Right now Sheng Siong (OV8/ SHEN.SI) share price is at SGD$1.48
At this price, Sheng Siong is valued at price-to-book ratio of 5.661 and a trailing distribution yield of 4.122%
With the current valuation, would I invest in it?
Let’s go through it using my 7 steps guide and see how I pick the Best Singapore Dividend Stocks.
Recommended Read: Characteristics of a Good Dividend Paying Stock
Sheng Siong Group Ltd. is one of the largest groceries chain in Singapore. Founded in 2010, the Group comprises of SS Supermarket, CMM Marketing and SS Malaysia.
The group provide both “wet and dry” shopping options, including live, fresh and chilled produce, such as seafood, meat and vegetables, processed, packaged and/or preserved food products as well as general merchandise and essential household products.
- Groceries Chain
- Household brands
|Sheng Siong’s Housebrand|
|Bake For You|
|Royal Golden Grain|
|Royal Golden Malt|
- Distribution network
Sheng Siong is currently operating in 59 locations across Singapore.
Recommended Read: Good dividend stocks in Singapore I may want to own.
Check for: Less than 0.5 D/E Ratio
Looking at the latest annual report for Year 2020.
Singtel have a D/E ratio of 0.203.
This is lower than 0.5 D/E Ratio.
With a D/E ratio of less than 0.5, this means, the company is not overleverage. The operations and growth of the company is finance by it’s shareholder’s equity which is a good sign of a healthy balance sheet.
The company have an low risk of the company defaulting.
The company is having a D/E of less than 0.5 which is pretty awesome.
My Opinion: Pass
Check for: More than 2.5% dividend yield
For Year 2021, Sheng Siong pay a dividend of 0.061 which translate to a dividend yield of 4.122%.
This is higher than my target of 2.5%.
Looking at the distribution history, there is a gradual increase in the amount of dividend distributed year-on-year.
Year 2020 and 2021 are both years of the pandemic. Although supermarkets do well during these times, the company is withholding most of the free-cash for any unprecedent times.
It is higher than the risk free rate (CPF OA Account) of 2.5%. I will give it a verdict of pass.
My Opinion: Pass
Dividend Payout Ratio
Check for: Less than 80% dividend payout ratio
At the time of writing, a quick check using some of the online tools shows that the dividend payout ratio for Sheng Siong is 75.32% which is within my threshold of 80%.
A payout ratio of less than 100% means the company is using it’s earnings to pay its shareholder in dividend. With a pay-out ratio of less than 80% means, the company is able to keep some cash in case of need in the future.
I personally think a payout ratio of around 50% is the sweet spot for a great dividend stock.
My Opinion: Pass
EPS Growth Rate
Check for: More than 10% EPS Growth
Here, we will like to see an EPS growth of 5 years or more.
Quick check on the 2020 annual report.
The EPS 5 year growth rate is an amazing 19.546%! Nice!
Yup, the EPS growth for Sheng Siong is more than 10%!
They are growing our shareholder’s money at a pretty amazing rate for the past 5 years.
My Opinion: Pass
High Return Of Equity (ROE)
Check for: More than 10% ROE
ROE is one of the most important ratio used by Warren Buffett.
Return of Equity is used to measure the management’s ability to make the best bang for your buck. In other words, it is used to measure the quality of the management. The higher the ROE, the better for the shareholders.
At the time of writing, the ROE of Sheng Siong have an ROE of 40.4%!
Any ROE of more than 20% is very high.
A deep dive into the history shows that Sheng Siong have been getting >20% ROE since 2017.
|Return on Equity (ROE)||26.7%||25.2%||25.1%||40.4%|
This is a good sign of a company with a good management.
My Opinion: Pass
Check for: P/B Ratio of less than 1.8
Sheng Siong is a multi-million dollar blue chip company who just got lots of attention due to its bonus payout in 2020 with up to 16 months.
Therefore, the price of the stock will most likely be traded above it’s valuation (book value).
At the time of writing, the current P/B ratio of Sheng Siong is 5.661.
Meaning, it is trading at over 6 times its book value. Or 4.661% premium to its book value.
My Opinion: Fail
Check for: Not just having a MOAT, but a great MOAT
Sheng Siong is one of the major grocery chain in Singapore.
In Singapore, there is 3 major players that dominates the supermarket landscape
- NTUC: Operates all NTUC FairPrice chains
- Dairy Farm International Holdings (DFI): Operates Cold Storage and Giant chains of supermarkets
- Sheng Siong: Operates all Sheng Siong chains of supermarkets
As the smallest player of the big 3, Sheng Siong shows to be doing quite well.
Compared to its competitor, Sheng Siong have its products priced amount the lowest and is comparable to NTUC. Quality wise, Sheng Siong have high quality products that is comparable to Cold Storage.
The downside, per my wife’s experience, the online platform which Sheng Siong uses, “AllForYou” is the least user friendly out of the 3. (Sorry Sheng Siong…)
As we are moving away from retail and towards online shopping. I personally think, having a great online shopping experience is important.
According to Phil’s book Rule#1 investing, Sheng Siong have the “Price MOAT” which is similar to Walmart (Before Amazon comes into the picture).
Price MOAT is a very attractive MOAT to have in any company, it prevents small payers from coming into the industry.
My Opinion: Partially Pass
Sheng Siong have a final score of 7/10.
With a high dividend yield which growths year-on-year, and payout ratio of less than 80%, I think this can be a great dividend stock.
But on the flipside, Sheng Siong is currently overpriced with high P/B ratio.
Therefore, I will keep Sheng Siong on my watchlist.
Below is how I’ve scored Sheng Siong.
|My Sheng Siong’s Score Card|
|Debt to Equity Ratio||High (2)||2|
|Dividend Yield||Low (1)||1|
|Dividend payout ratio||Low (1)||1|
|EPS Growth Rate||Low (1)||1|
|High Return of Equity (ROE)||Low (1)||1|
|Acceptable Price-to-Book Ratio||High (2)||0|
Why do I find some metrics more important than others?
There are 3 attributes in a company that Warren Buffett wants in particular:
- Wonderful Company at Fair Price
- Stable & Understandable Business
- Vigilant Leadership on Risk Management
This translate to the following 3 metrics I have in my list:
Thus, for these metrics, I will put a higher weightage in my scoring.
Will you invest in this stock now?
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