross profit margin and net profit margin over the years, which could point to a durable competitive advantage. The following chart shows Sheng Siong’s gross profit margins from 2013 to 2017:

Source: Sheng Siong 2017 annual report

Sheng Siong’s gross profit margin has grown from 23.0% in 2013 to 26.2% in 2017. Likewise, its net profit margin has climbed from 5.7% to 8.4% during the same time frame.

The company could also have growth potential in China with its new supermarket in the country. During 2018’s third-quarter, the China supermarket contributed to 1.2% of Sheng Siong’s total revenue growth of 8%. The company’s growth strategy in the Middle Kingdom is to nurture the growth of its new supermarket and build the Sheng Siongbrand in the country.

Expensive goods

Despite Sheng Siong’s merits, I’m staying away from its shares for now due to its high valuation.

At its closing share price of S$1.06 on 14 November, Sheng Siong had a trailing price-to-earnings (PE) ratio of 23 and a dividend yield of 3.2%. Its EV/EBITDA (enterprise value to earnings before interest, tax, depreciation and amortisation) ratio was 15.

In my opinion, the PE and EV/EBITDA ratios are too high.

For perspective, the SPDR STI ETF (SGX: ES3) had a PE ratio of 10.8 on the same day with a higher dividend yield of 3.7%. The SPDR STI ETF is an exchange-traded fund (ETF) which tracks the fundamentals of Singapore’s stock market barometer, the Straits Times Index (SGX: ^STI).

I think the high valuation for Sheng Siong will be warranted only if it has phenomenal growth in its core market in Singapore. However, that is not the case, in my view. There is keen competition in the supermarket space, especially with online supermarkets such as RedMart and HonestBee. I also think that there will be a saturation point in terms of store-growth in Singapore for Sheng Siong, due to our city-state’s limited size.

The supermarket in China just started operations in November 2017. It remains to be seen if Sheng Siong can gain a competitive advantage in China. As such, I would be watching to see if the new supermarket can sustainably grow its revenue and earnings in the coming years.

The Foolish takeaway

I’m staying away from Sheng Siong’s shares due to its high valuation, even though the company’s underlying business is strong. If the valuation comes down to a more palatable level for me, I might consider the company for my portfolio.But for now, I’m sitting on the sidelines.

$Sheng Siong(OV8.SI)

Read more
3 Top Dividend-Yielding Billionaire Shares That Had Outstanding Total Returns
- Original Post from The Motley Fool Sg

In a recent report by the Singapore Exchange, the 10 best-performing billionaire shares, which have market capitalisations of more than S$1 billion, were revealed. The 10 companies have a focus on providing goods and services to consumers. They have averaged a total return (which includes capital gains and dividends) of 29% for 2018 year-to-date.

Of those 10 stocks, I picked the top three companies with the highest dividend yields, which have more than the average yield of 2.5% (data as of 9 November 2018).

Company #1

The first company on the list with a dividend yield of 5.4% is M1 Ltd (SGX: B2F), one of the three major telcos in Singapore.

Year-to-date, the company’s total return was 26.7%. Part of the share price growth was driven by news that Keppel Corporation Limited (SGX: BN4) and Singapore Press Holdings Limited (SGX: T39) wish to gain majority control of the telco.

For the third quarter of 2018, M1’s revenue rose 10.1% to S$274.6 million, but net profit tumbled 5.3% to S$34.4 million. To know more about M1’s latest earnings, you can head here.

M1 had a market capitalisation of S$1.95 billion on 9 November 2018.

Company #2

Sporting a dividend yield of 4.7%, ComfortDelGro Corporation Ltd (SGX: C52) is the next company on the list. The land transport giant, with a market capitalisation of S$4.72 billion, produced a total year-to-date return of 15.3%.

ComfortDelGro had a mixed 2018 third-quarter as well. Even though revenue climbed 8.5% to S$967.9 million, net profit slipped 2% to S$78.5 million. Summarising the latest financial performance, ComfortDelGro’s managing director and group chief executive, Yang Ban Seng, said:

“Organically, our Singapore and overseas public transport business continued to do well with higher mileages operated. The Singapore Taxi Business has shown slight improvement compared to the last quarter. Our inorganic growth has been strong. The acquisitions earlier in the year have started to contribute. For this year, we have invested over $450 million in new acquisitions in Singapore, Australia, the United Kingdom and China. We will continue to be on the look out for opportunities to grow the business.”

In a bid to grow its business further, ComfortDelGro is setting up a US$100 million corporate venture capital fund, called ComfortDelGro Capital Partners, to focus on incubation and investments in mobility technologies and solutions.

Company #3

Last but not the least, Sheng Siong Group Ltd (SGX: OV8) slots into the third spot with a yield of 3.2% and a total year-to-date return of 18.4%. The supermarket chain had a market capitalisation of S$1.59 billion, as of 9 November 2018.

In a similar fate to the two companies above, Sheng Siong’s latest quarter revenue rose, but net profit fell. The former went up by 8% to S$227.9 million while the latter went down by 9.9% to S$17.7 million.

The company warned that competition in the supermarket industry is expected to remain intense, especially with a higher number of new HDB shops and large online retailers. It added that it would nurture the growth of new stores opened here in October and early November this year.

The Foolish takeaway

Stocks with high dividend yields may not always be excellent investments. A case in point would be Asian Pay Television Trust (SGX: S7OU) with its massive distribution cut yesterday. As Foolish investors, we have to look for companies that can grow, or at least sustain, their dividends year-after-year. The list above can serve as a starting point for your further research.

$M1(B2F.SI) $Keppel Corp(BN4.SI) $ComfortDelGro(C52.SI) $Sheng Siong(OV8.SI) $Asian Pay Tv Tr(S7OU.SI) $SPH(T39.SI)

Read more
Sheng Siong Group Ltd’s 2018 Third-Quarter Earnings: Revenue Rises But Net Profit Tumbles
- Original Post from The Motley Fool Sg

Sheng Siong Group Ltd (SGX: OV8) is a homegrown supermarket chain with 54 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. Sheng Siong recently expanded into China as well.

Yesterday, Sheng Siong announced its financial results for the third quarter ended 30 September 2018.

Financial highlights

Here are some of the key financials from the supermarket chain for the latest quarter:

1) Revenue increased by 8% year-on-year to S$227.9 million, mainly due to new store openings. Of the 8% increase, 10.6% was contributed by new stores, 0.2% was due to comparable same-store sales growth, 1.2% was attributed to the store in China and a negative0% was due to the permanent closure of stores at The Verge and Woodlands Block 6A. The former was closed in June 2017 while the latter shuttered in November 2017.For context, in the second quarter of 2018, comparable same-store sales grew by 4.2% while that in the third quarter of 2017 rose by 1.7%.

2) Gross profit improved 10.7% to S$60.3 million while gross profit margin rose from 26.1% to 26.5%.

3) Net profit fell 9.9% to S$17.7 million, with the store in China recording a loss of S$0.4 million. Excluding the tax refund of S$2.2 million in the third quarter of 2017, net profit would have grown by 1.5% in the latest quarter.

4) Consequently, earnings per share tumbled 9.2%, from 1.31 cents to 1.19 cents.

5) As of 30 September 2018, Sheng Siong had S$67.2 million in cash and cash equivalents, and no debt. In comparison, the company had a higher net cash position of S$73.4 million at the end of last year.

6) Free cash flow for the reporting quarter went south by 11.8% to S$16.2 million.

Looking ahead

As for its plans in the coming years, Lim Hock Chee, chief executive of Sheng Siong, commented:

“We are pleased that subsequent to 3Q2018, we have opened two more new stores at Junction 10, 1 Woodlands Road and Block 573 Woodlands with retail areas of 20,370 sq ft and 10,370 sq ft respectively. Another store at Block 451 Bukit Batok with an area of 6,880 sq ft will open in November 2018, bringing our total store count to 54, excluding the store in China.

Going ahead, we remain committed to our store expansion plans in Singapore, especially in areas where we do not have a presence. In addition, we will be nurturing the growth of our new stores in Singapore and China. We will focus on improving the gross margin and cost efficiency, thereby lowering operating expenses as a percentage revenue.”

The Foolish takeaway

Despite competition from both the online and offline space, Sheng Siong managed to deliver higher revenue and adjusted net profit for the quarter. Revenue from the store in China has been growing steadily since operating in November 2017. The store is EBITDA (earnings before interest, tax, depreciation and amortisation) positive, even though it saw a loss during the quarter. Going forward, I would be keeping an eye on the comparable same-store sales, which only grew by 0.2% in the reporting quarter.

As of the time of writing, Sheng Siong shares are changing hands at S$1.06 each, giving a trailing price-to-earnings ratio of 22.7 and a dividend yield of 3.2%.

$Sheng Siong(OV8.SI) $Sheng Siong(OV8.SI)

Read more
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)

Read more

There are more for you ...

View more and participate in our discussion now. It's FREE.

Creating an account means you’re okay with InvestingNote's Terms and Conditions