If there’s one industry that’s bleeding so much money right now, it’s got to be consumer retail.
It’s inevitable. COVID-19 has wrecked almost all the retailers.
Even though Singapore moved into Phase 2 of the Circuit Breaker and is preparing Phase 3, many retailers are still racking up huge losses.
But this Singapore retailer is bucking the trend. In fact, their products are a life-saver for people during this pandemic crisis.
You know what? At one point, its stock rebounded 76% from its low earlier this year.
Overall, it’s now up 49%.
Sheng Siong Group (O8V.SI) is a well-known SGD2.3 billion supermarket giant and a consistent dividend grower.
It’s the third largest supermarket chain in Singapore, behind NTUC FairPrice and Dairy Farm International.
Sheng Siong has around 64 stores located right in the heart of Singapore’s suburban towns.
Now, Sheng Siong is one of Singapore’s top local businesses, which grew from a small provision shop in Ang Mo Kio in 1985.
Today, so many people visit its supermarkets to buy their groceries.
From toiletries to potato chips and detergents, Sheng Siong even has its own household brands.
More importantly, these are considered your daily essential items.
You see, what’s interesting about Sheng Siong is this.
It’s different from other supermarkets because it only wants to be located as close to the HDBs as possible.
You’ll notice their stores are located below many HDB blocks.
This provides the best convenience for people living in the heartland areas.
What You Might Not Know About Sheng Siong’s Growth Potential
Here’s the other thing.
Not many people will know, but Sheng Siong is the first supermarket to offer both “wet and dry” shopping.
A wet market is where you get your freshest meat, fish, and other vegetables at a very cheap price.
But you can only get them during mornings.
Think about it, fewer and fewer working professionals visit wet markets these days because, in my opinion, its only convenient to buy groceries after work.
Sheng Siong aims to bring these people into its supermarkets by having a “wet market” in-house, throughout the entire day.
What this means is you can still get your freshest seafood and meat, straight after work.
This unique way of running supermarkets encourage more working professionals to visit Sheng Siong’s supermarkets.
Sheng Siong is Still Growing Even During COVID-19
And Sheng Siong has more or less avoided the pain felt by other retailers throughout the pandemic crisis.
You see. With people working from home now, household essentials get used up frequently.
Even the Singapore government came out to tell its people to relax buying these items.
This allowed Sheng Siong to be more resilient than other businesses in the retail industry.
In this recent third quarter results, with Singapore still in the midst of a pandemic crisis, Sheng Siong saw a 19% year on year “same store sales” growth, driven by the huge demand from COVID-19.
Its third quarter sales jumped an overall 29% year on year to SGD327 million.
While its net earnings hit SGD31.7 million, a 54.4% year on year increase.
In fact, since Jan 2020, Sheng Siong’s sales and net earnings grew 44.6% and 83% to SGD1.1 billion and SGD107 million year on year, respectively. Its same store sales growth was 33%.
You can say Sheng Siong’s share price not only rebounded off its lows since March this year, its business continued to grow massively.
Through this pandemic crisis, not many businesses in Singapore can say that.
While supermarkets are well-known for their high operating costs, Sheng Siong has managed its costs very well.
In fact, its return on invested capital (ROIC) has averaged around 25%, which in my opinion, is considered very capital efficient for a supermarket business.
Return on invested capital tracks how much a business generates for every dollar it puts in.
Sheng Siong generates good free cash flow (FCF). It’s FCF last year hit SGD64 million. Even during the pandemic, it has already generated FCF of SGD65 million.
Income investors are going to like this — Sheng Siong rewards its shareholders well.
Since its IPO listing in 2011, the company has paid dividends year after year. In fact, over the past five years, its dividends averaged around 3.55 cents per share, making it a solid dividend payer for investors looking to grow their wealth safely.
If you’d held its stock since IPO, your dividend yield on cost would be around 11% today.
One major concern is probably the size of the Singapore population.
While Sheng Siong is the third largest supermarket operator, its growth is limited to Singapore’s small population size.
According to management, its China expansion has yet to produce any big profits.
But, I’d say company is still a dominant retailer in Singapore.
And the company is an early adopter to e-commerce.
For instance, the company already started its online shopping platform, “allforyou.sg” since 2014 to complement its existing physical stores.
For Sheng Siong, this pandemic is a walk in the park.
Sheng Siong Looks Like a Good Investment for the Long-Term
Since IPO, the stock was up more than 200%, and at one point hitting an all-time high just a few months back.
On a longer term basis, supermarket operators are all about convenience.
Sheng Siong positions its stores well, offering huge convenience to local residences, and fiercely manages its operating costs.
What’s more important is it’s a reputable homegrown brand.
With these factors, it does seem the company can continue to grow and look to pay consistent dividends.
For me, if I’m looking to build wealth for my portfolio safely and profitably, this is one stock probably worth looking at.
Sometimes, investing can be simple.
Always here for you,
Willie Keng, CFA
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