Should I Buy Sheng Siong Stock (SGX: OV8) Right Now?
Disclaimer: I may or may not have invest in any of them, what’s listed here is only for entertainment purpose only and it should never be used as any form of investment advice. This is my diary on my stock analysis, although I’ve been investing for +15 years reading +50 investment related books, I am still learning. I wish to share what I know and what I learn during my investment journey so you may learn from my success and mistakes as well!
Right now Sheng Siong (OV8/ SHEN.SI) share price is at SGD$1.59
At this price, Sheng Siong has a PE Ratio of 17.7 and a trailing distribution yield of 4.006%
With the current valuation, would I invest in it?
Let’s go through it using my 7 steps guide to invest in Singapore and create a dividend portfolio.
As a quick recap, here are the 7 steps I use to pick the best Singapore Dividend Stocks.
- Debt to Equity Ratio
- Dividend Yield
- Dividend payout ratio
- EPS Growth Rate
- Return of Equity (ROE)
- Price-to-Book Ratio
- MOAT
Recommended Read: Characteristics of a Good Dividend Paying Stock
Business Background
Sheng Siong Group Ltd. is one of the largest groceries chains in Singapore. Founded in 2010, the Group comprises SS Supermarket, CMM Marketing, and SS Malaysia.
The group provides 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.
Business:
- Groceries Chain
- Household brands
Sheng Siong’s Housebrand
- Home Niks
- Softess
- Happy Family
- Tasty Bites
- Heritage Farm
- Bake For You
- Royal Golden Grain
- Royal Golden Malt
Support Facilities:
- Distribution network
- Food-processing
- Warehousing
Sheng Siong is currently operating in 59 locations across Singapore.
Recommended Read: Good dividend stocks in Singapore I may want to own.
DEBT TO EQUITY RATIO
Check for: Less than 0.5 D/E Ratio
Looking at the current D/E.
Sheng Siong have a D/E ratio of 0.118.
This is lower than the 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 are financed by its shareholder’s equity which is a good sign of a healthy balance sheet.
The company has a 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
Dividend Yield
Check for: More than a 2.5% dividend yield
For the Year 2022, Sheng Siong pays a dividend of 0.063 which translates to a dividend yield of 4.006%.
This is higher than my target of 2.5%.
Looking at the distribution history, there is a gradual increase in the number of dividends distributed year-on-year.
| Year | Dividend in SGD |
|---|---|
| 2022 | 0.063 |
| 2021 | 0.061 |
| 2020 | 0.053 |
| 2019 | 0.035 |
| 2018 | 0.034 |
The year 2020, 2021, and 2022 are years of the pandemic. Although supermarkets do well during these times, the company is withholding most of the free cash for any unprecedented 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 70.86% which is within my threshold of 80%.
A payout ratio of less than 100% means the company is using its earnings to pay its shareholder in dividends. With a payout 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
Earning Per Share (EPS) is one of the most important financials when analyzing a company. A growing EPS will means that the company is making money and is taking care of its shareholders.
Here, we will like to see an EPS growth of 5 years or more.
A quick check online shows that:
The EPS 5 year growth rate is an amazing 16.219%! 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 ratios 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 33.809%!
Any ROE of more than 20% is very high.
A deep dive into the history shows that Sheng Siong has been getting >20% ROE since 2017.
| Year | Return on Equity (ROE) |
|---|---|
| 2021 | 33.8% |
| 2020 | 40.4% |
| 2019 | 25.1% |
| 2018 | 25.2% |
| 2017 | 26.7% |
This is a good sign of a company with good management.
My Opinion: Pass
PRICE-TO-BOOK RATIO
Check for: P/B Ratio of less than 1.8
Sheng Siong is a multi-million dollar blue chip company that 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 its valuation (book value).
At the time of writing, the current P/B ratio of Sheng Siong is 5.594.
Meaning, it is trading at over 5.5 times its book value. Or a 459% premium to its book value.
My Opinion: Fail
MOAT
Check for: Not just having a MOAT, but a great MOAT
Sheng Siong is one of the major grocery chains in Singapore.
In Singapore, there are 3 major players that dominate 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 has its products priced amount the lowest and is comparable to NTUC. Quality-wise, Sheng Siong has high-quality products that are 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 has 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
Overall
Sheng Siong has a final score of 7/10.
With a high dividend yield that grows year-on-year and a payout ratio of less than 80%, I think this can be a great dividend stock.
But on the flip side, Sheng Siong is currently overpriced with a high P/B ratio.
Therefore, I will keep Sheng Siong on my watchlist.
Below is how I’ve scored Sheng Siong.
| Metrics | Weightage | Score |
|---|---|---|
| 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 on Equity (ROE) | Low (1) | 1 |
| Acceptable Price-to-Book Ratio | Low (1) | 0 |
| MOAT | Very High (3) | 1 |
| Total | NA | 7 |
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 in Risk Management
This translate to the following 3 metrics I have on my list:
Thus, for these metrics, I will put a higher weightage on my scoring.
Question…
Will you invest in this stock now?
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