November 21

Nov 2023: Is the Sheng Siong share price and dividend worth it?


Sheng Siong, born out of the ashes

You might never have expected this in Spanky clean, corruption-free Singapore.

But in 1978, Member of Parliament Phey Yew Kok invested $17,000 of unapproved union funds to start Savewell, a supermarket chain.

As reported in “The Price of Being Fair”, editors Sue-Ann and Shing Huei share how he was later forced on the run. He needed to raise money, fast.

And he ended up selling the Savewell store in Ang Mo Kio for $20,000 to the butcher manning the pork counter, Mr Lim.

The rest, as they say, is history. They were the ones who eventually started the Sheng Siong brand of supermarkets.

You should never, never underestimate Sheng Siong. After all, it was born from the ashes.

How Sheng Siong is ranked today in Stockopedia
How Sheng Siong is ranked today in Stockopedia

If you walk into a Sheng Siong supermarket today, you might be confused about whether it’s a wet market, or a supermarket. After all, there’s lots of fresh produce.

It is this fresh produce that has constantly pushed up its margins.

A dashboard overview of Sheng Siong’s financial metrics as of 21 Nov 2023
A dashboard overview of Sheng Siong’s financial metrics as of 21 Nov 2023

Clear market niche

You wouldn’t find Sheng Siong in the central business district, or even in most shopping malls, unlike other grocery chains like FairPrice and Cold Storage.

Yet it has today grown to become the second-largest grocery store, capturing 18 to 20 per cent of the market.

Sheng Siong is a hotshot punching above and beyond its weight
Sheng Siong is a hotshot punching above and beyond its weight

As reported in the South China Morning Post, they pitch to “budget conscious older Singaporeans who are not keen on buying pre-packaged fresh produce”.

Instead, their typical customer profile looks a little more like the one below.

They are extremely clear about where they will find these customers – in the heartlands, rather than in the malls.

They know that the older Singaporean over 55 might find it troublesome to take a bus to the mall. Thus, they set up shops in the heartlands, where you might traditionally not see other big stores.

It also ensures that they are constantly winning, rather than fighting a constant war against other retailers. For example, in a place like Nex, it would be quite usual to find both Cold Storage and FairPrice, battling it out for customers. But in the heartlands, there’s probably Sheng Siong, and your wet market.

And in terms of scale, Sheng Siong will always beat your wet market hawker.

This also means lower rental costs, as they often rent from HDB housing estates rather than shopping malls.

Isn’t that smart?

Targeting those with money

If you look at what Sheng Siong sells, they have consistently edged up their profit margins by improving their sales mix.

Look at how its profit margins have grown
Look at how its profit margins have grown

In simple terms, they are selling fresh produce, which often costs more than what you have pre-packaged.

And if you once again look at one of their customer personas – the ahma who wants to cook a nice meal for her grandchildren every Sunday, you will realise quickly how this leads to growing profits.

As Singapore ages rapidly with a more educated (and richer) workforce, they will naturally gravitate towards a more affordable (as perceived) option too.

We particularly love Sheng Siong for its continued growth in profit margins, and its ability to have high returns on capital.

(Perceived) affordability

Here’s something you may not know.

FairPrice, as reported in their book ‘The Price of Being Fair’, actually charges a uniform price across its outlets.

Sheng Siong doesn’t.

I repeat.

They don’t.

Again, you see how smart this is, when they squeeze as much dollar out of each district as possible. Some districts may be more wealthy, and more willing to pay for a certain product, and Sheng Siong then squeezes out those dollars.

It sounds evil and manipulative, but to me, it’s just smart business.

Very smart business.

Simple strategy

Sheng Siong’s strategy is simple.

Try to grow by 3 stores each year.

And as they grow that, they will eventually grow to a significant scale. With Singapore’s recent HDB projects delayed by COVID, they were unable to gain as much traction in new estates.

But with the government completing more projects over the coming years, you would expect Sheng Siong to increase their store count, and profit.

The number of stores dotted around the island in 2018
The number of stores dotted around the island in 2018

Look at their growing China operations

Whilst it seems premature to say that China is going to be a big driver of their growth, considering that it’s only 3% of their revenues (as reported in their 2023 Responses to Shareholder Questions), it is still worthy to note that they most recently, on 11 September 2023, added a new store to Kunming.

Riding the shift towards budget-consciousness

If you look at the global macro economic theme of inflation, it will weigh on how Singaporeans normally spend. They might be keener to get more bang for their buck, compared to spending more on what they deem as frivolous.

That’s why we believe Sheng Siong will continue to do well.

Tell me what you think in the comments below.



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